Sharia Law and study loans

Source: https://www.leeds.ac.uk/research-funding/doc/sharia-law-student-loans Parent: https://www.leeds.ac.uk/research-funding/doc/government-postgraduate-doctoral-loans

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 bank loan, 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).

Sharia-compliant financing

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:

• Al Rayan Bank
• UBL

Government loans

Eligible undergraduate students can receive a tuition fee loan and maintenance loan from the UK government under the student finance system. From 2012 entry onwards, the amount of interest charged depends on when you started your course, the type of course studied and the repayment plan you are on.

The postgraduate masters loan is funding to help with course and living costs whilst studying a postgraduate masters course. The money received needs to be repaid and interest will be charged from the day the first payment is made to you. Interest will normally be charged at the Retail Price Index (RPI) plus 3%.

A postgraduate doctoral loan is funding to help towards course and living costs while studying a postgraduate doctoral course. The money received needs to be repaid and interest will be charged from the day the first payment is made to you. Interest will normally be charged at the Retail Price Index (RPI) plus 3%.

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).

Other loans for study

Some other loans for study attract a commercial rate of interest. For example, some students may need to take a 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 Bursary

The Leeds Bursary package is non repayable support from the University that (for full time undergraduate students) requires you to have had your household income assessed by the Student Loans Company but it does not require you to have taken out a loan. Find out more about Leeds Bursary.

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 Financial Assistance Fund is a University scheme to help students facing genuine or unexpected financial difficulties.  Applicants are expected to have taken their full maintenance loan entitlement, and where this is not the case they will need to demonstrate that a sound financial plan was in place at the start of the academic year to cover both tuition and living costs, and an unexpected change in your situation, that could not have been reasonably foreseen, has impacted your financial plan.
• 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 Government loan after you have already received payment, it is not too late to cancel any future payments; you will be able to repay the amount 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 award body) before cancelling any loan payments to understand the implications in terms of the money that you will owe.