George Bull

Written by: George Bull

George Bull

Senior Tax Partner

Ending the scandal of student loan over-repayments

Regular readers of RSM's Weekly Tax Brief will know that we’ve been keeping a close eye on the unfolding saga of student loans, particularly the way some graduates end up over-repaying their loans because of administrative problems between HMRC and the Student Loans Company (SLC).

In our view, it is intolerable that the inefficient handling of data between a government department and a state-owned company should result in graduates suffering excessive deductions from their payroll, and then having to wait anything up to 17 months to get their money back.

Drilling down through the relevant law, regulations and instruction manuals, the key issue is the timing of and manner in which HM Treasury has directed HMRC to account to the SLC for the sums it has collected. The SLC repayment guidance for borrowers confirms that HMRC notifies the SLC annually of how much has been repaid and this seems to be the primary reason for the problem that RSM identified.

We therefore read with interest the report of the Treasury Select Committee on student loans. This wide-ranging report will add weight and depth to the forthcoming government review of university funding and student loans. The Committee was clear, ‘it is concerning that the Student Loans Company’s inability to make use of readily available data is leading thousands of graduates to overpay their student loans.’

The Committee took evidence from HMRC on its provision of information to the SLC following reports that thousands of people had repayments taken from their salary even after their loans had been paid off. The Committee also asked whether HMRC should take on responsibility for the administration of student loans. Jon Thompson, HMRC Chief Executive and Permanent Secretary, admitted that HMRC could provide more up-to-date data that could be used by the SLC to ensure repayments do not continue to be collected for some time after the loans have been paid off. That makes sense, but the question would then be whether the additional data could be processed efficiently by the SLC.

As Mr Thompson said, HMRC could also take on a greater role in administration of student loan repayments, but this would involve HMRC taking on responsibility for significant additional amounts of data and would suggest a need for additional resource.

Following HMRC’s evidence, the Treasury Select Committee recommended that the Government’s major review should consider the case for transferring responsibility for the administration of student loans to HMRC, along with a commensurate increase in resource.

History shows that HMRC is extremely good at collecting taxes but does not have a distinguished track record when other government departments use it to make payments. Think of tax credits as an example of that. So, it’s absolutely vital that, if HMRC is to take over the administration of student loans, it’s adequately resourced to do so.

And if the SLC’s costs are cut because they shed some of their administrative responsibilities, then surely there can be no justification for the SLC continuing to charge interest at rates of up to 6.1 per cent on loans?

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