HMRC has announced it will issue refunds to certain individuals who have settled their student loans following the discovery of an error impacting 'Plan 2' borrowers.
What Are Plan 2 Loans?
Plan 2 loans were issued to students who attended university between September 2012 and July 2023. These loans feature a variable interest rate of Retail Price Index plus 3 per cent, though repayments only start once annual earnings exceed £29,385.
Technical Errors Identified
The Student Loans Company (SLC) and HMRC have revealed they are reaching out to Plan 2 borrowers regarding 'corrections to their balances'. Approximately 71,000 customers, representing 1.3 per cent of the total, have been impacted by 'technical issues'.
A statement read: "The Student Loans Company (SLC) is contacting some Plan 2 customers about corrections to their balances. Around 71,000 customers (approximately 1.3 per cent of current Plan 2 customers) have been affected by technical issues. SLC and HM Revenue and Customs (HMRC) are very sorry that this happened."
The statement continued: "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."
Details of the Errors
HMRC and SLC explained that 'two technical errors' resulted in incorrect interest calculations for some Plan 2 graduates, with amendments to be reflected in their next annual statement which is due before October, reports the Express.
It added: "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 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."
The message continued: "If you have already paid off your loan in full, you will not have to start repaying again and if you have paid off more than you should have, you will receive a refund. SLC and HMRC take their responsibilities to customers seriously and remain committed to putting things right when issues occur."
Martin Lewis's Concerns
Money expert Martin Lewis has previously highlighted concerns over Plan 2 loans, pointing to the frozen repayment threshold which essentially amounts to a stealth tax on university graduates.
Writing for MSE, he said in January: "Plan 2 interest terms haven't changed, but the rates have. From the start when Plan 2 loans were introduced, I argued against above inflation rates of interest being added, based on a principled belief that we shouldn't charge people for the financing of the funding of their education, and the psychological impact, just as much as the cost."
He added: "Another 'stealth change' is at the level of earnings Plan 2 holders start paying the highest interest. This is arguably a real effective change to terms that is having an impact, and I feel it has flown under the radar. Remember, the interest charged after uni is RPI up to RPI + 3 per cent depending on earnings. The change each year is at the discretion of the Secretary of State for education, and unsurprisingly it hasn't kept pace with inflation. If it had the upper threshold would be far in excess of £60,000 earnings now, so fewer people would be on it."
Lewis continued: "Those on Plan 2 loans currently repay 9 per cent 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)."
He added: "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."
