Student loan confusion

Payments are deducted from graduates' salaries

By Jennifer Clarke BBC Radio 4's Money Box

The Student Loans Company has admitted that the way graduates' debts are now collected means it never knows exactly how much an individual owes.

The new system affects about 800,000 students who began their higher education in or after September 1998.

In the past, graduates repaid their loans every month directly to the Student Loans Company.

But under the new system, payments are deducted from their salaries and passed to the Inland Revenue.

The Inland Revenue only counts up the payments at the end of the tax year and it can take several months before it passes the information to the Student Loans Company.

Out of date

The figures contained in annual account statements can therefore be up to five months out of date, and the Student Loans Company cannot update them until the end of the following tax year.

Payments can therefore continue to be collected for several months after a loan has been paid off.

Primary school teacher Emma Eardley borrowed just over £3,100 in 1999 to pay for her teacher training course and has been paying back her loan since she started working in August 2000.

She was shocked when she discovered neither the Inland Revenue nor the Student Loans Company could tell her exactly how much she had repaid.

"It is ridiculous that two major organisations could not say where my money has gone, or how much I owe still on the outstanding account," she said.

Unknown figure

Hugh Macadie is head of client services and collections at the Student Loans Company.

He admitted the company could never know precisely how much an individual owed on a given day.

He told Money Box people should be able to work it out themselves.

"We inform all of our customers that what they should do is to check their payslips carefully - first to keep track of their loan repayments and second to satisfy themselves that their employer is making the correct deduction."

But this calculation is complicated.

Interest

Under the new rules, every month graduates have to repay 9% of their income above a threshold of £192 a week.

Then they have to add on interest, currently levied at 1.3% per year, but added daily.

Mr Macadie also conceded it was possible that deductions would continue after the loan had technically been paid off.

But he insisted that no one would lose out in the long run.

"The repayment process will not leave any one out of pocket.

"If an over-deduction was made then it will be refunded in the same way as you will get an refund of income tax."

He said the Student Loans Company was working on a system to stop this happening, but that it was not yet in place.