Is interest-based educational loan allowed?

Question

Students from economically backward communities who opt for higher studies generally depend on educational loans, which are offered with interest, either by banks, developmental organisations, or by government, if they don't get a scholarship high enough to meet their needs.

I support the idea of doing a small job first, earn the required amount and then going further in studies. But, this would take more than a single year to earn even a single year's fee.

Not all students are bold enough to ask for zakaat, and even if they are bold enough, they may not get the suitable sources.

In such scenarios where a student has no financial sources but the interest-based education loan, should a student abandon his studies?

Answer 1

Dealing with riba (interest) is a major sin in Islam. There is no ifs and buts. Be it educational loan, house loan or even marriage loan. In Qur'an and Sunnah, you find stern warning against riba.

Allah says in Qur'an:

Those who consume interest cannot stand [on the Day of Resurrection] except as one stands who is being beaten by Satan into insanity. That is because they say, "Trade is [just] like interest." But Allah has permitted trade and has forbidden interest. So whoever has received an admonition from his Lord and desists may have what is past, and his affair rests with Allah . But whoever returns to [dealing in interest or usury] - those are the companions of the Fire; they will abide eternally therein. [Surat Al-Baqarah 2:275]

and he says:

O you who have believed, fear Allah and give up what remains [due to you] of interest, if you should be believers.And if you do not, then be informed of a war [against you] from Allah and His Messenger. But if you repent, you may have your principal - [thus] you do no wrong, nor are you wronged. [Surat Al-Baqarah 2:278-279]

The Prophet (peace and blessings of Allaah be upon him) said:

“A dirham which a man consumes as riba knowingly is worse before Allaah than thirty-six acts of zina.” Narrated by Ahmad and al-Tabaraani; classed as saheeh by al-Albaani in Saheeh al-Jaami’, no. 3375.

And he said:

“There are seventy-two types of riba, the least of which is like a man committing incest with his mother.” Narrated by al-Tabaraani in al-Awsat; classed as saheeh by al-Albaani in Saheeh al-Jaami’, no. 3537.

It was proven from the hadeeth of Jabir (may Allaah be pleased with him) that the Messenger of Allaah (peace and blessings of Allaah be upon him) cursed the one who consumes riba, the one who pays it, the one who writes it down and the two who witness it, and he said, “They are all the same.”

The scholars are unanimously agreed that every loan involving interest or any kind of benefit is haraam.

Source: The Ruling on bank interest

Ruling On Interest Based Student Loans - Shaykh Saalim al Taweel

Answer 2

Salam O Alikum,

Perhaps too late to answer this question, but I ll add this just in case someone else might benefit from it.

I know of some brother who actually found a way around it.

When you take education loan (essentially government based) then the interest starts building from day one. And if you are doing a 3 year course then by the time you finish your course the interest would ve become a lot.

So if the loan for a BSc 3 year course is 6000£ per year - for three years that would be 6000+6000+6000 = 18000£ but the interest will make that figure to around 27000£ etc so you would have to pay extra 9/10 K as interest.

So the work around this brother did is he got a small job in McDonalds etc (as he was allowed 20 hrs work etc) and started paying back the loan from day one.

So essentially he will earn 500/600£ per month and that he ll pay that towards the payback of the loan, and since he is keeping up with the pace which is equal or higher to the pace of interest - so he is able to return just the amount and avoid interest.

And his salary per year (6000£) is just around the same 6000£ mark per year for Loan so he is essentially paying back the same amount. That was the work around he got. Paying back from day one - rather than waiting for Interest to start.

One has to try and do his / her level best to avoid interest as it's a direct was between the person and God (Allah Subhan A Ta'la) and His Messenger according to the Quran. So one has to use his intellect to know what they are getting into before they get into. Just do your maths first and plan accordingly.

Answer 3

Short answer:
No, and there's no exception!

Explanation:

1. As Abdullah mentioned in his answer riba (interest/usury) is a major sin and in fact it's one of the 7 distractive sins along with Shirk (associating partner in worship to Allah), Magic, Killing a person, Unjustly Eating the wealth of an orphan, Fleeing from the battlefield, and Sexually slandering a chaste, believing woman - Video Source (around 8:00).

2. There're some exceptions when there's an immediate danger to one's life like pork exception (Quran) or cursing regarding the religion (if not doing so causes one to be killed) and without really meaning that in the heart (Hadith). HOWEVER! There're some sins where there's no exception, for example, one CANNOT kill another person even under pressure of being killed himself/herself (or any other circumstances).

So, I would assume that a sin that would cause:

• Allah and His Messenger (SAWS) declaring WAR again that person

• AND that person being beaten until insanity - non-stop the entire Day of Judgement which is 50 000 years long (that's 50 MILLENNIA)

• AND a sin is worse than 36 acts of adultery

• AND the least of 72 types of that sin is as if committing incest with his own mother (in some wordings in front of Ka'aba)

• AND the Messenger of Allah (SAWS) cursing that person

So, how one could ever hope for the blessing from Allah after all of this?

In my humble opinion there just can't be any exception for this and one should not even look for trying to put the burden on some else's neck saying "such and such said that it's halal."

I am not even considering the situations where a person would get disabled or even dies without having anyone to pay of his/her debt - this one would be even painful.

