Payback time? How UK graduates overpaid their student loans by ￡130m

Every year, graduates overpay their student loans to the tune of tens of millions of pounds. This is no secret in higher education, and the reason—a repayment system that fails to spot when a loan balance has been paid off and continues to take money—is well known.

There are those, however, who did not know this—including me. After checking a long-dormant email account, I discovered several 2017 emails from the Student Loans Company offering a rebate. After initially dismissing them as some pretty blatant spam, I decided to do a little more digging.

First, a call to the SLC to get the money back. The pleasant Glaswegian in the call centre at the other end of the line was most helpful. It was not, in fact, a scam, and several hundred pounds had been incorrectly taken two years ago. Did he find himself spending a lot of time on this type of call? Yes, he did.

It is no surprise. Thousands of people overpay each year, and many will not need much encouragement to pick up the phone to get their cash back. What are the actual figures, though? And what of those who are owed money but simply don’t know about it? After all, it can take decades to pay off the balance—how many changes of address, phone number and email might take place in that time that mean the SLC communications are simply not being received?

I'm not the first to look into this issue. In 2017, The Telegraph used freedom of information requests to reveal that tens of thousands of graduates were continuing to pay money to the SLC despite having already cleared their debts, with some overpaying by as much as ￡10,000. It found that almost 90,000 students overpaid a total of ￡51 million in 2015-16.

The numbers are backed up by a more recent FOI request, made by investment company AJ Bell, which found that in the following year (2016-17), 85,720 graduates paid off more than they owed by an average of ￡581 each (almost ￡50m cumulatively). Some 40 people had overpaid by ￡10,000 or more.

Much of the blame for this disappointing state of affairs lies with the way in which HM Revenue and Customs and the SLC share information. Historically, the system has worked as follows: employers take student loan repayments from employees’ salaries, and that information is then sent by HMRC to the SLC at the end of the tax year. The SLC applies this payment information to the graduate’s account, calculates the balance and sends them a statement.

Of course, most people don’t pay the final instalment of their student loan on the last day of the tax year, meaning that thousands of people continue to be charged for months after they have officially settled their bill. Overpayments are only being picked up the next time HMRC sends through the salary info—sometimes months after a loan has been repaid.

The issue has not been overlooked entirely. In the 2017 autumn budget, ministers announced plans to reform the system to ensure that—by April 2019—communication between HMRC and the SLC happened on a far more regular basis. On 30 April (just in time!), the government announced that “HMRC will send SLC student loan repayment information as reported by employers on a weekly basis”. This practice began on 6 April, a government spokesman told me.

A spokesman for the SLC said that it was now “receiving the finalised end of year repayments for the 2018-19 tax year”.

“This means that there’s a period of change as we move from the current system of end of year updates to updating customer accounts throughout the year,” he told me. “Customer balances are expected to be fully updated with repayments from the current tax year by the end of the financial year.”

The SLC has also introduced a direct debit option, targeted at borrowers who are calculated to be in the last two years of their repayment. Using direct debit allows the SLC to take the correct amount from graduates, meaning they will not overpay.

It seems the picture is improving. During my investigations into this issue, the SLC sent me updated information for the 2018-19 financial year showing that ￡27,106,011 was overpaid by 48,154 former students, an average of ￡563 per person. Still a staggeringly large amount of money, but a clear improvement on previous years.

What these data do not tell us, though, is the amount of cash that is sitting in government bank accounts, owed to hard-working graduates (and those who took a loan but did not complete their degree) but remaining as yet unclaimed. According to the above information, nearly ￡130m has been overpaid in the past three years alone and it is safe to assume that not all of this will have been claimed back.

This is a matter of significant public interest, since HMRC really ought not to be sitting on piles of cash that has wrongly been taken from the pockets of the general public.

I set about finding out exactly how much money is resting in the government’s accounts. It struck me that the SLC should really have this information to hand—surely any responsible loan administrator would be keeping track of how much money it has incorrectly collected from its customers?

I dropped the SLC a line and explained that we were curious as to how much was unclaimed. “These aren’t figures that we have readily available,” I was told. Our “best route would be through an FOI request”.

Fair enough, I thought. The request I sent asked simply: What is the total value of loan overpayments that have not yet been repaid to the person who overpaid? We also asked how many people were affected and—by extension—the average amount owed.

As anyone who deals with Freedom Of Information requests will know, there is never any guarantee that a request will be answered. But in this case, I was fairly confident that the information would be supplied, since it was a very straightforward request. I was wrong.

Although in its response to my FOI the Student Loans Company confirmed that it held the information requested, it had been determined—“in consultation with the appropriate departments within the SLC”—that the information “cannot be released as the cost of complying with your request would exceed the appropriate limit” set by FOI regulations.

The limit applying to the SLC is “￡450 or 2.5 days (calculated to be 18 hours of staff time at ￡25 per hour)”. In short, it would take the SLC at least two and a half days to find out how much money is owed to its customers, and how many are due a rebate. This is very disappointing.

In response to my frustration, a spokesman for the SLC told me that “conditions surrounding FOI responses are clearly defined in law and your question did not qualify on the grounds specified in our response”.

“We did provide advice in the response detailing how you could narrow the scope of your request to potentially receive data within the cost limit,” he added. This advice stated that information on the amount overpaid by students (as detailed above in the previous FOIs) would be obtainable, and did not relate to data concerning the amount of money that is unclaimed.

Later, the SLC confirmed to me that this was an error, and I am now awaiting new information that should spread light on the issue of unclaimed loan overpayments. Watch this space.

The SLC “proactively contacts all customers that have over-repaid to make arrangements for a refund, and we have a dedicated team contacting people who haven’t responded to our letters or emails offering refunds,” the spokesman continued.

“If customers keep their contact details up to date, customers will receive invites to join our direct debit scheme in the final stages of loan repayment, which stops deductions through the tax system,” he added. “That’s why it’s so important for customers to keep their contact information up to date. We also have plans to introduce reporting on over-repayments in future editions of our student loan debt and repayments stats.”

Nick Hillman, director of the Higher Education Policy Institute, said that publishing information about the total amount owed to graduates was “a matter of public interest”.

“I don’t particularly blame the SLC itself, however,” he told me. “It is trying to run four different systems across the UK that are constantly changing, its leadership has been in flux and it hasn’t always had the resources it needs to run effectively.

“Moreover, it has traditionally spent more time ensuring that payments to students and institutions arrive on time than on ensuring repayments are neat and tidy. This is because public scandals are more likely to happen when students don’t get the money they need to pay their rent than if someone’s repayments are not exactly bang on. If we want that to change, the SLC may need more resources.”

Away from the figures themselves, there is also the small question of what happens to any money that remains unclaimed. Does it ultimately become the property of the government? I put this question to HMRC.

“All money collected is the property of Her Majesty’s Treasury (the government),” a spokesman said. “SLC proactively writes to every customer that has an over-repayment. That’s why it’s so important that customers make sure that they keep their contact details up to date with SLC. A refund can be claimed at any time—there are no restrictions or time limits.”

Needless to say, I will continue to investigate this matter and you can expect an update in the next few weeks.

This article originally appeared in the 8am Playbook, a daily higher education email service from Research Professional. Read the original here (and scroll down for subscription information).