Answered by: Mufti Javed Ibn Nazir Kachhalia
Question:
I am looking to attend university and I would need to take out a maintenance loan and tuition fee loans. The total cost of the loans will be in the region of £65,000. The student loan agreement is that the rate of inflation + 3% interest is added to the loan until it has been paid off.
Another stipulation is that I am only required to repay 9% of any earnings over £21,000 towards the loan amount. However, if I die or if 30 years he passed since I took the loan out, the debt will be cleared.
I estimate I will repay £60,000 in interest over a 30-year working period based on the expected salary of the profession I wish to do. This means I will not be paying more than the amount borrowed and will not be paying any interest.
Please can you advise if this is permissible for me to take out an interest-based loan, but with the intention not to pay any interest?
In the name of Allah, the Most Gracious, the Most Merciful
Answer:
Allah states in the Quran, “Allah has permitted transactions and has forbidden riba” (Surah Al Baqarah v.275)
Ali ibn Abu Talib narrates that he heard Allah’s Messenger (sallal lahu alayhi wasallam) curse those who took usury, those who paid it, those who recorded it, and those who refused to give sadaqah. And he used to prohibit wailing. (Tirmidhi: 858)
In light of the above and similar ayaaths and ahadiths, scholars have ruled that it is unlawful for a Muslim to get involved in any kind of interest.
The word riba literally means excess. In Shariah terms, it refers to excess on one side. [i.e. where a loan is arranged with the condition that the borrower will return to the lender more than any better than the quantity borrowed. (Durrul Mukhtar, Vol 4, p.197)
Therefore it is clear that student loan where interest is charged is clearly not permissible and also those loans where it is stated that only inflation would be charged. The reality in those loans is that there is excess on one side and in truth, it is exchanging money for money with more from one side which is clearly Riba and prohibited. By using the term “inflation” the reality of the transaction will not change as consideration is given to the substance of the transaction and not the terms used.
Only Allah knows best.
Written by Mufti Javed Ibn Nazir Kachhalia
Checked and approved by Mufti Mohammed Tosir Miah
Darul Ifta Birmingham