In the United Kingdom, student loans make higher education accessible for students. But here’s the thing: most of these loans have extra charges called interest. For Muslim students, this leads to a big question: “Is student loan halal?”
Student Loan
Student loans in the United Kingdom are designed to enhance accessibility and inclusivity in education. However, it’s essential to recognize that the majority of these loans in the United Kingdom involve paying interest.
Student loans don’t come with fixed repayment schedules, and interest starts accumulating the moment you take out the loan. The longer it takes to pay off the loan, the more interest you’ll end up owing. However, you will be eligible to repay your loan until you’re earning a certain amount of money.
The United Kingdom’s student loan system poses a challenge for many Muslim students due to its involvement in interest transactions, which are prohibited under Islamic Sharia rules. As a result, most Muslim students either self-fund their education or choose not to attend university. In response to this, the UK government has introduced a Sharia-compliant student finance system known as ‘Alternative Student Finance.’ This system is based on interest-free lending and borrowing and is outlined in the policy paper published by the Department for Business Innovation and Skills.
Is student loan halal?
It is essential to note that several verses in the holy Qur’an, including Surah Hashr:7, Surah Al-Baqarah:275-280, and Surah Ali ‘Imran:130, emphasize the prohibition of riba (usury or interest) and advise Muslims to refrain from it. The Prophet Muhammad (peace be upon him) also cautioned against this practice, stating, “Allah has cursed the one who consumes interest, the one who gives it, the witness to it, and the one who writes it down.”
Islam sees interest as a considerable financial burden to the borrower, which goes against its financial principle of a just and equitable financial system that benefits everyone. The charging of interest creates an uneven playing field, as the lender profits at the expense of the borrower.
As a result of the verdict above, conventional student loans that involve interest are deemed haram, and it is advisable for Muslim students to desist from such transactions. Better yet, source for an alternative that is allowed in Islamic finance, which we will explain in detail later in this article.
The question of whether student loans are halal or haram remains complex, with differing perspectives among Islamic scholars. We’ve gathered insights from renowned scholars and authorities in Islamic finance to understand their expert opinions on this matter.
An Islamic finance expert, Dr. Muhammad Akram, notes that taking an interest-bearing loan is discouraged unless it’s a last resort. If a student must take a loan, it’s recommended to pay it off as quickly as possible to avoid accruing interest. He said:
From an Islamic perspective, taking an interest-bearing loan is not considered permissible unless there is a dire need. If a student has no alternative but to take a student loan, they should aim to pay it off as soon as possible to avoid accruing interest.
According to Dr. Salman Syed Ali, an expert in Islamic Finance and Shariah Compliance, students should consider seeking halal alternative funding options rather than opting for interest-bearing loans:
“While student loans may not be considered halal, alternative financing options such as bursaries, scholarships, and grants may be considered permissible. Students should explore these options to minimize the need for interest-bearing loans.”
These diverging opinions highlight the complexity of the issue and the need for individual students to consult with scholars and authorities in Islamic finance to make a well-informed decision.
Halal Alternatives Financing Options for Student Loans
For students who wish to pursue higher education while adhering to Islamic finance principles, there are several alternative financing options available in the UK.
Bursaries and Grants
Bursaries, or grants, are essentially financial gifts given to students to help cover the costs of tuition and living expenses. Some universities and colleges offer bursaries and grants specifically for students who need financial assistance.
“Bursaries and grants can be a great way to get financial support without incurring debt or interest. However, they may not cover all the costs associated with attending university or college, so it’s important to research and apply for multiple sources of funding.” – Dr. Muhammad Akram Khan-Cheema, Director General of the Institute of Islamic Banking and Insurance
Charitable Organizations
Charitable groups that follow Islamic finance principles, including the Islamic Scholarship Fund and the Human Relief Foundation, also provide financial aid to students pursuing higher education.
Muslim students in the United Kingdom are given grants and scholarships by the Islamic Scholarship Fund.
For assistance in covering the cost of tuition and living expenses, the Human Relief Foundation provides interest-free loans.
Students who are interested in higher education can do so while still upholding their morals and principles by investigating these alternative financing choices.
Islamic Student Loans
The United Kingdom has proposed a new student finance product known as “alternative student finance.” This scheme aligns with Islamic finance principles and does not involve interest payments, making it accessible to Muslim students who have religious or ethical concerns about interest. However, the United Kingdom government has not yet implemented this new intiative, and their plan is to do so after the year 2025.
This new system will be available for undergraduate students who qualify for student financial aid. It follows Islamic finance rules, using a principle called Takaful, which involves group-based support. This system allows students to pay for their tuition and living expenses without interest-based loans, and they apply for it through Student Finance England, just like regular student loans.
After students finish their studies, they will repay a portion of the money they received, and this money will only be used to help future students through the alternative student finance system. Students who choose this option won’t be treated any differently from those who use traditional student support. It aims to offer interest-free financial help while ensuring fairness for all students.
Conclusion
So, Is Student loan halal? Based on the fact that Islamic law is against riba, conventional student loans cannot be considered halal. The interest charged on these loans goes against the prohibition of riba, which is considered unjust and exploitative.
However, the issue of whether student loans are considered halal (permissible) or haram (forbidden) in Islam remains complex, with differing opinions among Islamic scholars and experts in Islamic finance. While some argue that taking interest-bearing loans is discouraged unless it’s a last resort and should be paid off as quickly as possible, others suggest exploring alternative funding options like bursaries, grants, or charitable organizations to avoid interest-bearing loans.
Moreover, the UK government has proposed a Sharia-compliant student finance system known as “alternative student finance.” This system aligns with Islamic finance principles and doesn’t involve interest payments. This student finance system is yet to be fully implemented, with plans to do so after the year 2025.
For students who wish to pursue higher education while adhering to Islamic finance principles, there are alternative financing options available, such as bursaries, grants, charitable organizations, and the upcoming alternative student finance system. These options aim to provide interest-free financial support and ensure fairness for all students.
Ultimately, we hope this article has provided clarity and insights for students in the United Kingdom who are exploring their options for financing their education in a way that aligns with their beliefs.
