Graduates repaying their student loans are being overcharged thousands of pounds and having to wait months for refunds, Times Money has learnt.

The Student Loans Company (SLC) has admitted that there is an “imperfection in the system”, which means that it only reviews balances at the end of every tax year. This means that a graduate who makes the final loan repayment in May, for example, could potentially continue to have money debited from his or her pay packet for another 11 months.

To avoid overpaying, graduates are now being advised to notify the SLC three months in advance of when their last installment is due.

Unlike most debts, where you can cancel repayments by stopping a direct debit, repayments for student loans are made through the tax system and it is impossible to cancel them yourself. Once graduates realise that they have overpaid and have notified the SLC, it can take months for repayments to stop and a refund to be issued.

The SLC made 45,753 refunds in 2005-06 alone. David Willetts, the Shadow Innovation, Universities and Skills Secretary, says: “It is extraordinary that the Revenue can continue collecting money from graduates even after their student loans have been paid off. The system is such a dinosaur that it takes several months for messages to get from the SLC to the Revenue.”

Graduates repay their loans when they start earning at least £15,000 a year. Repayments are calculated as 9 per cent of all earnings above this threshold.

Interest on the loans, which average £9,000, is charged at the rate of inflation and are therefore touted as virtually interest-free. However, the system has been criticised because it uses the retail prices index - currently 4.8 per cent - rather than the Government's own official measure of inflation, the consumer prices index, which is far lower at 2.3 per cent. This means that a loan of £9,000 would incur interest of £440 a year if no repayments were made.

Times Money has been contacted by several readers who have experienced similar problems with their student loan repayments. Ella Lee, 27, overpaid her loan by £1,700 before the SLC finally stopped debiting her account. She finished paying her loan in November last year and notified the SLC in early December. However, the SLC told her that that it was too late to stop her payment for that month. In December she received her employer's annual bonus, so she overpaid the loan by even more because student loan deductions are always 9 per cent of your monthly salary. The SLC then went on to debit her account in January as well. She was finally refunded the £1,700 in March.

Ms Lee says that she was unsure about the precise balance of her £9,000 loan because the statements are sent annually. One year she did not receive anything at all because the SLC said that there was a backlog waiting to be sent.

Karen Huxley, also 27, had problems with the SLC when she tried to pay off the remaining £5,000 of her loan in one lump sum. When she requested a settlement figure, it quoted £300 more than Karen had calculated.

Ms Huxley says: “I called the SLC and went through my P45s and payslips with them and in the end they quoted me a second figure, which was nearer to mine. But if I had not taken the time to do the figures and dispute the quote, I would have been overcharged by £300.”

Ian McLaren Thomson, of the SLC, says: “The system is dependent upon the transfer of information between SLC and Revenue & Customs. Every tax year employers send the Revenue details of their employees' student loan deductions. Only after this information has been collated can we assess who has overpaid their loans.

“We acknowledge that there is an imperfection in the system, which means that some people will overpay and have to wait for a refund. We would advise people to keep a close eye on their balances and notify us when they are approaching the end of their loans.

Case Study: Refund is long overdue

Annabelle Baker is owed £600 by the Student Loans Company (SLC) because it continued deducting payments after she had paid off her £4,700 student loan in full.

The deduction from the 27-year-old's December pay packet resulted in her paying off the loan in full, plus an overpayment. Despite calling the SLC in January to confirm full payment of the loan, it continued to debit payments in January and February.

After calling the SLC and Revenue & Customs repeatedly, Annabelle was told that it would take up to three months for her overpayments to be refunded. “I was told that the SLC would have to write to the Revenue to cancel the payments, and that my company would have to send copies of my payslips to the Revenue to confirm I have paid in full,” she says.

“The SLC has now stopped debiting my account, but I still have not been refunded the £600. Not only has this been so much hassle to sort out, but I can't believe that the SLC is making more interest on my money the longer it has it.

“According to its website, there are two million graduates currently paying off their loans - why does it not have a better system in place?”