I took a government interest bearing student loan for the first 3 years not knowing it was haraam
Question:
I have an urgent please.
I live and study in the UK, I am undertaking a 4-year degree, and I took a government interest bearing student loan for the first 3 years not knowing it was haraam. I am about to begin my 4th year and I have 2 options which I would like your guidance on please.
1. Take a gap year and work to earn money to pay for the 4th year whilst the loan for the first 3 years is still active and incurring interest.
2. Complete my degree by extending the student loan to 4th year without a gap year and work a graduate job after the degree which pays higher than the year I would take out. This would mean that more of the loan would be paid back after 2 years in which case there would be less interest incurred overall.
My reasons for asking regarding these 2 options are that option 2 would mean extending the loan but option 1 would mean incurring more interest overall. So I am unsure as to which route would be best Islamically. Thank you very much in advance.
Answer:
In the Name of Allah, the Most Gracious, the Most Merciful.
As-salāmu ‘alaykum wa-rahmatullāhi wa-barakātuh.
We applaud you for your sincere intention (Niyyah) in ensuring your financial dealings are shariah compliant. May Allah Subhanahu Wa Ta’ala grant you the means to earn a shariah compliant income. Ameen.
With regards to your specific query, there are a number of different forms of student loans available in the market. The fundamental and inherent nature of all of these solutions is that of Riba and interest. The financial construct of a student loan is designed as a pure conventional loan with interest charges. We understand that some student loans charge interest at the initiation and execution of the contract. That is impermissible and you should seek to discharge yourself from such a loan. This could be done by swapping the loan with an interest free loan (Qardh Hasanah) with a family friend or associate. You could also convert the student loan to a student loan with a grace period so that you can pay off the principle before the accrual of the interest charges. If you cannot do so as you stated above, then we advise you to make Istighfaar, give Sadaqah and commit to abstain from interest and conventional transactions going forward. However if you procured a student loan which charges interest after a fixed timeframe, then you may conclude your tutelage and study and pay off the student loan before the accrual of the interest charges.
With regards to your specific scenario, you state that you have taken out a student government loan with interest and have already started accruing interest.
We advise you to seek alternative remedies in swapping out the debt and if that is not possible, then you should make Istighfar for your actions while continuing to complete your studies. This does not mean that you shouldn’t actively pursue a strategy to obviate the issue of paying interest. You should continually seek an alternative shariah compliant solution to swap out the loan with interest with an interest free loan or arranging side employment to pay off the loan with an agreed settlement structure with reduced charges.
The issue of student loans requires more attention and careful consideration from the Muslim World including Islamic finance practitioners who could seek to structure a suitable shariah compliant alternative scholarship funding mechanism in line with shariah laws of business, finance and economics. The scholars and business leaders can seek to develop a Shariah Waqf fund to finance these students or develop an Ijaraha Mushtarakah scheme with a learnership structure, etc. We would be willing to assist the Public in devising such a shariah compliant scheme to ensure the future stability of our educational foundations.
and Allah Ta'ala Knows Best
Mufti Ismail Desai
Darul Iftaa
Durban, South Africa
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