Islamic Sharia law prohibits "Riba" the paying and receiving of interest for profit. The prohibition can apply to excessive or unreasonable interest, but may also include the commercial rate of interest paid on a Professional Career Development Loan, bank overdraft or credit card.
Sometimes the inflation-only interest that is paid on student loans for undergraduates and postgraduates is seen as Riba (although not all Islamic scholars share this view).
Some financial organisations do offer Sharia-compliant financial services. They guarantee that money held in these accounts is not invested in industries such as gambling, alcohol or weapons manufacturing. For more information on these particular products, visit the banks' websites:
Eligible undergraduate students can receive a tuition fee loan and maintenance loan from the UK government under the student finance system. For pre-2012 entry undergraduates, these loans incur interest on the repayments, but this is currently set at the rate of inflation (not at a commercial rate). In effect the value of the amount repaid is the same as the value of the amount borrowed.
For 2012 entry undergraduates onwards, interest on student finance is charged at the rate of inflation plus 3% during the period of study. The interest rate then varies after graduation, between the rate of inflation only and inflation plus 3%, according to earnings.
The postgraduate loan for Masters degrees will be subject to a rate of interest (the rate of inflation plus 3%). This interest will start to accrue from the date that you receive your first instalment.
In addition to the Postgraduate loans, the government has announced a separate PhD loans system; details of the scheme will be finalised ahead of its introduction in 2018.
Islamic opinion is divided on whether 'inflation only' interest constitutes Riba. Some people believe that repaying exactly the same amount that was given as a loan is acceptable. Others believe that it is acceptable if the amount repaid has the same purchasing power as the amount that was originally borrowed (as in inflation-only based interest).
The National Union of Students (NUS) and the Federation of Student Islamic Societies (FOSIS) have been working together to produce an alternative student finance system that is equitable for Muslim students and is acceptable under scriptural law. The government announced that Muslim students in England will be able to access an alternative student finance system which is compatible with Sharia law. The HE and Research Bill 2016 permits the Secretary of State to award students the Sharia compliant product (alternative payment - neither grant or loan) but at the time of writing, no date has yet been set for when this system will be available.
Other loans for study
Some other loans for study attract a commercial rate of interest. For example, some students may need to take a Professional and Career Development Loan (PCDL) or other form of bank loan to fund their studies (especially for postgraduate study).
Again, Islamic opinion is divided. Some people believe that this is not Sharia-compliant, while others believe that if such a loan is crucial to a student accessing education, then it can be.
Leeds Financial Support
The Leeds Financial Support (LFS) package is non repayable support from the University that (for full time undergraduate students) requires you to have been means tested by the Student Loans Company (SLC) but does not require that you take out a loan. Find out more about Leeds Financial Support eligibility criteria, qualifying income thresholds and information for part time students
Alternatives and consequences
Please note that if you decide not to take a loan for your studies for faith reasons, there is probably no specific Sharia-compliant alternative that is comparable to the government student finance system available at the moment. Moreover, not taking the loan may have an effect on your eligibility for other sources of funding:
- the Access to Learning Fund (a University fund that helps students facing financial hardship) only accepts applications from undergraduates who have taken their full maintenance loan entitlement, and from postgraduates who have made provision to pay their tuition fees and basic living costs
- banks often require evidence of an undergraduate maintenance loan before opening a student account with an interest-free overdraft facility
- some trusts and charities may specifically exclude students who are entitled to an undergraduate maintenance loan, whether they have taken it or not
- if you are entitled to claim welfare benefits as a student, the Benefits Agency will assume you have taken your loan entitlement and will reduce your benefit entitlement accordingly
- if you are unable to take out a loan for faith reasons there are limited other options available, therefore we would advise you to talk to your religious leader and ask for advice
- if you decide not to take out a loan but have already been paid, it is not too late to cancel any future payments; you can also return what you have already received but you will be charged interest on any money borrowed for the time you had it. Please seek advice from Student Finance England (or the equivalent body) before cancelling any loan payments and to understand what the implications are in terms of the money that you will owe.