Fatwa ID: 02740
Answered by: Maulana Muddasser Dhedhy
Question:
Assalamu Alaikum Wa Rahmatullah!
I had previously taken a large Government student loan in the UK and since made tawbah. There is interest each year on these loans.
The annual loan compulsory repayment rate is set at 9% of your income over the £25,000 a year threshold, and are written off after 30 years/upon death. There is an option to pay a higher percentage of your income on repayments as part of a voluntary repayments scheme to pay off your debt quicker.
My question is, is it recommended and/or even obligatory on me to pay back as much as I can through voluntary repayments to pay off the loan quicker?
And does the ruling change depending on whether or not I am going into a high earning job (i.e. if I was going into a job earning £26,000pa whereby I would not pay back all the money at the compulsory repayment rate before it's written off after 30 years vs if I was going into a job earning £100,000pa whereby it is envisaged that I would pay off the whole debt+interest through compulsory repayments before the 30 year deadline after which it is written off)
بِسْمِ اللهِ الرَّحْمنِ الرَّحِيْم
In the name of Allah, the Most Gracious, the Most Merciful.
Answer:
Assalamu Alaikum Wa Rahmatullahi Wa Barakaatuh,
Government student study loan schemes constitute interest as the total amount payable is more than what was initially borrowed. Hence, one should endeavour to find an alternative to finance their studies.
However if one has already taken the loan, they should repent and aim to pay off the whole as quickly as possible. Given that the loan amount is indexed annually based upon the UK Retail Price Index (RPI) and one’s circumstances, the amount of interest will increase every year. By paying off the loan quickly through voluntary repayments, the total amount of interest one will be required to pay will be less.
If one decides not to pay off the debt hoping for it to be wiped off once they reach a particular age, during this period the loan will keep accumulating interest due to indexation which is not permissible.[1]
Only Allah Ta'ala knows best
Written by Maulana Muddasser Dhedhy
Checked and approved by Ustadha Sabrina al-Faarsiyyah
Darul Ifta Birmingham
[1] بحوث في قضايا فقهية معاصرة ج 1 ص 170-196. مكتبة دار العلوم كراتشي
