Student Loan Repayments Fall Into Black Hole

Graduates fear HMRC is sitting on money before sending it to the loans company. Mark King reports
Thousands of ex-students fear their student loan repayments are going missing following delays in HM Revenue & Customs passing payments made through PAYE to the Student Loans Company.
One medical student, who graduated in 2005 with a relatively small loan, began repaying it immediately via deductions through PAYE. He said: “I rarely receive statements from the Student Loans Company, but this year when they sent me a summary of my payments over the last financial year I was disturbed to see that the majority of my payments had not been acknowledged. There was a deficit of about ?2,000.
“I have spoken with friends and they have experienced the same problem. It appears that HMRC are deducting the money but are not passing it on to the Student Loans Company very quickly at all. In the last financial year I paid ?3,000 through PAYE, but only ?1,000 of that has appeared on my statement, under the heading ‘repayment received from HMRC for tax year 06/04/2009 – 05/04/2010’. It’s outrageous if the SLC is earning money on the loan, and HMRC is making money out of my cash, too.”
When the graduate contacted the SLC it told him he had to prove how much had been deducted before it could pursue his case. “Had I not kept my pay slips I would have no way of checking or recovering the money if it had gone missing,” he said.
Another student, who also did not wish to be identified, said: “It has happened to me and I was unsure whether the repayments were delayed or had disappeared entirely. I now photocopy every one of my payslips. HMRC should send the cash over on a monthly basis.”
Student loans have become more controversial since they have been used to cover tuition fees, introduced in 1998, as well as living expenses, and there have been countless demonstrations against them in the past 12 years. There is currently a group on Facebook – A Student Loan Demonstration- while at SLC’s Facebook page, comments by users range from “the student loans company r morons”, to “you are useless”.
A spokeswoman for the SLC said that delays in repayments appearing on statements is a well-known problem since Income Contingent Loans (where the amount repaid is based on a borrower’s subsequent income) were introduced in 1999. “The way repayments are collected via PAYE, with employers passing on contributions to HMRC and HMRC passing them to us at the end of the tax year, means statements are only accurate to the end of April of the previous tax year,” the spokeswoman said.
“This means we are not in a position to give an accurate current reflection of a graduate’s repayments. For this reason, we advise borrowers to keep their P60 forms and payslips so they can monitor how much they have paid.” The SLC’s own literature states: “Unless you keep an eye on your repayments … you will probably overpay.”
In a recent discussion paper, HMRC proposed the introduction of a centralised tax system to improve the operation of PAYE, with HMRC, rather than employers, calculating and deducting tax, but the long delays in communicating SLC repayment data will do nothing to garner support for this proposal.
There are further concerns over data privacy – employers, HMRC and the SLC regularly pass sensitive data to each other – and what happens to PAYE repayments if a borrower’s employer goes bust. HMRC says payslips and/or a P60 form should be enough to prove you made payments.
The medical graduate believes the problem lies with HMRC rather than the SLC. “It’s the principle,” he said. “The delays seem to come from them, so they need to get their act together.”
An HMRC spokesman said: “It’s not an error, it’s not a delay; it’s simply the cheapest and easiest way for the SLC to gather the repayments. There is no way of speeding it up. Just because a SLC statement doesn’t have all the information on it does not mean it’s not there – it’s just not showing up yet. Borrowers should not be concerned that anything has gone missing or that we are making money off them. We receive the funds in bulk from employers at the end of the year and pass it on.”
A spokesman for the National Union of Students said he was aware of concerns over the delay in payments appearing on borrowers’ statements. “We also hear concerns over overpayment because of delays in passing on information. You can get the money back but it’s not good.”
The SLC said it can now identify from HMRC data all cases where borrowers are predicted to repay within 23 months, and contacts them to discuss when repayments should stop. At this point borrowers can switch out of the PAYE repayment schedule and take advantage of SLC’s new direct debit system, which went live in December 2009.
SLC and HMRC both claim the direct debit schedule will help minimise overpayments by borrowers as debits should automatically stop when the loan balance is repaid in full. But if overpayments are made, SLC will refund the money with interest added at the rate at which the borrower paid it on the loan. “If borrowers think there is a problem they should contact us immediately,” the SLC said.