HMRC Student Loan Interest Error: 71,000 Plan 2 Graduates Affected in UK

HM Revenue and Customs (HMRC) and the Student Loans Company (SLC) confirmed two technical errors in June 2026 that caused incorrect interest calculations for approximately 71,000 Plan 2 student loan holders in the UK. The first error used wrong income information during interest calculation, while the second stemmed from an HMRC income reporting error affecting borrowers with both PAYE and Self Assessment income. Affected borrowers in South London and across the UK will see automatic balance corrections with no compensation paid and no change to regular repayment amounts.

What Is the HMRC Student Loan Interest Error and How Did It Happen?

The HMRC student loan interest error refers to two technical glitches between HMRC and SLC that incorrectly calculated interest for 71,000 Plan 2 borrowers, with 41,000 overcharged and 30,000 undercharged. The first glitch applied incorrect income data during interest calculation, while the second occurred when HMRC failed to properly separate PAYE income from Self Assessment income for dual-income borrowers. Both errors have been fixed, and interest will now apply correctly going forward without requiring borrower action.

HM Revenue and Customs (HMRC) is the UK’s tax authority that collects student loan repayments from employers through the PAYE system and from self-employed individuals via Self Assessment tax returns. The Student Loans Company (SLC) is a non-profit government organisation acting as agent for the Secretary of State for Education, responsible for managing borrower accounts, adding interest, and applying repayments. Plan 2 loans apply to undergraduate students who began study in England or Wales between September 2012 and July 2023, with repayments starting the April after graduation at 9% of earnings above the threshold.

The technical errors emerged from HMRC’s income data pipeline. The first error involved a system glitch that used incorrect income information when calculating interest for Plan 2 borrowers. The second error specifically affected borrowers earning through both PAYE (employment) and Self Assessment (self-employment), where HMRC’s system incorrectly combined these income sources rather than applying the correct student loan calculation methodology. Accounting firms flagged a comparable HMRC-linked overcharging problem in October 2023, demonstrating this is not an isolated incident.

Who Is Affected by the HMRC Student Loan Interest Error in South London and Across the UK?

Approximately 71,000 Plan 2 borrowers across the UK are affected, including 41,000 who were overcharged interest (balance incorrectly inflated) and 30,000 who were undercharged (balance will increase after correction). The error specifically impacts Plan 2 loans only—those taken by students who started undergraduate study between 2012 and 2023 in England and Wales. Plan 1, Plan 3, Plan 4, Plan 5, and Postgraduate Master’s or Doctoral loans are not affected by these announced errors.

Plan 2 borrowers in South London face the same circumstances as those nationwide. South London boroughs including Wandsworth, Lambeth, Southwark, Lewisham, Kingston, Richmond, and Wandsworth contain thousands of university graduates from institutions like King’s College London, University of Surrey (nearby), London South Bank University, and Goldsmiths University who likely hold Plan 2 loans. Graduates working in South London’s employment hubs—including Canary Wharf (commutable), the City, Westminster, and local businesses—particularly those with mixed PAYE and self-employment income, face higher risk of being affected by the second error.

The repayment threshold for Plan 2 loans rises to £29,385 annually from 6 April 2025 to 5 April 2026, and will increase to £29,385 for April 2026 to April 2027. The higher interest threshold is £52,885. Borrowers earning below £29,385 are charged interest at RPI (currently 3.2%), while those earning between £29,385 and £52,885 face RPI plus up to 3%, and earners above £52,885 are charged RPI plus 3% (6.2%, capped at 6% for 2026-27).

South London graduates should note that approximately 57% of the 71,000 affected borrowers (41,000 individuals) were overcharged, meaning their balances were mistakenly inflated. These borrowers will see their outstanding totals reduced to reflect what should have been charged, with incorrectly applied interest reversed. The remaining 30,000 undercharged borrowers will face balance increases as corrections are applied.

What Happens Next if Your Student Loan Balance Was Affected by the HMRC Error?

