When a government agency informs you that it calculated your debt incorrectly—not by a tiny rounding error, but over a period of years, impacting tens of thousands of people, using completely incorrect data—you experience a certain kind of annoyance. This week, 71,000 Plan 2 graduates found themselves in a similar situation after HMRC and the Student Loans Company acknowledged that interest charges had been calculated using inaccurate earnings, subtly pushing some borrowers into higher interest rate brackets they shouldn’t have been in.
The figures are substantial. The loan balances of about 30,000 graduates will now drop because they were overcharged. An additional 41,000 were undercharged, and the painful part is that their balances will increase. There will be no payment. The departments claim that the problem has been fixed and balances have been adjusted. Apparently, that’s it.
The timeline is what makes this more difficult to understand. In 2022, the mistake was first discovered. The SLC and HMRC have refrained from disclosing the precise duration of the errors. Therefore, graduates who have spent the past few years attempting to make plans around their loan balance—saving for a deposit, figuring out when they might be debt-free, and calculating whether to overpay—may have been using figures that were just incorrect. No one is making it clear for how long.
The issue was caused by two different technical malfunctions. One involved using inaccurate income data to calculate interest. The other impacted graduates paid taxes using both PAYE and self-assessment, which is more typical than most people realize, especially for independent contractors, side gig workers, and those who changed jobs in the middle of the year. It appears that those two channels did not communicate with one another as they ought to have. As a result, some borrowers were mistakenly placed in the incorrect interest band, either at the mid-range charge of up to 6% or at the lower RPI-linked rate.
The interest rate on Plan 2 loans, which are available to anyone who enrolled in college between 2012 and 2023, varies according to earnings. Interest is linked to retail price index inflation, which is currently at 3.2%, below about £29,385. The rate increases between that threshold and £52,885. Graduates are subject to 6% for the current fiscal year. When you’re not constantly looking at the fine print of a student loan statement, it’s easy to underestimate the compounding effects of being in the wrong bracket, even for a brief period of time.
Campaigners quickly identified this as a symptom rather than a singular technical error. To put it simply, Ollie Gardner founded Rethink Repayment after witnessing graduates feel ensnared by a system that was not created with them in mind. Having the incorrect amount associated with their debt is more than just a hassle for those attempting to start a family or save for a house; it’s a planning error from which they are unable to easily recover.
It’s important to keep in mind that there have been previous mistakes made in recent months. Due to a different error, over 20,000 students were instructed to repay thousands of maintenance loans back in April. As the National Union of Students observed this week, trust is declining. That’s a logical conclusion drawn from a pattern that is getting harder to ignore, not a dramatic assertion.
Graduates who have already repaid their loans will not be pursued for any underpayment, which is a minor concession. The Department for Education made that decision, and it makes sense. However, the larger picture—a second significant error in less than a year, no compensation, and no clear explanation of how far back this goes—does not give much confidence that the underlying system has been thoroughly investigated.
Around all of this, a political edge is also emerging. Kemi Badenoch, the leader of the Conservative Party, has promised to do away with real interest rates on Plan 2 loans. It remains to be seen if that becomes popular or stays a campaign stance. It seems more obvious that graduates, many of whom had realistic expectations about how their debt would be handled when they enrolled in college, are finding fewer and fewer reasons to think those expectations were warranted.
