| NUS guidance on student loan repayment petition |
| 11/04/2007 |
| Emails are currently circulating asking people to sign up to a petition on the Number 10 website regarding the interest on student loans and how it is calculated: http://petitions.pm.gov.uk/Student-loans/ The issues raised in the petition have been brought to NUS on a few occasions previously and we did investigate them with the Student Loans Company (SLC). Whilst some fears are unfounded, serious concerns remain. Interest There are two types of student loans in the UK, both of which attract a rate of interest that is linked to the rate of inflation. The rate is currently 2.4 per cent. The first type was available to students who started their courses prior to September 1998. They are usually referred to as mortgage-style and are repaid directly to the SLC via direct debt. As such this system is unaffected by the issues raised in the petition. The second type of loan was introduced at the same time as tuition fees in September 1998. They are known as income-contingent loans and are repaid through the tax system at a rate of 9 per cent of gross taxable income above £15,000. HM Revenue and Customs (or HMRC, as the Inland Revenue is now known) takes repayments along with income tax and National Insurance payments as payroll deductions or during the self-assessment process for the self-employed. Whilst these payments are indeed only transferred from the HMRC to the SLC in one lump sum at the end of the tax year the SLC says it does not apply interest as if only one payment per year is made. The SLC claims that on receipt of a borrower's payments for the year from HMRC they divide the amount by 12 and then work out what the interest on the balance would be if the borrower had made 12 equal monthly instalments. This therefore works out about right for most people - but not if you have larger payments at the start of the tax year for whatever reason, or if you get paid weekly. Conversely, of course, it does benefit you if you get paid more of your annual income towards the end of the tax year. If you or anyone you know is repaying income-contingent student loans through payroll and get statements that would appear to contradict this, then we would be grateful if you could let NUS know. Overpayments Because the SLC only gets the money in one lump sum every year a borrower can continue to make payments long after they've actually paid enough to clear their account, due to the fact that the SLC does not know until it receives the end of year amount from HMRC what money a borrower has paid at any given point - but they will reimburse any overpayment. The reason for this is logistical: HMRC and SLC computer systems cannot communicate to the level required for HMRC to tell the SLC exactly how and when a person got paid and thus the SLC does not know how to distribute the interest accurately or when enough has been received to clear the borrower's account prior to the end of a tax year. Borrowers who can show sufficient repayments mid-way through a tax year can contact the SLC directly to request that repayments cease immediately, but this does require a borrower monitoring their repayments and providing documentary evidence. Action Whilst the situation regarding interest is not as bad as the petition states, interest is still not applied accurately, and borrowers can still make overpayments all too easily. NUS therefore believes that action must be taken. Following submissions from NUS and others in the sector the Department for Education and Skills has asked both HMRC and SLC to see if there are ways of overcoming or at least reducing the impact of these issues as part of an end-to-end review of the processes of student finance. As yet NUS has not been advised of any changes but we will communicate these as and when we are. Parliamentary questions around the issue have repeatedly been asked, including: We will also be seeking assurances from the DfES that monies collected by the HMRC and passed to the DfES are invested with a view to raising funds that will be ploughed back into higher education. If you or anyone you know has had problems with the repayment of their student loan, please contact NUS to let us know - email campaigns@nus.org.uk with details of your issue. Cheers, Wes PS – The next month or so is manic with annual leave squeezed in around conferences, meetings and events as well as the run up to the Conference we’re hosting from ESIB – the National Unions of Students in Europe – and the Bologna Ministerial Summit which I’m attending. Will try and get my blog up to date asap! Apologies for the interrupted service!
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