The Student Loans Company will automatically contact borrowers whose balance has increased due to the errors, and corrected balances will appear in your next annual statement available online before the end of September 2026 with no action required from you. Regular repayment amounts will not change as a result of the corrections. For the 41,000 overcharged graduates, the correction brings their outstanding total down to the correct figure, with interest that was incorrectly applied reversed going forward.

Your annual statement normally becomes available in your online repayment account by the end of August each year. The corrected statement reflecting the HMRC error adjustments will be available before the end of September 2026. You can check your account at www.gov.uk/sign-in-to-manage-your-student-loan-balance to view your updated balance. Borrowers do not need to contact SLC proactively to request corrections or inquire about the error.

For borrowers who were overcharged (41,000 individuals), the balance correction reduces their outstanding loan total to what should have been charged. Any interest incorrectly applied during the error period will be reversed. However, HMRC and SLC have not confirmed whether repayments already made against the inflated balance will be refunded or how they will be credited. The SLC has not publicly specified a complete timeline for finishing all balance corrections.

For borrowers who were undercharged (30,000 individuals), their balances will increase to reflect the correct interest that should have been charged. The SLC will contact these borrowers directly. Despite the balance increase, regular monthly repayment amounts collected through PAYE will remain unchanged because repayments are based on income, not total balance.

South London borrowers should ensure their contact details are current in their online account. SLC requires accurate address, email, and mobile number information to communicate about corrections. Update details at www.gov.uk/repaying-your-student-loan. If you’ve recently moved within South London boroughs, changed employment, or started self-employment, verify your information is correct to receive all correspondence about the error correction.

Will You Get a Refund if HMRC Overcharged Your Student Loan Interest?

HMRC and the Student Loans Company have confirmed that no financial compensation will be paid to affected borrowers, and while balances will be adjusted to reflect correct figures going forward, neither organisation has confirmed a process for refunding repayments already made against inflated balances. The correction simply adjusts outstanding balances to what should have been charged without additional compensation for the error period.

This represents a significant point for the 41,000 overcharged borrowers. While their outstanding balance will decrease to the correct amount, repayments they already made during the error period against the inflated balance may not be refunded. The SLC and HMRC have not publicly disclosed whether overpayments will be credited toward future repayments, refunded directly, or handled through another mechanism. Borrowers should monitor their annual statements and online account for updates on refund processes.

The “no compensation” policy follows precedent from similar HMRC income data errors. In the October 2023 overcharging incident linked to payrolled benefits in kind, HMRC similarly offered affected borrowers a choice between refund or offsetting the overpayment against their loan balance, but did not provide additional compensation beyond correcting the error.

For South London borrowers currently making repayments, the correction means your future interest charges will be accurate. If you were overcharged, your balance decreases, potentially shortening your repayment timeline slightly. If you were undercharged, your balance increases, potentially extending your repayment period. However, since monthly repayments are income-based (9% of earnings above £29,385), the monthly amount stays constant regardless of balance changes.

The absence of compensation has drawn criticism from financial advisors and student finance experts. However, HMRC and SLC maintain that correcting the balance to the accurate figure constitutes adequate remediation. Borrowers seeking clarification on refund processes should contact SLC directly at 0300 100 0601 or email customer_complaints@slc.co.uk, though no formal refund mechanism has been announced yet.

How Do Plan 2 Student Loans Work and Why Does Income Matter for Interest?

Plan 2 loans charge variable interest based on your annual income: 3.2% (RPI) for earners at or below £29,385, RPI plus up to 3% for earners between £29,385 and £52,885, and 6.2% (capped at 6% for 2026-27) for earners above £52,885. Interest is calculated daily and applied monthly as compound interest from the day your first payment is made until the loan is repaid or cancelled. Your repayment amount (9% of income above the threshold) has no impact on total interest charged, which depends solely on your income level.

The Retail Price Index (RPI) is the UK’s measure of inflation tracking changes to the cost of living. The applicable RPI rate for the period 1 September 2024 to 31 August 2025 is 4.3%. For Plan 2 borrowers, interest rates vary between RPI (3.2% based on March 2025 RPI) and RPI plus 3% depending on circumstances. The Department for Education monitors commercial bank interest rates monthly and may apply a temporary cap if average market rates are lower than RPI-based charges.

