HMRC Student Loan Interest Error Leaves Thousands Overcharged

Thousands of UK graduates have been affected after HMRC confirmed that inaccurate earnings data led to incorrect student loan interest calculations on some Plan 2 accounts.

The issue resulted in around 41,000 borrowers being charged too much interest, while another 30,000 were undercharged and may now see their balances adjusted.

HMRC and the Student Loans Company (SLC) have stated that affected accounts will be corrected automatically, and borrowers do not need to take immediate action.

However, the incident has raised fresh concerns about the accuracy and transparency of the student loan repayment system.

Key Takeaways:

• HMRC admitted using inaccurate earnings data for some Plan 2 student loan accounts.
• Around 41,000 borrowers were overcharged interest.
• Approximately 30,000 borrowers were undercharged and may see higher balances.
• The issue was identified in 2022 and has now been fixed.
• Affected accounts will be corrected by HMRC and the Student Loans Company.
• Borrowers do not need to take immediate action.
• No compensation will be paid to those who were overcharged.
• Graduates should review their student loan statements and repayment records.
• The error has renewed concerns about trust in the UK student finance system.

Why Has HMRC Admitted a Student Loan Interest Error Affecting Thousands of Graduates?

The HMRC student loan interest error has left thousands of UK graduates facing corrected student loan balances after inaccurate earnings data was used to calculate interest charges.

HM Revenue & Customs admitted that a data issue affected some Plan 2 student loan borrowers, meaning their income information may have placed them in the wrong interest rate band.

As a result, around 41,000 borrowers were charged too much interest, while roughly 30,000 were undercharged and may now see their balances rise.

How the Earnings Data Error Was Identified?

The issue was first identified in 2022, although HMRC has not confirmed how long the incorrect data had been affecting borrower accounts before then. The Student Loans Company has said the technical issue has now been fixed.

Which Student Loan Plans Were Affected?

The error relates to Plan 2 student loans, which usually apply to students who started undergraduate courses in England or Wales from 2012 onwards.

How Did the HMRC Student Loan Interest Error Lead to Overcharged Loan Balances?

Plan 2 student loan interest is partly based on income. This means HMRC earnings data plays an important role in deciding which interest rate applies to a borrower.

When earnings data is wrong, borrowers may be placed into the wrong interest band. Some were charged more interest than they should have been, increasing their outstanding balances unfairly. Others were charged too little and will now see their balances corrected upwards.

A student finance adviser described the issue clearly:

“I often tell graduates that student loan balances are only as reliable as the data behind them. When income figures are wrong, even a small error can affect interest over time.”

Who Has Been Affected by the HMRC Student Loan Interest Error?

The affected borrowers are mainly graduates with Plan 2 loans. These loans apply to many people who studied at university between 2012 and 2023.

Impact on Plan 2 Borrowers

The error does not mean every Plan 2 borrower was affected. It applies to accounts where incorrect earnings data changed how interest should have been calculated.

Borrowers Charged Too Much Interest

Around 41,000 borrowers were overcharged. Their balances should be reduced once the correction is made.

Borrowers Who Were Undercharged

Around 30,000 borrowers were undercharged. Their balances may increase, although the Department for Education has said HMRC will not recover money from borrowers who have already fully repaid their student loans.

What Is a Plan 2 Student Loan and How Does Its Interest Rate System Work?

Plan 2 loans are repaid through the tax system once a borrower earns above the repayment threshold. Repayments are usually 9 per cent of earnings above that threshold.

Repayment Thresholds Explained

For Plan 2 borrowers, the repayment threshold is currently £29,385. Chancellor Rachel Reeves confirmed that this threshold would remain frozen for the next three years.

Income-Based Interest Rate Bands

Interest varies depending on income. Borrowers earning below the repayment threshold are charged interest linked to the Retail Price Index. Higher earners may face a higher rate.

How Many Borrowers Were Impacted by Incorrect HMRC Earnings Data?

The numbers are significant. Around 71,000 borrowers were affected in total, split between those overcharged and those undercharged.

This has added to wider concerns about student finance administration, especially after another recent issue where more than 20,000 students were reportedly asked to repay maintenance loans that had been incorrectly awarded.

