Student loan overpayments

Student loan overpayments
Are you due a refund?

Many have student loan repayments automatically deducted from their paychecks each month, assuming everything is in order. However, hundreds of thousands of people unknowingly overpay their student loans each year. Here’s how to determine if you’ve overpaid and how you can reclaim hundreds or even thousands of pounds.

In the previous tax year alone, over one million recent graduates overpaid their student loans, as revealed by our Freedom of Information (FOI) request. Fortunately, reclaiming these overpayments often takes just a few minutes, and this guide will show you how.

This information applies to those who started university in 1998 or later. If you began your studies before that, you likely have a different type of loan. For more information on your loan, see Student loan repayment.

Some inspiration first: ‘I reclaimed £555 in 15 minutes’

Here’s some inspiration from individuals who began repaying their student loans early and successfully managed to reclaim their overpayments.

Although the amount you can reclaim is often in the hundreds of pounds, it’s occasionally possible to recover significantly more. This was exemplified by Giro, who reached out to us in April 2024 to share her story:

“Thank you very much. I had a feeling something was off when I filed my tax returns, and reading the ExEconomics article prompted a thorough investigation to uncover what went wrong. As a result, I received £3,773 back.”

Mina added:

“After a 15-minute phone call, I managed to reclaim £555 in overpaid student loan funds, primarily due to my maternity leave. This refund is incredibly timely and much appreciated.”

The most common reasons you may have overpaid

In recent years, the Student Loans Company has implemented various measures to minimize overpayments and streamline the repayment process for students. These initiatives encompass the launch of an online repayment platform, the provision of automatic refunds, and proactive outreach to individuals who may have overpaid.

Despite these improvements reducing the incidence of overpayments, over a million former students still ended up overpaying in the 2022/23 tax year, making it worthwhile for all to verify their repayment status.

There are four main reasons you might have overpaid your student loan. Here we take you through them, one by one:

Reason 1. You repaid the loan in some MONTHS despite not earning enough in the tax YEAR

You are not required to start repaying your student loan until your income surpasses a certain annual threshold. However, in reality, repayments are deducted from your paycheck on a monthly basis.

As a result, if your income fluctuates over the year, there could be a month where you earn above the threshold even if your overall annual income stays below it. This scenario is particularly common if:

• You only work for part of the year.
• You take on extra shifts in a specific month.
• You move to a higher or lower paid role.
• You earn a bonus which puts you over the threshold for that month only.
• You go on maternity or paternity leave for part of the year.

Understanding Student Loan Repayment Thresholds

The repayment thresholds for student loans vary based on when you began your course and your pre-university residence. You are required to repay 9% of your income that exceeds the set threshold.

Location-Based Repayment Criteria

It’s important to recognize that your repayment plan is determined by where you lived before attending university, not where you studied. For instance, if you resided in Lancaster and then attended university in Edinburgh, you would be considered ‘from England’ for the purposes of your loan repayment.

Assessing Loan Repayment

A crucial consideration is whether you started repaying your loan when your annual income was below your repayment plan’s threshold.

When you make repayments through the PAYE system, your student loan contributions are deducted from your pay automatically, regardless of whether you are paid weekly, monthly, or on another schedule. This means you start repaying once your earnings exceed the prorated annual repayment threshold for that pay period. For instance, if you receive a monthly salary, you will make repayments every month your earnings surpass the monthly equivalent of the annual threshold.

However, if your total income over a tax year (from 6 April to 5 April) falls below the threshold, you are eligible to reclaim those repayments.

According to data obtained by ExEconomics through a Freedom of Information (FOI) request from the Student Loans Company (SLC), 998,476 students in the 2021/22 academic year and 833,213 students in 2022/23 repaid their loans even though their earnings did not meet the minimum threshold required for repayment.

Reason 2. You’re on the wrong student loan payment plan by default

If you are listed on an incorrect repayment plan, you might be overpaying. Freedom of Information data indicates that 168,761 students were on the wrong repayment plan during the 2021/22 financial year, with 165,106 affected in 2022/23.

Since 1998, university attendees have been assigned to Plan 1, Plan 2, or Plan 4 loans, based on their study period and location. The type of loan dictates the annual repayment amount. There are several reasons you might be on the incorrect repayment plan:

• Your employer may have wrongly assumed you were on a Plan 1 loan. This could be due to an error or a lack of knowledge. Importantly, the Government’s instructions for employers paying staff through PAYE (Pay As You Earn) state that if they are uncertain about the type of student loan an employee has, they should default to making Plan 1 deductions. Consequently, many individuals may find themselves on a plan that mandates higher repayments by default.
• Making a mistake while filling in the student loan section of the HM Revenue & Customs (HMRC) starter checklist form. If you entered the wrong information here, your employer may have recorded you as being on the wrong plan.

Can I have been paying too little because I’m on the wrong plan?