While you’re studying full-time or part-time until the April after leaving your course, Plan 2 borrowers are charged RPI plus 3% (currently 6.2%). After graduation, interest becomes income-dependent. This sliding scale structure means higher earners pay more interest, transferring some cost burden to those with greater financial capacity. The system aims to balance affordability for lower earners with adequate funding for the student loan programme.

Income matters critically because HMRC uses income data to calculate both repayments and interest. For employed borrowers, HMRC receives PAYE income data from employers. For self-employed borrowers, HMRC receives income data from Self Assessment tax returns. The HMRC error specifically disrupted this data pipeline, applying incorrect income figures to interest calculations. When HMRC incorrectly combined PAYE and Self Assessment income, it caused interest to be calculated at the wrong rate for dual-income borrowers.

South London graduates working multiple jobs or combining employment with self-employment face particular complexity. If you’re employed and self-employed simultaneously, HMRC calculates your total taxable income for the year. Your repayment is based on combined income above the threshold. You claim credit in your Self Assessment tax return for employer-collected repayments to avoid double payment. The HMRC error disrupted this calculation for some dual-income borrowers, applying inflated income figures that triggered higher interest rates.

What Should South London Graduates Do to Check If They’re Affected by the HMRC Error?

You do not need to take any action proactively—the SLC will contact borrowers whose balance increased due to errors, and you can check your corrected annual statement online before the end of September 2026 at www.gov.uk/sign-in-to-manage-your-student-loan-balance. However, South London graduates should verify their contact details are current, monitor their online account for the corrected statement, and review their payslips to confirm repayment deductions match expected amounts based on their income.

Log into your online repayment account regularly to check for updates. The corrected annual statement will show your updated balance reflecting the HMRC error correction. Compare this balance with your previous statement to confirm the adjustment. If you were overcharged, you should see a lower balance. If you were undercharged, you should see a higher balance. The statement will also show how interest has been applied throughout the year.

Review your payslips carefully if you’re employed in South London. Student loan deductions appear on your payslip alongside tax and National Insurance. Verify that the deduction amount matches 9% of your income above £29,385 (monthly threshold: £2,448). If your monthly pay is £3,500, your deduction should be 9% of (£3,500 – £2,448) = 9% of £1,052 = £94.68. Incorrect deductions may indicate separate issues beyond the HMRC interest error.

If you’re self-employed or complete a Self Assessment tax return in South London, review your tax return calculations. The HMRC error affected how student loan repayments were calculated from Self Assessment income. Your repayment should be based on taxable income (including occupational pensions) above the threshold. If you believe your repayment was incorrectly calculated, contact HMRC using numbers listed at www.hmrc.gov.uk/local or speak with your employer if employed.

South London graduates with questions about their account should contact the Student Loans Company directly. Phone: 0300 100 0601. Email: customer_complaints@slc.co.uk. Post: Customer Relations Unit, Student Loans Company, 10 Clyde Place, Glasgow, G5 8DF. For formal appeals regarding funding decisions, email: formal_appeals@slc.co.uk or write: Formal Appeals, Memphis Building, Lingfield Point, PO Box 226, Darlington, DL1 9GA.

Keep records of all correspondence, payslips, and tax returns related to your student loan. If you later discover you made repayments against an incorrectly inflated balance, these records will support any future refund requests. Document your income levels throughout the error period to verify which interest rate should have applied. Maintain copies of your annual statements before and after correction for comparison.

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Is This the First HMRC Income Data Error Affecting Student Loan Calculations?

No, this is not the first HMRC income data error affecting student loans—a comparable overcharging problem linked to HMRC’s income reporting pipeline was flagged by accounting firms in October 2023, when income data errors similarly pushed loan repayments above the correct level for a subset of borrowers. The October 2023 error specifically involved payrolled benefits in kind that were not subject to Class 1 National Insurance Contributions (NICs), which HMRC’s system incorrectly included in total PAYE income for Self Assessment calculations.

