40,000 graduates overcharged on student loans after HMRC errors
Desk report: More than 40,000 graduates have been overcharged interest on their student loans, HMRC has admitted.
The tax office said incorrect earnings had been used to calculate graduates’ interest charges over several years, meaning they may have been dragged into the wrong interest rate bracket.
Some 41,000 Plan 2 graduates could see their student loan balances decrease as a result of the overpayments, HMRC said in a joint statement with the Student Loans Company (SLC) on Thursday.
A further 30,000 customers were undercharged interest, meaning their overall balance could increase as a result.
HMRC said the issue was first identified in 2022 but it would not say how far back it spanned.
Campaigners described the error as “another example of a system that consistently lets [graduates] down”.
Graduates on Plan 2 – those who attended university between 2012 and 2023 – currently start repaying their debt in the April after they graduate, paying 9pc of their earnings above the threshold.
Those who earn less than this are charged interest on the loan based on retail price index (RPI) inflation, which is currently at 3.2pc. Those earning a salary between £29,385 and £52,885 are charged interest of up to 6pc, while those in the top earnings bracket face 6pc interest charges for 2026-27.
Two technical errors meant interest had been worked out incorrectly. One error was caused by a technical issue meaning the wrong income information was used when interest was calculated. The other was the result of a HMRC income reporting error which affected people who paid tax through both PAYE and Self Assessment.
SLC said no compensation would be offered as balances had been adjusted and that issues had now been resolved.
The Telegraph understands that HMRC will not pursue graduates whose loans have already been paid off, a decision passed down from the Department for Education.
In November, Rachel Reeves announced the threshold at which students start repaying the loans would be frozen at £29,385 for three years.