While it’s less typical, the reverse scenario also occurs. According to the SLC, during 2019/20, approximately 30,224 borrowers with a Plan 1 loan were enrolled in a Plan 2 repayment scheme. This mismatch meant they operated under a higher repayment threshold than intended, resulting in underpayments on their loans.

If you find yourself in this position and it later becomes apparent to HMRC and the SLC that you’re under the incorrect plan, there’s a silver lining: you won’t need to rectify any past underpayments. However, you will face deductions under Plan 1 in the future.

Reason 3. You’ve started repaying your loan too early 

If you began university studies in 1998 or later and were enrolled as a full-time student, you were not required to commence loan repayments until the April following your completion of studies, regardless of your post-graduation income. Essentially, this means that if you graduated in 2023, you should not have initiated repayments until April 2024.

According to data, during the 2021/22 financial year, 28,721 students experienced loan repayments deducted prematurely, before they were scheduled to commence repayments. This number increased to 39,013 students in the subsequent tax year of 2022/23.

Instances where student loan repayments commence earlier than expected are typically attributable to administrative errors, often involving the borrower or their employer. This responsibility generally does not fall on the Student Loans Company, but rather on administrative oversights by those involved.

• Making a mistake while filling in the student loan section of the HM Revenue & Customs starter checklist form. For example, if you incorrectly provided information about when you finished your studies.

• A mistake from your employer. Even if you’re sure you’ve filled in the paperwork correctly, it could be that your employer mistakenly set you up to start repaying too early.

 Reason 4. You had money deducted after the loan was fully repaid.

The Student Loans Company (SLC) now receives weekly updates from HM Revenue & Customs, detailing your payments towards your student loan.

Despite completing their loan payments, graduates may still see unnecessary deductions from their paychecks due to PAYE timing.

To prevent overpayments after loan completion, SLC now allows the final two years of repayments to be made via direct debit. However, those who didn’t opt for this method still experienced overpayments.

Our data indicates that in the 2021/22 fiscal year, 51,912 students had deductions after fully repaying their loans, a slight increase to 57,136 in 2022/23.

HMRC is supposed to refund this excess automatically, though this process may be delayed. If you require the funds promptly or suspect an oversight by HMRC, you can manually request a refund.

Should you claim the money back if you’ve overpaid?

‘Overpaid? Why it usually IS worth getting the cash back’

Overpaying on standard loans is generally advantageous as it reduces your owed amount faster and lowers the total interest paid. However, student loans operate differently. The intricacies are notable…

Reclaiming overpaid funds increases your outstanding loan balance by that exact amount, thereby increasing your debt. The crucial question, however, revolves around whether a higher debt translates to higher overall repayment. The outcome hinges on your specific repayment plan.

Many borrowers are enrolled in Plan 2 loans (e.g., those who started university between 2012 and 2022 in England), which currently accrue interest at 7.9%. At first glance, making overpayments might seem beneficial. Nevertheless, government data reveals that more than three-quarters of borrowers will not fully repay these loans before they are written off after 30 years. Therefore, making small overpayments typically doesn’t reduce your future repayment burden, except for the highest earners who manage to clear their loans early. Consequently, reclaiming excess payments may be more prudent.

For graduates or university leavers on other repayment plans (excluding current students), the likelihood of fully repaying the loan before its write-off is higher. This is often due to lower repayment thresholds or smaller loan amounts.

Thus, for most students, there is limited long-term benefit in reclaiming overpayments. Exceptions exist, particularly for those in low-earning professions unlikely to see significant income growth. However, under these plans, with a current interest rate of 6.25%, it may be advantageous to reclaim funds to settle higher-interest debts if applicable.

– If you voluntarily repay you CAN’T later reclaim

This guide is all about helping people who’ve accidentally overpaid their student loan, because they’ve started repaying too early, overpaid in a year or have repaid after clearing their debt.

Yet it’s also possible to voluntarily pay extra money towards your student loan, via a one-off or regular monthly payment.

If you choose to pay extra towards your student loan, the SLC says you can’t later claim this money back – so think very carefully about whether you want to repay more than the required minimum.

For more info, see voluntary student loan repayments.

How to reclaim if you’ve overpaid your student loan

If you have overpaid your student loan, the process for obtaining a refund will vary based on the type of overpayment. Regardless of the situation, ensuring that your contact information and bank details are current is crucial to recovering your money.

Reclaim 1. You repaid the loan in some MONTHS despite not earning enough in the tax YEAR – you can now request your refund online

• Tax years UP TO 2022/23 – you can now request a refund online (rather than filling in a form). You’ll need to sign in to your online repayment account and select ‘request a refund’. As part of this process, SLC will check for any refunds from previous tax years you might be eligible for.

After you request a refund through your online account, it will be processed within 28 days, and the funds will be deposited into your bank account. Therefore, ensure your account details are accurate.

While refunds below the threshold might date back to the early 2000s, if you have completely repaid your loan (or are nearing full repayment), claiming a refund will result in your loan account being reopened and the loan term extended. Hence, it might not be advantageous.

