Are Student Loans (Finance) Permissible According to the Shariah? Does the Contract of the Student Loan Involve Ribā (Interest)? The Dangers of Usury.

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In the name of Allah, Most Merciful, the Bestower of Mercy.

All praise is due to Allah, Lord of all creation, and may the peace and blessings of Allah be upon our Prophet Muhammad, his family and all his Companions.

That which is prevalent in societies where the one who owes a debt and does not pay it on time is charged an increased sum so that he can have more time, then this is ribā (usury or interest) that is forbidden in the Shariah. This is the usury of the people of pre-Islamic ignorance―they would say to the one who owed the debt, “Either pay up or pay interest!” So Allah forbade that and said instead, “And if the debtor is going through difficulties, then grant him time until it is easy for him to repay.” (Quran 2:280) There is a unanimous agreement (ijmā’) upon the forbiddance of every transaction that tries to make this increase permissible.

It is forbidden to enter into a loan that involves increase: either a percentage increase annually (or monthly) or an unrestricted increase or a fixed increase. For example, a person loans someone £1000 under the condition that he repays him £1200 ― or at an interest rate of 5% per annum.

Student loans in the UK are forbidden (harām) because it is a clear and apparent interest-based (ribā) transaction. A loan is taken from a students loans company and repayments are made at RPI (Retail Price Index) plus 3% interest. RPI is a measure of inflation, and the 3% is what they refer to as interest, usually totalling 6.1% interest. After graduation, this is paid back in instalments over a period of time, as the interest plus RPI is continually being added. This is a ribā (or interest) based transaction and clearly forbidden in Islam by the Revelation and Ijmā’ (consensus).

Ibn Mas’ood narrated that: Allah’s Messenger (salallāhu ‘alaihi wasallam) cursed the one who consumes ribā (interest) and the one who pays it, the one who writes it down and the two who witness it, and he (salallāhu ‘alaihi wasallam) said: “They are all the same.” (Reported by Muslim, no.1598) 

Below is the government statement of interest payable and a typical summary of accounts for a student loan:

(Click an image to enlarge)

There is a grave warning in the Qur’ān and Sunnah for those who deal in usury and interest (Ribā). Allah stated:

الَّذِينَ يَأْكُلُونَ الرِّبَا لَا يَقُومُونَ إِلَّا كَمَا يَقُومُ الَّذِي يَتَخَبَّطُهُ الشَّيْطَانُ مِنَ الْمَسِّ ۚ ذَٰلِكَ بِأَنَّهُمْ قَالُوا إِنَّمَا الْبَيْعُ مِثْلُ الرِّبَا ۗ وَأَحَلَّ اللَّهُ الْبَيْعَ وَحَرَّمَ الرِّبَا ۚ فَمَن جَاءَهُ مَوْعِظَةٌ مِّن رَّبِّهِ فَانتَهَىٰ فَلَهُ مَا سَلَفَ وَأَمْرُهُ إِلَى اللَّهِ ۖ وَمَنْ عَادَ فَأُولَٰئِكَ أَصْحَابُ النَّارِ ۖ هُمْ فِيهَا خَالِدُونَ

يَمْحَقُ اللَّهُ الرِّبَا وَيُرْبِي الصَّدَقَاتِ ۗ وَاللَّهُ لَا يُحِبُّ كُلَّ كَفَّارٍ أَثِيمٍ

“Those who consume usury will not stand on the Day of Resurrection except like the standing of a person beaten by Satan into insanity. That is because they say, “Trading is just like usury,” but Allah has permitted trading and has forbidden usury. So whosoever receives an admonition from his Lord and stops consuming interest may keep the profits of what has past. His affair rests with Allāh, but whoever returns to dealing in interest, such are the dwellers of the Fire, they will abide therein. Allah destroys usury and gives an increased reward for charity. And Allah does not like the disbelievers, sinners.” (Al-Baqarah 2:275-276)

Usury (Arabic: ribā) is an increase in gain to either one of the two parties in a transaction when trading the same currency or the same type of merchandise specified in the Prophetic narrations. Ribā or usury is forbidden by revelation and consensus (ijmā’). Paper money and currencies take the same ruling as gold and silver in transactions. For a more comprehensive discussion read: The Grave Crime of Usury and Interest: Ribā-based Transactions: What is Allowed and What is Not.

