Tens of thousands of graduates have been told their student loan balances were calculated incorrectly after HMRC admitted using inaccurate earnings data for years.
Around 41,000 borrowers were charged too much interest, while another 30,000 now face higher loan balances after being undercharged.
The tax authority said the error affected graduates with Plan 2 student loans, potentially placing some borrowers in the wrong interest rate bands and leading to incorrect charges.
The issue was first identified in 2022, although HMRC has not revealed how long the problem had been ongoing before it was discovered.
In a joint announcement with the Student Loans Company (SLC) on Thursday, officials confirmed that affected accounts will be corrected but borrowers will not receive any compensation.
Instead, balances will simply be adjusted to reflect what should have been charged.
Plan 2 loans apply to students who started university between 2012 and 2023. Repayments begin in the April after graduation and are set at 9 per cent of earnings above the repayment threshold.
Interest rates vary depending on income. Borrowers earning below the threshold are charged interest linked to the Retail Price Index, currently 3.2 per cent.
Officials confirmed that affected accounts will be corrected but borrowers will not receive any compensation
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HMRC admits data error after 41,000 Britons were charged too much – check if your affected
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Those earning between £29,385 and £52,885 can be charged up to six per cent interest, while graduates with the highest incomes face the full six per cent rate during the 2026-27 tax year.
An SLC spokesperson said the technical issues have now been fixed and confirmed that affected borrowers do not need to take any action.
Ollie Gardner, who founded the graduate-led campaign Rethink Repayment, said the balance error would feel familiar to many borrowers.
“The Student Loans Company balance error is worrying, but for many graduates it will feel like just another example of a system that consistently lets them down,” he said.
Experts describe the student finance as fundamentally flawed
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“For graduates trying to save for a home, start a family or invest in their futures, having accurate information about their student debt is essential.”
Alex Stanley from the National Union of Students described student finance as fundamentally flawed. “Trust in the student finance system is fast eroding.
“It is a broken system that isn’t working for students, isn’t working for graduates, and isn’t working for the Government,” he said.
This marks the second significant error in recent months, following an incident in April when over 20,000 students were asked to repay thousands in maintenance loans that had been incorrectly awarded.
Chancellor Rachel Reeves confirmed the repayment threshold would remain frozen at £29,385 for the next three years
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Conservative leader Kemi Badenoch has committed to scrapping real interest rates on Plan 2 loans as part of her policy platform.
Alex Race from wealth manager Rathbones characterised the situation as yet another instance of graduate workers being “further penalised by their loans and left out of pocket”.
The Department for Education has determined that HMRC will not seek to recover money from borrowers who have already cleared their student debt entirely.
In November, Chancellor Rachel Reeves confirmed the repayment threshold would remain frozen at £29,385 for the next three years.