Martin Lewis has issued an urgent warning for anyone with a student loan after spotting a huge mistake.
The Money Saving Expert has discovered that more than 100,000 people have repaid more than they need to on their student loan.
But it’s not all doom and gloom because they can in fact get that cash back.
In the vast majority of cases it’s effectively free money, as getting the overpayments returned won’t make the slightest difference to what you pay in the future.
Martin said: “The only people who may not want to overpay are very higher earners (the top 17% of graduates) who will be likely to clear the loan within the 30 years.
“If in doubt though, and you need the cash (to pay off other debt or a mortgage, for example), reclaim your overpayments.”
The money is owed as a result of the way student loan repayments work, reports the Mirror.
People who started university before 2012 are on the older “plan 1” loans, while people who started after that date are on “plan 2”.
The problem is that many firms have put people on the “plan 1” repayment schedule by mistake – and that takes a far bigger chunk of your earnings each month.
But don’t worry too much because if you’ve been affected, you can reclaim your overpayments.
And there’s very little benefit to overpaying this particular debt – as repayment amounts don’t change depending on how much you owe and most people will see the balance of their loan wiped out after 30 years anyway.
“It’s understandable that many would think overpaying a good thing as it reduces the interest,” Martin said.
“[But for most people] overpaying will simply mean paying more unnecessarily, as the amount you pay will just be fixed over 30 years as a set proportion of income.
“Therefore, taking the overpayment back won’t result in you paying any more in future, so it is a pure gain – do it.”
As to why it happened, Moneysavingexpert.com pointed to Government guidance that says bosses should assume staff are on a “plan 1” student loan if they don’t know for sure.
The Department for Education said this was in place to stop people accruing extra interest and building up the amount of money they owed.
It’s not an argument Martin has a lot of time for.
“Plan 2 student loan repayments act far more like a tax than a debt – and just like a tax, if you’ve overpaid, it’s worth getting the cash back,” he said.
“The stats show the huge majority (83%) of those in England on Plan 2 loans are unlikely to clear their loan in full in the 30 years before it’s wiped (a higher proportion of those in Wales, where the loan is lower, will).”
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