All About Halal Student Loans And How To Avoid Haram Loans
All About Halal Student Loans And How To Avoid Haram Loans
Many Muslim students give up on their dreams of pursuing higher education because they are unable to obtain halal student loans through the Student Loans Company. The existing student loan system’s emphasis on interest repayments is the primary cause of this.
In theory, you benefit more when you use student loans to pay for your school because they increase your employability. However, Sharia law bans the payment of interest (riba) on loans.
Riba is haram because it’s designed to help wealthy people or businesses make more money at the expense of less well-off people. This contradicts the values of social responsibility inherent in Islam.
Certain Muslims concur that student loans are permissible under particular conditions. However, since student loans also come with interest, they are virtually always considered unlawful.
Muslim students are discouraged from obtaining student loans from the Student Loans Company to meet tuition and living expenses related to higher education.
According to research, this may prevent Muslims from pursuing higher education or put those who do decide to attend college in financial trouble.
All About Halal Student Loans And How To Avoid Haram Loans
1. What is Halal Student Finance
Halal student finance in the UK refers to those financial arrangements that students can access to advance and fund their further education.
Any halal student finance or loan must comply with Islamic finance and Sharia principles relating to money, hence the name Islamic student finance.
Islamic student financing specifically stipulates that there shouldn’t be any interest applied to loans or other educational expenses. Islamic law views interest as haram, something that is to be avoided at all costs.
2. The Goal of Halal Student Loans
The concept that money has no intrinsic worth and is merely a vehicle of exchange is central to Islamic financial theory.
The idea of halal student loans is to make sure that the funding of education complies with ethical and religious guidelines, as well as Sharia law.
The primary rule to remember is that there cannot be any interest involved in the arrangement, and the transaction must be transparent and free from exploitation.
It is prohibited to profit from lending money by adding interest or making larger repayments than the original amount borrowed (known as “Riba”).
3. Features Of Halal Student Loans
For a loan to be considered halal, it must have the following features which stand bold and unique:
1. Interest-free loans: It should go without saying that for a student loan to be considered halal, there cannot be any interest assessed or paid on it.
Rather, it is anticipated that the bank or lending organization will impose fees or other payment arrangements to finance the deal.
2. Transparent: A student loan agreement needs to be open and transparent to comply with Sharia law. The conditions of the transaction should be completely understood by both parties and should be unambiguous in and of itself.
3. Sharing of profits and risks: Enough profit and risk sharing between the parties is a fundamental element of Islamic financing. This type of arrangement shouldn’t place all the danger and duty on the student.
4. Ethical: financing for halal students cannot be immoral. The fundamentals of Islamic finance are violated by this. Any halal source of income or financing must avoid haram sectors like alcohol, porn, and gambling.
4. Government Trace On Halal Student Finance
After consulting on lifetime loan entitlement, the UK government stated in March 2023 that while a Sharia-compliant student finance product was not yet ready, it was still committed to sponsoring a different kind of student financing.
Meanwhile, the ministry started accepting comments in 2014 regarding student loans backed by Islamic finance. Of the 20,000 respondents, more than 90% said there was a need for student loans that complied with Sharia law.
The government talked about many standards that ought to be used in a halal student loan program, such as:
- Repayment ought to be simple.
- Any other method ought to be run by the student loan provider.
- The same amounts of debt and payback should be incurred for other students.
- The service ought to be transparent and simple to use.
The government held a 10-week-long consultation titled “Sharia-compliant Alternative Finance Product” in April 2014.
The consultation aimed to gather opinions about the acceptability of an alternative finance product based on the Takaful Model from Muslim groups, students, and the general public.
Respondents to the 10-week consultation had the chance to provide their thoughts on a student-focused Sharia Alternative Finance product.
As part of the policy-development process, the government has already contacted some interested parties about the creation of an alternative finance product and will do so in the future.
5. Policy Documents(2015–16)
The Government released a green report with reform recommendations for England’s higher education system in November 2015 (PDF).