What Actions Are HMRC and the Student Loans Company Taking to Fix the Error?

HMRC and the Student Loans Company have said affected accounts will be corrected. The SLC has also confirmed that borrowers do not need to take immediate action.

Account Corrections and Balance Adjustments

Balances will be adjusted to show what should have been charged. Overcharged borrowers should see their balances reduced, while undercharged borrowers may see increases.

Why Borrowers Do Not Need to Take Immediate Action?

The SLC has said the issue has been fixed and corrections will be handled through the system. Borrowers should still review their accounts for accuracy.

A payroll specialist explained the practical concern:

“I would still encourage graduates to check their annual statement. I would not panic, but I would keep records of income, repayments and any balance changes.”

Will Affected Borrowers Receive Compensation for Being Overcharged?

Affected borrowers are not expected to receive compensation. Instead, their accounts will be corrected to reflect the interest that should have been charged.

This means the remedy is a balance adjustment, not an extra payment for inconvenience, lost confidence or financial stress.

How Can Graduates Check Whether They Have Been Affected?

Graduates can check their student loan account online through the Student Loans Company. They should look for changes to balances, repayment records and interest charges.

Useful steps include:

• Checking annual student loan statements
• Comparing payslips with student loan deductions
• Reviewing income records for affected tax years
• Looking for unusual balance changes
• Contacting SLC if figures appear incorrect

Reviewing Student Loan Statements

Statements can show whether interest has changed or whether a correction has been applied.

Checking Repayment Records

Graduates should compare repayments shown by SLC with deductions from payslips or self-assessment records.

Contacting the Student Loans Company

Borrowers who believe their account is wrong can contact SLC for clarification.

Why Are Student Loan Administration Errors Raising Concerns About Trust in the System?

The latest error has increased frustration among graduates who already feel the student finance system is difficult to understand.

Ollie Gardner, founder of Rethink Repayment, said the balance error would feel familiar to many borrowers. He argued that graduates need accurate information when planning major life decisions such as saving for a home or starting a family.

Alex Stanley from the National Union of Students said trust in student finance is eroding and described the system as broken for students, graduates and the Government.

What Does This HMRC Student Loan Interest Error Mean for Future Student Loan Repayments?

For most borrowers, repayments will continue as normal. The main change will be whether their balance is corrected upwards or downwards.

The issue also raises wider questions about how student loan data is shared between HMRC and SLC.

Because repayments and interest rely heavily on accurate earnings information, even technical errors can affect thousands of people.

Conclusion

The HMRC student loan interest error affected thousands of Plan 2 borrowers because inaccurate earnings data led to incorrect interest charges.

Around 41,000 people were overcharged, while about 30,000 were undercharged.

Borrowers do not need to take immediate action, but they should check their student loan account, review their statements and keep records of repayments.

The issue has now been fixed, but it has raised serious concerns about accuracy, transparency and trust in the UK student loan system.

FAQs

How long did the HMRC student loan data error remain undetected?

The issue was first identified in 2022, but HMRC has not confirmed exactly how long the inaccurate data had been affecting accounts before that point.

Can a student loan balance correction affect future repayments?

Yes. A corrected balance can affect how long someone continues repaying, although monthly repayments are still based on income above the repayment threshold.

What information should borrowers keep when reviewing their loan account?

Borrowers should keep payslips, P60s, self-assessment records, SLC statements and any correspondence about account corrections.

Does the error affect all UK student loan plans?

No. The reported issue relates to Plan 2 student loans, not all student loan types.

Can employers influence student loan interest calculations?

Employers deduct repayments through payroll, but they do not set student loan interest rates. Interest calculations depend on income data and loan rules.

What role does the Student Loans Company play in correcting balances?

The SLC manages borrower accounts and applies corrections once the relevant data has been reviewed and updated.

How often should graduates review their student loan accounts?

Graduates should ideally review their account at least once a year and whenever they notice unexpected deductions or balance changes.

Will overcharged borrowers receive compensation?

No compensation has been announced. Affected balances are expected to be corrected instead.