So, as some scholars say: "It is better to starve to death than dealing with riba!"

And Allah Knows Best.

These videos helped a lot:
The Dangers of Riba - Karim AbuZaid
Islam protects you from "Loan Sharks" - TheDeenShow

P.S. I lived and studied in the USA for 6 years: 2 years English only, 4 years Computer Science and the highest tuition I had was about $7k-$8k a year (without room-n-board) so you can always find a cheaper solution (or save money and then enroll to school).
And I didn't have anyone to write me a check for my tuition so I had to deal with it myself.

PLEASE, forgive me if anything I wrote comes out harsh or insulting, I wrote this just as a reminder to myself first and then to anyone who comes across, in order to keep us all away from the punishment of Allah.

I ask Allah to make this easy on every one of us.

Answer 4

I see comments like 'a brother has found a way to go around the issue of interest on student loan'. Please DO NOT play games with Allah. HE is all knowing, compassionate and merciful. As long as your intentions are sincere, Allah knows you have to educate yourself and earn a living and in this day and age paying and receiving interest is a way of life. Allah does not want to punish you for an education loan or any loan as long as the parties are sincere and the purpose of loan is a necessity. Remember businesses, home ownership, education etc are necessary to sometimes survive. AND Allah wants to help honest followers. So, get yourself educated and you will be able to do more for Islam and humanity. Allah wants you to suceed and not fail for your sake, for the sake of your family and for Islam.

Answer 5

Is it not true that even Hazrath Umar (RA) is on record saying that the Ayah about Riba was the last to be revealed and he could not get an explanation of Riba and its different types because the prophet was sick and passed away soon after that. And Umar (RA) one of the most knowledgeable of all prphets' companions did not give any statements explaining Riba. The interpretations of the so-called Shaiks and Alims and different authors of the past (when no banks existed, and finance sector was primitive compared to 21st. century) are therefore "mere interpretations". Even the Quran does not have a clear definition of Riba. We all need to do more research on this topic before induldging in it or advising for or against it. Research the topic thoroughly and do what your conscience permits because Allah knows your intentions.

Answer 6

should be a comment, but apparently I'm a nobody without any rep LOL here in canada our student loans are like ~5% interest from a set time after you graduate or from when you find a job(after graduation)... so a loophole is to take a small amount and pay it off from money from intership.so you are taking a loan but never pay any interest/fees on it.

Answer 7

There is no exception to riba (usury). Its forbidden. But there are a few concepts of economics that are not well explained by scholars which are tied to interest.

Historically, the global currency was gold/silver/copper or another metal, and in some cases bartering (i.e. trading apples for oranges). The metal currencies were mediums of exchange and their VALUE could not be altered by anyone.

However, today, metals are no longer a medium of exchange. This currency has been replaced globally by paper currency (or bank drafts), the value of which CAN BE ALTERED by banks, governments and financial institutions. For example, banks create money digitally that didn't previously exist, and in theory, each note issued devalues the currency by a proportionate amount. This devaluing can be seen in annual inflation.

Anybody who lends money in modern day currency, if they want to retain the VALUE of the loan at the end of the term, will have to calculate the total rate of inflation for the term and charge interest equal to the inflation rate. For example: John loans $1 to Ali to purchase a can of coke, in 2009. John wants his money back by 2014. In those 5 years, there was 10% inflation. Can of coke now costs $1.10. Ali pays $1 back to John in 2015 - John suffered a loss and can no longer purchase a can. John should have charged interest at 10% of term.

Similarly, some lenders will charge interest just to cover inflation costs, not for profit. I am not a scholar but I believe this type of "interest" is not usury. But I have not seen Islamic scholars touch on these economic concepts in detail.

Most countries in modern day are debt based economies, with rampant interest and usury that affects almost every aspect of a citizen's life. Meaning, if you try to break free, you will appear to suffer some degradation in quality of life. Most affected by it are the middle and lower income classes, whom rely on loans just to drive a car, get a house or education.

Many economists and bankers themselves will tell you that interest as it exists today is what causes income inequalities, social inequity and oppression which I believe is why the practice is forbidden, not only in Islam but in most religions. So when you lend or take such loans, you are perpetuating the practice and its proliferation in your community, even if you believe you can derive some benefit out of it.

Many Muslims who are perpetually stuck in these practices, they cannot see a way out. They will say "its impossible" to avoid usury. This is essentially the same line of thought employed by drunkards and drug addicts. When you accept this line of thought, you are basically accepting that Allah ordained for us that which is impossible; whereas Allah says "Allah does not obligate anyone beyond his capacity" [Quran 2:286] From here on, it is a matter of faith; do you have faith in Allah's words or do you believe Allah has gone against his word and ordered you to do what you deem impossible?

Answer 8

We seem to be stuck 1400 years ago when lenders took advantage of the poor borrower by charging usurus interest. In the 21th century, it is different. Lenders borrow from others and pay interest for the use of money. As long as there is reasonableness and fair dealings, it is not usury. The intent of parties are honorable. IF the lender charges 40%interest or something unreasonable he knows the borrower will fail since his intent are evil. Now that is sinful. So borrowing and lending in a fair and reasonable manner is ok and not sinful. Use of intellect and differentiating between right and wrong should guide you, and remember Allah is all knowing.