Student Loan repayments

George_33

Hi

I may be one of the lucky ones who is likely to pay off their student loan (Plan 2) before the 30 years expires, however I have noticed something unfair and have tried to flag this to Mr Lewis himself, with no success so far. So, here it goes:

I started repaying my student loan in 2014.

My student loan balance accrues interest which is added to the balance on a monthly basis.

Student loan repayments are deducted from my salary on a monthly basis but, are only deducted from my student loan balance as a lump sum once per year. I.e. I pay c£300 per month from my salary but this is applied as a lump sum deduction of £3600 from my student loan balance at the end of the tax year. 

So, my monthly payments are 'held' by HMRC for a whole year, when they should be reducing my loan balance and subsequently reducing the interest I am paying. This is quite clearly unfair and realistically so I believe there are two resolutions:

1. Deduct repayments from my loan balance at the same frequency they are taken from my salary
2. Apply interest to my payments at the equivalent rate of the student debt until they are paid off my balance as a lump sum at the end of the tax year.

Just wondered if anyone else had realised this, and whether it could gain enough attention for Mr Lewis to read it and take action?

Thanks!

silvercar

It is a known issue. SLC only receive updates from hmrc once a year, I don't think their systems can cope with receiving real time information.

silvercar

It has been discussed at some point over on the student board:

https://forums.moneysavingexpert.com/categories/student-money-saving

For this reason, in the last few months, or possibly slightly longer, you are allowed to repay your loan by standing order rather than payment deductions. People were finding that they were continuing to have payroll deductions after their loan was cleared, so the system was changed as a result.

thrifty2023

Hi George 
I am also repaying student loans, plan 1 and postgrad. 
Here's what I understood. 

In years before 2017ish, interest was calculated and added annually in one go, and PAYE payments were collected then added in one go at the end of the tax year. I believe the interest is fair in this way, rough example:
- my student loan is £8,000
- the interest applied on 1/4/2017 is £300
- the sum total owed for 1/4/2017-1/4/2018 is £8,300
- my total PAYE repayments for the year are £1,200 
- thus 8300 - 1200 = £7,100
- from 1/4/2018, the interest is calculated on the sum of £7,100
This way, the interest rate doesn't change in the year, the interest charge is one charge.
The interest on the loan is fair, however, totally separately, it's unfair for HMRC to retain cash that's neither with you or with the loans co. Certainly, if I had that money in my pocket for a year, I'd earn interest on it. 

More recently from around 2018/2019, both the interest calculations and the PAYE repayments became monthly. If you login online to your student loans repayment profile, you can see your balance dropping a bit each month once your repayment arrives, and then (tragically) increasing a little bit when they charge the interest. 
I find this has made it easier for student loans co to shift interest rates more freely (eugh) also it irritates me still that on payday, my money is taken, but it doesn't arrive for 3 weeks into my student loan account, so there are 3 weeks where I am effectively charged interest on the wrong balance.

Ed-1

thrifty2023 said:

Hi George 
I am also repaying student loans, plan 1 and postgrad. 
Here's what I understood. 

In years before 2017ish, interest was calculated and added annually in one go, and PAYE payments were collected then added in one go at the end of the tax year. I believe the interest is fair in this way, rough example:
- my student loan is £8,000
- the interest applied on 1/4/2017 is £300
- the sum total owed for 1/4/2017-1/4/2018 is £8,300
- my total PAYE repayments for the year are £1,200 
- thus 8300 - 1200 = £7,100
- from 1/4/2018, the interest is calculated on the sum of £7,100
This way, the interest rate doesn't change in the year, the interest charge is one charge.
The interest on the loan is fair, however, totally separately, it's unfair for HMRC to retain cash that's neither with you or with the loans co. Certainly, if I had that money in my pocket for a year, I'd earn interest on it. 

More recently from around 2018/2019, both the interest calculations and the PAYE repayments became monthly. If you login online to your student loans repayment profile, you can see your balance dropping a bit each month once your repayment arrives, and then (tragically) increasing a little bit when they charge the interest. 
I find this has made it easier for student loans co to shift interest rates more freely (eugh) also it irritates me still that on payday, my money is taken, but it doesn't arrive for 3 weeks into my student loan account, so there are 3 weeks where I am effectively charged interest on the wrong balance.

You're not charged interest on money you've already paid but which has not yet been credited.

The student loan repayment regulations have always specified that PAYE repayments are taken as received in 12 equal monthly installments throughout a tax year regardless of how they were actually paid and interest is adjusted when it is applied to the account to reflect this.

George_33

thrifty2023 said:

Hi George 
I am also repaying student loans, plan 1 and postgrad. 
Here's what I understood. 

In years before 2017ish, interest was calculated and added annually in one go, and PAYE payments were collected then added in one go at the end of the tax year. I believe the interest is fair in this way, rough example:
- my student loan is £8,000
- the interest applied on 1/4/2017 is £300
- the sum total owed for 1/4/2017-1/4/2018 is £8,300
- my total PAYE repayments for the year are £1,200 
- thus 8300 - 1200 = £7,100
- from 1/4/2018, the interest is calculated on the sum of £7,100
This way, the interest rate doesn't change in the year, the interest charge is one charge.
The interest on the loan is fair, however, totally separately, it's unfair for HMRC to retain cash that's neither with you or with the loans co. Certainly, if I had that money in my pocket for a year, I'd earn interest on it. 

More recently from around 2018/2019, both the interest calculations and the PAYE repayments became monthly. If you login online to your student loans repayment profile, you can see your balance dropping a bit each month once your repayment arrives, and then (tragically) increasing a little bit when they charge the interest. 
I find this has made it easier for student loans co to shift interest rates more freely (eugh) also it irritates me still that on payday, my money is taken, but it doesn't arrive for 3 weeks into my student loan account, so there are 3 weeks where I am effectively charged interest on the wrong balance.

Thanks. I have since managed to reset my details over the phone to check my balance and you’re right, but for me, my monthly repayments are shown from the 20/21 tax year and later. So at least they have addressed the issue.

I managed to get through to the SLC on twitter of all places to question them about the yearly lump sum repayments prior to 2020 and they advised the following:

“We did previously receive annual updates from HMRC, regaridng the repayment that were made through your salary.

The repayments were then backdated to when they were made - for the purpose of calculating interest.”

whether this is true or not, it would be very difficult to prove but annoyingly there is 6 years worth of interest that could be lower than what I have been charged.

anyway, here’s to hoping the inflation rate comes down so I can pay it off quicker. That day will be a good day 🤞🏼