A student loan is quite relevant to many students and a lot of Muslim students have questions about it. This article will cover the topic of “Is the Student Loan Halal or Haram?”
Is Student Loan against Shariah?
People who claim that a student loan is not haram make the following arguments:
- Student loans charge interest rates that track inflation.
- Student loans are a necessity
- A student loan is not really a loan in the shariah sense
(1) used to be true, but it is no longer so because the student loan firm in England and Wales for instance are now charging interest rates that are higher than inflation.
(2) is potentially a good argument, but only if it really is a necessity. And by that, it means that you have properly tried to avoid student loans by taking the following 6 steps.
- Consider do you need to go to university? A university diploma isn’t the only path to a prosperous profession. Examine why you want to go to university in depth. More on this line of reasoning is in this article. In addition, if you attend a lower-ranked university, your job chances will be limited, so keep that in mind while doing your calculations. You may labor for three years or you could wind yourself with a large debt after three years and be unable to pay it off.
- Consider to take a gap year and earn. This will significantly improve your CV and provide you with valuable life skills.
- Minimize costs whilst at university. Many students regard university as an opportunity to have a good time and spend more money than they should or shouldn’t. If you must take out a student loan, we recommend you to not dining out every night and you should rent the best room in the halls. We suggest that you ride your bike everywhere or use the public transport.
- Work during university. This is an excellent way to swiftly accumulate a large sum of money. Particularly lucrative summer internships, such as those in the city.
- Get a scholarship. As a student with a student debt, it’s inexcusable that you haven’t even attempted to look for a bursary or grant. Yes, you might not get it, but many Muslim students take out loans because they “need it,” and they haven’t even looked for a bursary. Take a look at the lists here and there.
- Gap years whilst university. This is something that few people give the attention it deserves. Working in industry for a year following your second year, for example, is an excellent way to secure a job after graduation, gain real-world work experience, and earn some money. Some people have taken multiple gap years during their university careers. In the end, it didn’t hurt them at all.
So that leaves argument (3). However, it is not a very good one;
- It’s referred to as a loan throughout the documentation. Everyone considers it a loan. It’s referred to as a loan.
- A rate of interest, it is higher than the rate of inflation.
- Over time, the amount you owe accumulates and compounds.
- For a £60,000 loan, you could wind yourself paying up to £150,000.
Islamic Finance disagrees with the comparison of a student loan to a mudarabah contract. While it may appear on the surface that the Student Loan Company is forming a partnership with you in the hopes that you would succeed, and that if you do, they will take a 9% cut of your profits for the next 30 years, there are significant discrepancies. To begin with, your earnings do not determine the total amount you pay. The ultimate amount you pay is determined by the outstanding compounding interest-bearing loan. Therefore, the student loan scheme is not shariah-compliant because of interest charges. Unlike the Mudarabah contract whereby the rabbul mal (capital provider) provide the fund for the entrepreneur to invest in a productive venture. Student loans are similar to other loans that charge you money on top of the money they lent you to spend on university tuition (riba).
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