Martin Lewis’ student loans warning and how you can claim your money back

Money Saving Expert Martin Lewis is urging millions of people to check they have not overpaid their student loans after discovering that more than a million paid too much in the 22/23 tax year.

Many workers have student loan repayments automatically deducted from their wages each month, and assume all is well. Yet 100,000s accidentally overpay their student loans each year, according to the MoneySavingExpert founder, who says a new Freedom of Information request has revealed that many could be owed money.

Over recent years, the Student Loans Company (SLC) has introduced a number of initiatives to reduce overpayments and improve the repayment process for students, including an online repayment service, issuing automatic refunds and contacting those who might have overpaid. However Martin says anyone who went to uni after 1998 should check they are not paying more than they need to.

There are no restrictions on how far back you can claim, so there’s nothing to stop you doing this even if you overpaid years ago. The SLC even says in theory you could ring and reclaim after repaying your loan in full.

Here’s a step-by-step guide to check if you might be owed money back:

  • Check if you’re due a refund in your online account.
  • If you find you are due money back, call the SLC on 0300 100 0611 to get your refund processed.
  • Before ringing, dig out your old payslips, payroll number and PAYE reference number. If you don’t have these, it’s still worth giving it a go, though it may take longer.
  • Explain your situation and ask to reclaim the money you’re owed. If you’re reclaiming because you think you earned under the threshold in a tax year, you’ll need to wait until that tax year is finished.

According to MSE, the most common reasons why people overpaid last year were:

  • Repaying loans despite not earning enough in the tax year.

You shouldn’t start repaying your student loan until you earn above a specific annual threshold. This means that if your earnings vary throughout the year, one month you could earn over the threshold, despite the fact that your total annual income remains under the threshold. The repayment thresholds vary depending on when you started your course, and where you lived before university – you repay 9% of what you earn above the threshold:

  • You are repaying under the wrong student loan payment plan.

If you started university since 1998, you’ll have a Plan 1 or Plan 2 l loan if you lived and studied in England. Students in Wales, Northern Ireland and Scotland have different rules.

Plan 1: If you started uni between 1998 to 2011, you‘re on ‘Plan 1’ and the current threshold is £22,015/year.

Plan 2: If you started uni between 2012 and 2022, you’re on ‘Plan 2’, the repayment threshold for which has been frozen at £27,295/year

There are a few of reasons why you could be on the wrong payment plan, such as your employer may have assumed you were on a Plan 1 loan. The Government’s guidance for employers that pay staff via PAYE is that if they don’t know what type of student loan you have, they should make Plan 1 deductions. Or you or your employer could have made a mistake while filling in the student loan section of the HM Revenue & Customs (HMRC) starter checklist form.

While it’s less common, it’s possible to pay too little if you’re on the wrong plan too. If you’re in this situation and it later becomes clear to HMRC and the SLC that you’re on the wrong plan, you won’t have to make up any historic underpayments. However, you will have Plan 1 deductions taken in future.

  • You’ve repaid your loan but still had money deducted

The SLC now receives weekly data from HMRC on how much you’ve paid towards your student loan but graduates who have finished paying off their loans may still have money deducted from their pay packets because of the timing of PAYE. To help avoid this, the SLC now lets you make your last two years of repayments via direct debit, but many who didn’t sign up to make their payments this way still ended up overpaying.

  • You’ve started repaying your loan too early

If you started uni from 1998 onwards and were a full-time student, you shouldn’t have started repaying your loan until the April after you finished your studies, regardless of how much you earned after leaving uni. Starting repayments on your student loan too soon isn’t normally the fault of the SLC – usually it’s down to an admin error on the part of the borrower or their employer, such as making a mistake while filling in the student loan section of the HMRC starter checklist form.

“Overpaying on normal loans is a good thing, it means you owe less and clear the debt quicker and repay less interest. Yet student loans don’t work like normal loans. It’s complex,” said Martin. “If you claim the money back that you’ve wrongly overpaid, your outstanding loan balance will increase by that amount, and you will ‘owe’ more. The real question, though, is whether owing more means you will repay more. How this works depends on what plan you’re on.

Many are on Plan 2 loans with its current 7.3% interest rate. So on the surface overpaying may look a good idea. However, the Govt’s own stats show more than three-quarters of people won’t clear these loans in full before they wipe after 30 years. If so, overpaying these smaller amounts won’t usually actually reduce what you will pay in future, so you don’t gain by overpaying – so you may as well get that money back.

“If you’re a graduate/university leaver on another plan, then you’re far more likely to repay the loan in full before it wipes. This is because either the repayment threshold is lower or the borrowing amount tends to be lower. That means there’s less of a long-term gain for a typical student by taking back any overpayments. Though those in very low earning professions where that’s unlikely to change may well gain from taking back the overpayments.”

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