Among these was the launch of a brand-new Takaful-based alternative student finance solution that complies with Sharia law (pp. 40–41).
The alternative student finance product “will be open to everyone and will not result in any advantage or disadvantage relative to a student loan, but will avoid the payment of interest,” according to a white paper that featured these proposals in May 2016 (pp. 59–60).
6. The 2017 Higher Education and Research Act
The Higher Education and Research Act of 2017’s sections 86 and 87 implemented alternative student finance suggestions.
These give the government permission to implement “alternative payments,” a new form of student financing that has no interest.
The benefits of creating an alternative student finance product for Muslim students and the UK economy were emphasized in the Impact Assessment (PDF) that was issued alongside the initial Bill (pp203-19).
7. Review of Post-18 Education and Funding
2018 saw the announcement of a government-led review of post-18 education and funding in England by Theresa May, the prime minister at the time. As part of the study, an independent panel report known as the Augar report was released in May 2019.
The report suggested several modifications to the student loan program, however, it only mentioned the following (p. 177) without going into great depth about the problem of a Sharia-compliant product:
Financial aid for students must be available in a way that respects their religious convictions. The government must carefully analyze how our proposed modifications to the student finance system will impact plans to establish an alternative student finance system for students who feel they cannot obtain interest-bearing student loans due to religious beliefs.
The introduction of an alternative student finance product that complies with Sharia law was not mentioned in the brief interim conclusion to the review provided by the Government in January 2021.
The Government stated it was working through the “complex range of policy, legal, and system issues” that still needed to be resolved in response to a petition on the matter that same month.
Government Conclusion On Halal Student Finance
The government decided that a takaful system would be most suitable when they were looking into halal student finance choices.
Takaful, or Islamic insurance, is founded on mutuality and cooperation. Takaful systems function without Gharar or insurance.
Regretfully, no viable kosher student loan solution has ever truly surfaced. Rather than concentrating on other aspects of student loans, the administration decided to keep halal student loans under consideration.
There are still opportunities for halal financing even though student loans subject to government regulation and control are not currently available. Loans that comply with Sharia law are available from some financial institutions and can be used for schooling.
The government wrapped up its evaluation on February 24, 2022, and released a policy statement outlining changes to the student loan program.
Additionally, it started a consultation on the Lifelong Loan Entitlement (LLE), which will take the role of England’s current student loan programs and give people access to student financing for the duration of their life starting in 2025.
Since then, the program has been renamed the Lifelong Learning Entitlement.
A brief line in the policy statement contained the only reference to student loans that complied with Sharia law in the conclusion.
According to the statement on page 23, the government will evaluate “if and how” alternate student financing could be provided as part of the LLE.
If you were to use this for entire courses and modules, the current fees would be £37,000. Individuals who have previously gotten student loans financed by the government can be qualified for a “residual entitlement.” There will also be maintenance loans available to cover living expenses.
8. Alternative student finance policy paper
To guarantee that alternative student financing complies with Sharia law, the government announced that it is collaborating with the Islamic Finance Council UK.
It further stated that to specify the operation of the new system, secondary legislation would have to be made.
The government of England released a policy document and blog post in July 2023 outlining its ideas for alternative student financing. They verified that the upcoming item would be:
The Student Loans Company manages the program, which is equal in terms of accessible funding, repayment amounts, and timings and is available to all undergraduate students who qualify for student financing.
It is based on the Islamic financial principles of Takaful and will be made available “as soon as possible” after 2025.
9. December 2023 progress update
Baroness Barran updated the House of Lords on the status of Alternative Student Finance in a letter dated December 14, 2023. According to her, the government is still “strongly committed” to providing alternative student financing that complies with Islamic financial principles.
Ways Muslim Students Can Avoid Getting a Student Loan
Islamic scholars and professionals generally view student loans as haram. I believe the golden question is what then is the substitute?
