Are Student Loans Haram or Halal?
Student loans are designed to allow more UK students to get a higher level of education. Tuition alone can cost up to £27,750 for a three-year course — so it’s tricky to self-finance university study in the UK.
But while student loans aim to make education more accessible and inclusive, the current system doesn’t work for everyone. Many Muslims believe student loans are haram, or forbidden, according to Islamic law. So they choose not to take out a student loan to fund their education.
So why are student loans considered haram in Islamic finance — and how can Muslim students fund their studies if they can’t access standard student finance? In this article, you’ll learn:
- Whether student loans are haram or halal
- How to avoid using a student loan
- How committees/kametis can help you save for university.
Are student loans halal?
Sharia law bans the payment of interest, or riba, on loans. Riba is haram because it’s designed to help wealthy people or businesses make more money at the expense of those who are less well off. This contradicts the values of social responsibility inherent in Islam.
Funding your education with a student loan helps you become more employable, making you better off (in theory, at least). So some Muslims agree student loans are allowed in very limited circumstances. But they also incur interest, so by definition, student loans are almost universally considered haram.
What makes student loans haram?
Student loans are haram for three key reasons:
- Student loan interest is higher than the rate of inflation. Interest paid at or lower than the rate of inflation can be seen as paying back the true value of the loan. But student loans repayments take inflation into account, and add interest on top. So all interest is paid for profit.
- Student loans aren’t always seen as a necessity. Some Muslims view student loans as a necessity for improving their quality of life. But others disagree, and feel that there are other routes to success or ways of funding your education that don’t involve riba. Student loans can only be seen as a necessity if these other options have been exhausted.
- While student loans differ from standard loans in some ways, they still incur riba. Student loans don’t have set terms, and you won’t need to start paying your loan back until you’re earning a certain amount of money. But interest builds as soon as you take out the loan; and the longer it takes to pay it back, the more interest you’ll incur.
How can Muslim students avoid taking out a student loan?
Student loans are considered haram by many Islamic scholars and experts. So what’s the alternative?
- Save up before you go. Even if uni is non-negotiable, you don’t need to go the second you leave school. Take a few years to earn some money and save up for your studies in advance. If you find it difficult to set money aside, joining a committee or ROSCA can help you become a more reliable saver.
- Live at home. Avoid taking out a maintenance loan by going to a uni close to home (or doing an Open University degree). You can avoid most of the big expenses like accommodation and use savings or grants to pay for tuition.
- Apply for bursaries and grants. Bursaries and grants are designed to make sure all talented students have the chance to go to uni. Best of all, they’re gifts that don’t have to be repaid, so they’re completely interest-free.
- Do a degree apprenticeship. Many careers can be accessed via non-university routes. Degree apprenticeships are a great way to get qualified, get on-the-job experience, and avoid taking out a student loan. Degree apprenticeships are often funded by the government and your employer, so they can be 100% halal.
Get more ideas in this video from Islamic Finance Guru:
Alternative Student Finance for Muslim students
The current UK student loan system doesn’t cater well for Muslim students. Every year, more than 12,000 Muslim students pay for their own tuition or avoid going to uni altogether. 80% feel conflicted about taking out a student loan, leading to mental health concerns.
The UK government has agreed to provide Sharia-compliant student finance, known as Alternative Student Finance (ASF). This model will be based on takaful, an established practice in Islamic finance based on interest-free lending and borrowing.
However, there’s no news yet as to when this new finance model will actually be available. So for the time being, would-be Muslim students must make difficult decisions around how to finance their education.
Using committees to fund your university studies
Joining a ROSCA — also known as a kameti, hagbad, or gameeya — can help you fund your studies in a 100% Sharia-compliant way. Like takaful, committees help Muslims manage their money without compromising their beliefs. Plus, they can help your friends and family go to uni as well.
The earlier you start saving, the sooner you can start studying in the UK. Many universities will also let you take time out between academic years to get work experience and save more, so there’s no need to save for your full course upfront.
Learn more about Sharia-compliant saving
There aren’t too many UK banks and financial institutions currently offering Islamic finance options. But more Sharia-compliant schemes are emerging all the time to help UK-based Muslims better manage their money. Learn more about Islamic finance in our guides:
- How to find a Sharia-compliant savings account
- Is Bitcoin halal? A guide to cryptocurrency for Muslims
- Ethical savings: everything you need to know