The October 2023 error occurred because HMRC’s system calculates student loan due amounts based on taxable pay rather than pay subject to National Insurance. When employers payrolled benefits, HMRC’s systems calculated the student loan balancing payment on an inflated and incorrect figure. From Monday 25 September 2023, HMRC wrote to affected individuals giving them the option to contact HMRC for a refund of over-charged student loan deductions. HMRC apologised for the error and indicated additional overcharged amounts had been sent to SLC and offset against the loan balance, reducing the balance and any interest due.

HMRC indicated a temporary solution was introduced with a permanent fix aimed for the 2024/25 tax year. However, the June 2026 errors demonstrate that income data pipeline issues persist. The first June 2026 error involved wrong income information used during interest calculation, while the second specifically affected borrowers with both PAYE and Self Assessment income—similar complexity to the 2023 issue but with different technical manifestations.

This pattern suggests systemic vulnerabilities in HMRC’s income data integration with SLC’s interest calculation systems. The repeated errors indicate that HMRC’s systems struggle to properly separate and categorize different income sources for student loan calculations. Accounting firms and tax advisors have repeatedly flagged these issues, suggesting the problem affects professional accountants and borrowers alike.

South London graduates working in industries with complex pay structures—such as finance in Canary Wharf, creative industries in Southwark, or technology in King’s Cross (commutable)—may face higher risk of income data errors. Professionals with freelance income alongside employment, contractors with multiple clients, or those receiving payrolled benefits should monitor their student loan calculations closely. The recurring nature of these errors means vigilance is necessary rather than assuming one-time glitches.

What Are the Long-Term Implications of HMRC Student Loan Interest Errors for Borrowers?

The long-term implications include ongoing uncertainty about refund processes for overpayments, potential delays in balance corrections, continued vulnerability to income data pipeline errors, and the confirmed absence of compensation for affected borrowers while interest charges will now apply correctly going forward. The SLC has not publicly specified a timeline for completing all balance corrections or addressing repayments made against incorrectly inflated balances, creating uncertainty for the 41,000 overcharged borrowers.

For overcharged borrowers, the balance correction reduces outstanding debt but doesn’t address money already paid. If repayments made during the error period aren’t refunded or credited, borrowers effectively paid more than required without compensation. This creates a financial loss that could extend repayment timelines differently than intended. The absence of a clear refund mechanism leaves 41,000 borrowers in limbo regarding whether they’ll recover overpayments.

For undercharged borrowers, the balance increase means they will owe more than previously expected. While monthly repayments remain income-based and unchanged, the higher balance may extend the total repayment period. Since Plan 2 loans are cancelled 30 years after repayments begin, some borrowers may not fully repay before cancellation, but the increased balance means more interest accrues during the repayment period.

The recurring nature of HMRC income data errors suggests borrowers should regularly verify their student loan calculations rather than assuming automatic accuracy. South London graduates should check annual statements annually, review payslip deductions monthly, and monitor Self Assessment calculations carefully. Proactive verification becomes necessary given HMRC’s demonstrated inability to maintain consistent data accuracy.

The “no compensation” policy may influence future policy decisions if additional errors occur. Borrowers affected by multiple errors accumulate financial losses without remedy. This could prompt regulatory review or complaints to the Independent Assessor if the complaint procedure through SLC proves inadequate. The Independent Assessor reviews complaints after SLC’s internal procedure is exhausted, potentially providing external oversight.

For South London’s diverse graduate population, these errors highlight the importance of maintaining accurate income records and contact information with SLC. Graduates should update SLC promptly when changing jobs, starting self-employment, moving addresses within South London boroughs, or changing bank details. Accurate records facilitate error detection and potential future refund claims if mechanisms are established.

The HMRC student loan interest errors demonstrate that even government systems managing billions in student finance contain vulnerabilities affecting tens of thousands of borrowers. While corrections are applied automatically, the absence of compensation and unclear refund processes mean affected borrowers bear the financial consequences of systemic errors. Vigilance, record-keeping, and regular account monitoring become essential borrower responsibilities in this environment.