Student Loans and avoiding an interest based loan
Shaykh, next year I intend to go to university, if I take the student loan and hope not to pay interest, will it be permissible? I do not want to be involved in interest. Please tell me a way to cover my expenses?
In the Name of Allah, the Most Gracious, the Most Merciful.
As-salāmu ‘alaykum wa-rahmatullāhi wa-barakātuh.
We commend you on your courage and strength of Imān. May Allah fulfil all your needs and provide halal income for you. Amīn.
Unlike the previous scheme of student financing, the current scheme introduced in September 2012 will require students to pay back a rate of return in excess of inflation. Therefore, this is obviously impermissible. Paying even a cent or penny over and above the principal amount is impermissible. One will almost certainly have to pay in excess of the principal amount.
Islam does not recognise money as a subject-matter of trade, except in some special cases. Money has no intrinsic utility. It is only a medium of exchange. Each unit of money is 100% equal to another unit of the same denomination. Therefore there is no room for making profit through the exchange of these units. Profit is generated when something having intrinsic utility is sold for money or when different currencies are exchanged. Any profit earned by dealing in money (of the same currency) or the papers representing them is interest and is totally prohibited.
Hence, the student loan’s scheme is also a product designed to profit the lender.
We understand the importance of studying in university and the demand for it. Many Muslim organisations are working to provide a viable Shari’ah compliant alternative. Until such a scheme does not materialise, one may for the time being, avail from one of the following to avoid borrowing with interest:
- Search for university scholarships and sponsorships.
- Look for companies who fund students through university as part of a professional contract.
- Work on a part-time basis whilst you are studying.
- Take out a gap year and work full-time to save money for university.
- Ask close friends and family for non-interest based loans.
These are challenging times for Muslim students. The true servants of Allah will clearly be visible through such tests. Those who seek halal sincerely, Allah Ta’ala will most definitely provide for them.
We make du῾ā’ Allah opens His doors of sustenance for you and provide for you all your requirements in a halal manner. Amīn.
And Allah Ta’āla Knows Best
Mufti Faraz ibn Adam al-Mahmudi,