Student Loan - Delayed Interest Rip Off?

[Deleted User]

Hello - I have a question about the 'new old-style student loans' - e.g. those for people who graduated after 1998. I'm not sure if this is the right place to post my question.

I graduated in 2005, which is almost six years ago.

In the past few weeks I have been taking care of my tax affairs, preparing self-assessment in accordance with HMRC's well-publicised deadlines.


As part of this, I had to submit self-assessment (because I am self-employed) and include details of my employer (because I am also employed). In return, the good people at HMRC calculate how much student loan I need to pay as part of my self-assessment tax bill, to ensure I've paid the correct amount for that year.

Anyway, to cut a long story short, this started me thinking about my student loan. In particular: I was thinking that I'd been paying it off for around 6 years now, and must have made a pretty healthy dent in the total balance, given that the whole thing is at pretty negligible interest.

With that in mind I contacted the Student Loans Company, to obtain an accurate balance. This is what I was told:

2005 balance: £11,037
2011 balance: £10,238

In six years I had paid off £799. This despite the fact that on a monthly basis I pay £225 towards my student loan through PAYE alone. Something can't be right! £799 is less than 4 month's worth of payments, but I've been paying it off for 6 years.


Consequently, I asked the advisor why the balance remained so high, despite me making over £7,000 in payments over six years. I was told that the balance isn't updated yet, because my employer - and HMRC via my self-assessment - update the balance annually for the tax year in arrears and any payments made don't get applied 'as you go', but in a lump sum at the end of the tax year. In fact, the 09 - 10 tax year hadn't been applied yet, not had any payments since April 2010 which will be applied in May of this year.

Let me explain why this confuses me.

I make monthly payments of £225 towards my loan through PAYE alone, plus around £50 through self-employment. So, £275 monthly payments total. I lose the benefit of those funds immediately each month (e.g. I have £275 less to spend because it's deducted from my income).

However, SLC still charge me interest on the full balance each month, even though they have taken the monthly payment from me, because they don't apply those payments until the tax year is up.

Am I making sense?

Unless I'm very much mistaken, SLC are charging me interest on a balance that I don't have, by delaying my payments towards that balance. This seems very unfair - in fact, almost...dare I say it...unlawful? Payments that I made 20 months ago haven't been applied to reduce the balance, but interest on that balance has been charged for 20 months more than it should be.

How is this so? Or have I completely misunderstood things?

Poolie

SLC add interest to your account on a monthly basis but this is then adjusted when the information is received. SLC have been apply interest to your account from the first payment you received from them. http://www.studentloanrepayment.co.uk/portal/page?_pageid=93,4774025&_dad=portal&_schema=PORTAL

Employer

Each month you make a repayment of £225 from your salary via PAYE. This money is sent by your employer to HM Revenue and Customs. At the end of each tax year your employer completes a P14 return to confirm all the deductions for Income Tax, National Insurance and Student Loans you have made through the year.

Once HMRC have received this information they extract the student loan details and send them through to SLC.

SLC load the file on a regular basis. At the end of the month the student loan system goes back through and readjusts the interest that should have been charged.

Self Assessment
Each year you complete your self assessment and HMRC take an monies that are due. HMRC then extract the information for student loans and pass this to SLC. SLC then apply the file on a regular basis and the system then adjusts the interest at the end of the month.


Once the interest has been adjusted you are sent out a statement. You will be sent a statement out each time a file is loaded and the interest recalculated.


Best thing to do is check when you last received a statement and collate all the information and compare this with SLC on the phone. They will be able to confirm what information they have recieved and also update the system with the current tax year information. If there is any previous tax year repayments missing SLC will be able to contact HMRC to chase these up.

melancholly

Deleted_User wrote: »

Unless I'm very much mistaken, SLC are charging me interest on a balance that I don't have, by delaying my payments towards that balance. This seems very unfair - in fact, almost...dare I say it...unlawful? Payments that I made 20 months ago haven't been applied to reduce the balance, but interest on that balance has been charged for 20 months more than it should be.

How is this so? Or have I completely misunderstood things?

this question comes up pretty regularly on here (there was even a massive petition about it organised by graduates who didn't check the facts first!). as Poolie has laid out, it isn't the case! it's just too complicated to add it all up every month for everyone (in principle, it should be manageable, but they can't do it!).

this is also why it's worth everyone close to the end of paying off their loan keeping a close check because it's very common for overpayments to be taken (which people obviously get back, but it's much nicer not to have the payments going out any longer than absolutely necessary!).

whitfreak

On thing I would say is check you statements from the SLC. They should have sent you one each year and check that the tax years upto april 2009 have been credited.

If not, then its dig out your old P60s etc to prove to the SLC that you've paid....

But yes as HMRC only talk to the SLC once a year the, everything has to be recalculated when they do....

Helix

whitfreak wrote: »

On thing I would say is check you statements from the SLC. They should have sent you one each year and check that the tax years upto april 2009 have been credited.

If they can be bothered, still not had mine for last year.

Poolie

Helix, if you haven't received a statement by now, contact SLC and ask if they have received the return from HMRC. If not you will need to provide details from your P60 or P45 and they should be able to chase it for you. It may take a bit longer to get a statement. They will also be able to input the details into the system along with all recent payments to get you a more accurate balance.