Though the exact launch date of this new financing model is yet unknown, the UK government has committed to offering Alternative Student Finance (ASF), or student loans that adhere to Sharia law.
This concept will be based on takaful, an established practice in worldwide and UK Islamic finance that allows for interest-free lending and borrowing.
1. Stay At Home: Choose a nearby university to attend (or pursue an Open University degree) to avoid taking out a maintenance loan. You can pay for tuition using grants or savings and avoid most large costs, such as lodging.
2. Consider Applying for Bursaries and Grants: Grants and bursaries are intended to ensure that every gifted student has the opportunity to attend college. The best part is that they are fully interest-free gifts that are given without any repayment obligations.
3. Make a Savings Plan Before You Leave: You don’t have to go to university the moment you graduate from high school, even if it is an unavoidable requirement. Spend a few years working and saving money so that you can pay for your education ahead of time.
Joining a money club or kamiti can help you become a more dependable guardian of your finances if you have trouble setting money away.
4. Engage in a Degree Apprenticeship: There are numerous non-university pathways to jobs. A degree apprenticeship is a fantastic way to meet the requirements, obtain real-world experience, and save money on student loans.
Degree apprenticeships can be completely halal because they are sometimes financed by both the government and your company.
Halal Student Finance Tips For Students
Here are some halal student funding solutions for students to consider:
- Examine the goods and services offered by Islamic finance.
- Examine scholarships offered by Islamic universities.
- Consult advisors on Islamic financing.
- Ask the financial staff at your university for information on grants or hardship funding.
- Take into account interest-free family loans.
While not the best options for Muslim students, all of them might offer halal finance alternatives for additional education.
The demand for halal student loans, the state of the economy, and the expansion of Islamic finance are just a few of the variables that will determine their destiny.
The innovative and vibrant Islamic financial sector may collaborate with educational institutions in the future.
Increasing knowledge and understanding of the need for halal student loans is another factor that can hasten the availability of halal loans.
Muslim students should always be aware of their surroundings, be on the lookout for new opportunities, and never give up on their dreams of higher education.
Summary
The purpose of student loans is to enable more students in the UK to pursue higher education. For a three-year course, tuition alone can cost up to £27,750, making it difficult to pay for university education on your own in the UK.
Although the goal of student loans is to increase access to and inclusivity of education, not everyone can benefit from the existing system.
Many Muslims think that Islamic law forbids student loans, or that they are haram. Thus, they decide against taking out a student loan to pay for their training.
Sharia law prohibits lending interest, called riba. Because riba is intended to benefit affluent individuals or companies at the expense of the less fortunate, it is considered haram.
FAQs
Are there any halal student loans?
This arrangement, which is based on group borrowing and lending among members, is employed in Islamic finance. To guarantee complete Sharia compliance, the Student Loans Company would create and oversee a Takaful fund separate from other student loans.
Can you get a halal loan?
Yes! With zero-interest loans available to both individuals and businesses, Halal is a new kind of financing platform. Membership in Halal offers cooperative societies an additional benefit, as members can obtain loans at no interest rate more quickly and conveniently.
Which type of loan is halal?
An interest-free swap for conventional borrowing
These loans follow the guidelines set forth by Sharia Law. Borrowers pay an origination fee as opposed to interest, which is determined by the total amount borrowed. The cost of the fee is deducted from the loan total.
Is it Haram to take a loan in Islam?
Yes! However, it is dependent on certain conditions.
Riba, the Arabic term for interest on loans or deposits, is used in Islamic finance. Riba is forbidden in religious practice because it is illegal, unethical, or usurious, even at modest interest rates.
To facilitate financial transactions without explicitly collecting interest, Islamic banking has offered some workarounds.
How can I pay for university without a student loan UK?
Find out what additional assistance is offered to undergraduate students. Additionally, certain students can qualify for honors, bursaries, and scholarships.
Through degree apprenticeships, individuals can pursue an undergraduate or master’s degree while working and save money on tuition.
