It has often been difficult for student loan borrowers to avoid over repaying their student loan as the loan term neared its end. This is because of the time delay between employers making deductions from salary each month and submitting an annual return with detail of repayments.
A new initiative to help PAYE borrowers avoid this was introduced by the Student Loans Company (SLC) on 14 December 2009.
In the last 23 months of repayment PAYE student loan borrowers can opt out of PAYE student loan deductions and go on to a Direct Debit arrangement. Doing this means a borrower will not over repay. The SLC will try to contact borrowers shortly before this time to offer and arrange this option. However if a borrower is aware that they are reaching this point they can contact the SLC direct and arrange to repay the balance of their loan in this way. Contact details can be found on the SLC repayment website (Opens new window)
The advantages of the Direct Debit arrangement are:
The normal terms and conditions attached to student loans will still apply, and borrowers must pay their direct debit every month on the agreed date. If a borrower fails to do this, they will be removed from the direct debit repayment scheme, a student loan start notice will be issued to the employer and the borrower will go back into PAYE repayment.
This will not change any of the procedures for Employers who have student loan borrowers on their payroll. If a borrower does enter into this type of arrangement HMRC will issue an SL2 Stop Notice to the employer who can then stop making deductions in the normal way.
The form P46 wording will be amended so that only those borrowers who need
to repay through their earnings, and who are not part of a direct debit arrangement,
will tick the student loan box. Updated online versions of the newly worded
P46 will be available from the end of January 2010 with paper copies being
made available from July 2010. The handling of these forms by employers will
not change.
