HMRC issuing thousands of refunds after student loan repayment glitch
Thousands of British university students are going to get refunds from HM Revenue and Customers (HMRC) after the taxman admitted an error in the repayment system.
But the refund only goes to a certain cohort of those who took deals out under the 'Plan 2' student loan system as opposed to Plan 1, Plan 3, Plan 4, or Plan 5 (postgraduate loans).
Plan 2 students started their undergraduate degree between the academic years of 2012/13 - when fees jumped to £9,000 per year - and 2022/23.
The plan came with a three percent variable interest rate, with repayments starting when you earn £29,385 a year before deductions as of 2026/27. The threshold will be frozen for three years until April 2029. Any outstanding balance is written off 30 years.
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This week (18 June), HMRC and the Student Loans Company said they recognised an error in the repayment plan meaning some students during these years are entitled to money back.
In total, a pretty sizeable 71,000 students were impacted. This equates to around 1.3 percent of all students who took out Plan 2 loans.
"The Student Loans Company (SLC) is contacting some Plan 2 customers about corrections to their balances. Around 71,000 customers (approximately 1.3% of current Plan 2 customers) have been affected by technical issues," a statement on the issue said, per the Express.
"SLC and HM Revenue and Customs (HMRC) are very sorry that this happened.
"Affected customers won’t need to take any action and regular repayment amounts will not change as a result of these issues. SLC will contact customers whose balance has increased due to these issues.”
What were the student loan errors?
According to the joint statement, one error was caused by a 'technical issue meaning the wrong income information was used when interest was calculated'.
It added: "The other was the result of an HMRC income reporting error which affected people who had income through both PAYE and Self Assessment.
"Both errors have now been fixed, and interest will be applied correctly going forward."
Those who have paid off their student loan in full will not have to start repaying again.
And those who have overpaid as per the agreements of the loan will get a refund from HMRC.
“SLC and HMRC take their responsibilities to customers seriously and remain committed to putting things right when issues occur," the statement added.
Plan 2 criticism
As we mentioned, the threshold for repaying your Plan 2 loan is being frozen until 2029 at £29,385.
The decision was hit with massive criticism when announced in 2025, with the decision labelled 'unfair' given that it is now, effectively, a tax increase on working graduates.
Chief secretary to the Treasury, Lucy Rigby, said: "Student loans, despite having the name they have, are really very, very different as a product to a commercial loan. Because they are so heavily subsidised by the government, the government has the right to change some of those terms of the loan."
Martin Lewis, founder of Money Saving Expert, slammed the move as a 'stealth change'.
Speaking earlier this year, he said: "Those on Plan 2 loans currently repay nine percent of everything earned above £28,470 a year, which will rise to £29,385 a year in April this year. Yet in the recent Autumn 2025 budget, the Chancellor said that after, from April 2027, it will be frozen for those from England (the Welsh Government has said it is in discussions with Westminster about the implications for Welsh borrowers).
“This means the expected threshold changes in April 2027, 28, and 29 won't happen, it'll remain at £29,385 a year.
"This is the government moving to use ‘fiscal drag’ on Plan 2 Student Loans too. It means assuming prices and average earnings rise, the threshold won’t, so a bigger proportion of Plan 2 income will go towards repaying the Student Loan. Coupled with the freeze in main tax rates planned until April 2031 too, this is double drag."
Topics: Cost of Living, Money, Students, UK News
Tom Earnshaw