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  1. جزاك الله خيرا for this article, أستاذ. A lot of misguided فتاوىٰ are going around with regards to this topic, which the youth and the likes of them are drawn to. This clarification was very necessary for the Muslims residing here.

  2. ‎السلام عليكم ورحمة الله وبركاته
    People will read this and still try to excuse the loan because of the idea that ‘Muslims need to work to help the ummah, how will doctors come about if they don’t take the loan etc’ what response can you give to these types of people and how does one gain a nursing or doctors degree without the loan
    جزاك الله خيرا

    • Wa-alaikumus-salām-wa-rahmatullāhi-wa-barakātuhu

      The answer: It is not permissible to engage in that which Allah and His Messenger (salallāhu ‘alaihi wasallam) have prohibited to attain worldly gain and possessions – such a person is trading his Hereafter for the possessions and status of this world.

      As for the question: “How does one get educated and get a profession with which to feed his family?” Then the answer is: Allah has made the world vast and has opened up avenues of sustenance that we cannot enumerate. It is folly and ignorance to assume that provision from Allah is limited through impermissible means – and to think such a thing is to belittle Allah. Indeed, when a person abandons something for Allah, He replaces it with that which is better (in this life or the next) and raises him in honour and dignity.

      The professions that are needed by the Ummah can be attained without engaging in harām or taking interest-based loans – skills can be learned by saving up and then studying, or choosing a vocation that you can afford, or getting interest-free loans from relatives, or by working and studying at the same time. Nevertheless, there is no shortage of essential professions such that one needs to even contemplate falling into what is harām, alhamdullāh.

  3. السَّلاَمُ عَلَيْكُمْ وَرَحْمَةُ اللهِ وَبَرَكَاتُهُ

    I hope you are in the best of health.
    جَزَاكَ ٱللَّٰهُ خَيْرًا for this beneficial knowledge
    May ﷲ reward you

    My question is what if one has recently started practising and is only now become aware of this- what can they do?

    • Wa-alaikumus-salām-wa-rahmatullāhi-wa-barakātuhu

      Seek Allah’s forgiveness and He is Oft-forgiving, do not take any further ribā-based loans, and pay what you owe as soon as you can to avoid further ribā accumulating. Ribā is oppressive and unjust and it causes devastation to households and communities.

  4. Assalamualaikum. Thank you for this information and may Allah increase you in goodness, Ameen.

    I always thought to myself why it is so difficult to find information regarding this and especially with regards to Mortgages in the west.

    My question is about purchasing a home in the west where no Islamic Bank/ or Islamic financial institution is available. What are we do with a family ? Renting a home is too costly and is significantly less than a typical mortgage. The few available places to rent are in hot zones/ not safe areas and are minimal with one bedroom.

    Taking a mortgage is less in monthly installments than renting. When we reach the age of 60 and still need to pay a rent to have a place to live with no income from our jobs…this can be avoided since we would have finished paying for a home.

    What is your advice on this and what should Muslims do to obtain a house ?? (NB seeking help from family is not an option as most family members don’t have the cash to assist or they have dealt in Riba themselves to own anything in this dunya).

  5. I come from Australia where we receive government loans to pay for our university fees (It is called HECS HELP). It is promoted to be interest free however it involves indexation to match the current year’s inflation rate. Is this still considered as interest?
    Jazakallah khayr

  6. السلام عليكم و رحمة الله شيخنا
    أحسن الله إليكم

    A sister wants to do an online course to help her husband in difficulties. To do this course, she has to take student loan.

    The interest applies only when the person’s income is more than a certain amount which won’t be the case for this sister. Indeed, she has the firm intention to ONLY accept a job if the salary is below the threshold in order to not fall to the interest.

    What is your opinion on that ? Is this ok ?

    جزاكم الله خيرا

    • Wa-alaikumus-salām-wa-rahmatullāhi-wa-barakātuh.

      Taking this loan (and signing the cotract) is haraam as is clear in the article.

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