• 2023/24 tax year – you’ll need to wait for SLC to get in touch before you can make an online request for the most recent tax year. That’s because SLC needs to wait for HMRC to send earnings information before they can work out any refund entitlement. SLC is expecting to receive the majority of earnings info by September 2024 (with the last people being contacted no later than the end of 2024).

Reclaim 2. You’re on the wrong student loan payment plan by default – speak to your employer/call SLC

If you think you’re on the wrong repayment plan, you can check what plan you’re on in your online account and download an ‘active plan type letter’. This can be shared with your employer to make sure the plan types match. If you can’t do this for whatever reason, see the quick question on how to check what plan you’re on.

If you have overpaid because you’re on the wrong repayment plan, you’ll need to contact SLC to get your refund processed. You can call on 0300 100 0611 (for Wales it’s 0300 100 0370 and +44 141 243 3660 from overseas). If you’re reclaiming for the latest 2023/24 tax year, SLC will need to have received earnings info from HMRC first.

Reclaim 3. You started repaying your loan too early – you’ll need to call SLC

If you have started repaying before you are due to (pre-statuary repayment due date), you need to contact SLC. You can call on 0300 100 0611 (for Wales it’s 0300 100 0370 and +44 141 243 3660 from overseas) to get your refund processed. But bear in mind that phone lines can be busy, so be prepared to wait.

When you get through, explain your situation and ask to reclaim the money you’re owed. To make the process smoother, before ringing see if you can dig out any old payslips, your payroll number, and/or your PAYE reference number. If you don’t have these and think you may have overpaid, it’s still worth giving it a go – though it may take longer.

In addition, there are no restrictions on how far back you can claim, so while many reclaiming will be recent graduates, there’s nothing to stop you doing this even if you overpaid years ago.

Reclaim 4. You had money deducted after the loan was fully repaid – don’t need to do anything

If you’ve paid over your loan balance and additional payments are taken, you’re due a credit balance refund. You don’t need to do anything for this, if SLC can verify your bank account is still active and used by you, a refund will automatically be paid into your account. Meaning it’s important to keep your contact information, including bank details and email address up-to-date.

Alternatively they will contact you to tell you how to get a refund. If you’ve overpaid and have not heard from SLC you can ask them for a refund.

Quick questions

Q – I’ve nearly paid off my loan – how can I avoid overpaying?

A – The SLC now allows those in the last two years of their loan repayments to repay via monthly direct debit, to avoid overpaying. Because you’re paying directly to the SLC, you avoid the communication breakdown between it and the taxman.

When you enter the last 12 months of your repayments, the SLC will write to you explaining you can set up a direct debit, if you haven’t already done so. You can set up the direct debit through your online account, which is the easiest way.

If you need any help, call SLC on 0300 100 0611 (for Wales it’s 0300 100 0370 and +44 141 243 3660 from overseas).

Q – What about part-time students?

A – Since 2012, some part-time students have been able to get student loans.

If you’re a part-time student, the same thresholds apply as if you were a full-time student. But you’re required to start repaying from the April four years after your course started, or the April after you leave your course, whichever comes earlier.

Q – What if I studied another degree after my first degree?

A – If you did a first degree and later went back to university to study for another qualification, you would still have been due to start repaying your loan from the April after you finished your FIRST course.

If you studied an integrated master’s degree (where the master’s degree is part of the initial qualification), you would have been due to start repaying the April after you graduated or left the course, not the April after you finished the bachelor’s element of the programme.

Q – What if my employer can’t tell me what plan I’m on?

A – If your employer can’t tell you which plan it has or had you recorded as being on, you’ll need to check your payslips.

To do this, you’ll need to look up what the repayment threshold was in the year that the payslip is from for the plan you should be on. Then take the period for which you were paid, and divide the annual threshold by how many pay periods you have in a year. For example, if you’re paid monthly, divide the threshold by 12.

Then, look at your monthly salary before tax was taken and deduct the monthly equivalent of the repayment threshold from this number. Nine per cent of the answer you get should be the same as the student loan deduction for that month – and if it’s not, you may be on the wrong plan.

The example below should help:

If you earned a salary of £36,000/yr in the 2019/20 tax year, and were paid each month, you should have been paid £3,000/mth before tax, assuming no extra pre-tax deductions. If you should have been on a Plan 2 repayment plan, the repayment threshold would have been £25,725/yr, or £2,143.75/mth.

So you should have paid 9% of the difference between £3,000 and £2,143.75, which is £856.25. Nine per cent of this figure is about £77. If you repaid far more than this in this example, you may be on the wrong plan.

Another option is to contact the SLC directly, but it can only tell you which payment plan you were on going back to March 2019, which is when it began sharing data digitally with HM Revenue & Customs (HMRC). Before this, the SLC says it won’t know your loan plan as recorded by HMRC, although you can log in to your online account to view annual statements and payments before March 2019.

Alternatively, go straight to HMRC. It says it can guide you through the calculation using student loan deductions information held on its systems to identify what plan your employer was using.