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Last Updated: Tuesday, 24 April 2007, 12:35 GMT 13:35 UK
Student loan payment 'con' denied
Lecture hall
Students loan interest rates are linked to inflation
The government has denied claims that graduates are being overcharged in the way they pay back their student loans.

More than 62,000 people have signed a petition on the Downing Street website which says - wrongly - that interest repayments are being miscalculated.

It assumes borrowers are being charged interest on their loan for the whole year despite paying it off in monthly instalments through their salaries.

Number 10 says interest is calculated daily with payments taken into account.

It also insists that the government is not gaining any extra income from the way the system is set up.

The SLC is careful to ensure no borrower pays any additional interest as a result of this delay
Downing Street statement

One of those who complained to the BBC News website, Sam Murray from Norwich, believed the petition had brought to light "the way in which the government is earning twice the interest on monies borrowed by students, and that students have to pay back more than they should".

"I believe that by getting the media involved in this scam that more people will understand our anger and vote to change this method of payments."

A government statement placed on the petition website said the confusion had arisen from the fact that the Student Loan Company updates borrowers' accounts annually.

This is because the exact details of individual repayments, which are collected by HM Revenue and Customs from employers, are received only when firms send in their tax returns after the end of each year, it says.

Once the repayment information has been collected, it is sent to the Student Loans Company who issue new individual statements showing repayments and the amounts outstanding.

But Downing Street insists: "The SLC is careful to ensure no borrower pays any additional interest as a result of this delay.

"The total annual repayment received from each borrower is credited to their account as 12 equal monthly payments in the year they were made, and the interest on the remaining balance is calculated on a daily basis each month to match."

The petitioners had thought that the money from the payments had been earning interest for the government.


But Downing Street added: "We can assure you that the government does not gain any extra income nor does any borrower pay too much interest.

"It is also worth adding that interest paid on student loans reflects inflation, and is not a commercial rate of interest like those charged for bank loans."

The Student Loans Company (SLC) said in a statement that it was important to understand that no money passes to it from HM Revenue and Customs.

All it received was the information about repayments made by individual borrowers, once that was available, to allow it to issue them with annual statements.

It added: "All interest is calculated accordingly to match the timing of these repayments to ensure that borrowers pay the right amount and not too much.

"So even if there is a delay in their repayment details reaching SLC the borrower does not pay any additional interest."

The statement reiterated Downing Street's claim that the government does not earn interest on the repayments it receives through salaries from employers.

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