Fatwa ID: 08161

 

Answered by: Maulana Yusuf Badshah

Question:

Bismillah irahmaan iraheem.

Assalaamualaikum Mufti sahib,

I have some major questions regarding student loans repayments, which I would like your scholarly opinion for a fatwa on. Forgive me if this is not the best way of sending these questions; I can do so by email or post by request if needed.

Due to the size of the issue and the number of people it affects, this letter has been sent on my behalf to multiple Muftis, Darul Iftaas, and other Ulema who specialize in Islamic finance, through multiple people who offered to help from my University. A list can be provided upon request if needed. The purpose of this exercise is to have the approval, understanding, and perspective of multiple sources, rather than to choose the “best” option.

Question: UK Government student loan repayments, with regards to the proposed interest-free option starting in 2026/27 (see below websites for reference).

“Alternative Student Finance” website (which has links to other sites detailing the scheme further): www.gov.uk/government/publications/alternative-student-finance/alternative-student-finance

Student loan repayments according to UK government (also has links to current interest rates): https://www.gov.uk/repaying-your-student-loan/what-you-pay

Martin Lewis’ explanation and opinion of the student loan repayment system (post-2012): https://www.moneysavingexpert.com/students/repay-post-2012-student-loan/

In brief, the documents in the first website show plans for an interest-free student loan repayment method to be introduced sometime in 2026. The repayment payment will supposedly be Shariah-compliant and give more confidence in UK-based Muslims to seek higher education without the need for Riba. The second and third websites contain context for the current system. The system as applied to “Plan 2” repayment is summarized below (which applies for people who started degrees between 2012 and 2023, who are probably most affected). The numbers involved differ slightly between repayment plans but the principle is the same.

Repayments start from the first April after graduation. A 9% deduction is made from your salary after earning above a certain threshold that is assessed annually by the Student Loans Company (SLC), typically based on inflation (RPI). For this year, the threshold is £27,295/yr before taxes. After 30 years post-graduation, whatever amount of loan is left is excused. Additional voluntary payments can be made during the year through the SLC.

This may sound similar to a tax; however, a few percent of interest is added to the full loan at a yearly rate. That said, the monthly payment amount does not change and stays at 9%. Although the interest rate usually depends on RPI, it is not usually the same. I felt okay to take the loan thinking it was a form of tax (with the loan going up to keep with RPI), unlike student loans in places such as the USA, which are more akin to traditional loans. It was described to me and others in this way during sixth form/secondary school. However, we now feel guilty having potentially haraam debt because of the Riba. Even if the repayment is effectively a 9% tax above £27,295 for 30 years, the overall loan still increases with interest.

The alternative repayment method starting in 2026 should remove the issue of Riba, if the plan is correct, while apparently having similar repayment amounts to the original method.

As I took out student loans for my degree (which I graduated in Dec ’24), alhamdulillah I was happy to hear this news. I called the SLC to ask for more information about the repayments and spoke to a call agent. I asked if my repayment could be delayed a year or so until the alternative method is introduced, then pay the full amount owed between approx. Apr ’25–Apr ’26 with the new method. I was told that payments cannot be delayed unless I earned below the threshold salary. I asked for more contact information, an email or postal address, to discuss the matter further. But, I was told that the number I called is the only way SLC handles its “customers” (graduates with student loan repayments), so I cannot go further.

What this means is that I may have at least a year of loan repayment with Riba, alongside many hundreds or thousands of UK-based Muslim graduates who feel the same shame. My question to you mainly is regarding repayments during this interim period (approx. Apr ’25–Apr ’26 for me), and is split into five, with a sixth related question after.

What is your opinion, based on the information in the first website, on the alternative repayment system? The claim is that it will be Shariah-compliant, but based on the information provided, would this claim be true?

Should I try making voluntary repayments on top of what is taken out of my salary until I can switch to the interest-free repayments? This would be to try and decrease the Riba loan while I have it – then switch onto the alternative repayment system.

As an alternative to question (2), would it be better to only pay the minimum out of my salary, and then switch? This would be to maximize the amount of halal loan post-switch.

If it is not possible to switch to the interest-free repayments in 2026/27, should I make additional voluntary repayments to remove the Riba as fast as possible, or stick to the minimum payments for 30 years when the loan will be forgiven?

As an addition to question (4), could any strategy to reduce the loan payment lessen the sin by reducing the interest paid off over the 30 years? That is, despite interest still being applied to the whole loan over that time. Potential strategies of varying efficacy include: taking work that pays below or nearer to the threshold, concealing true income if working self-employed to below the threshold, maximizing pension salary sacrifice contributions to reduce gross salary (and hence repayments), or moving abroad where the threshold is adjusted for living cost (the loan cannot be avoided by moving abroad).
N.B.: Payments cannot be avoided abroad as arrears are imposed automatically with the highest interest rate (RPI+3%), and the loan can be settled through international courts if required. However, depending on the country’s threshold and the salary, overall repayments may be reduced.

Finally, because of the number of people this issue affects (and hence are interested in it), I would like to share the response to other people, mainly other interested students and alumni of my University Islamic Society. Others outside the University may also benefit, for example via the social network “LinkedIn” where interest/concern is quite high and possibly through other Islamic Societies. Can I share the response to other people, and if so, to what groups and how (e.g., with the response letter, or a summary based on my understanding of the response)? What is the adaab of sharing this knowledge?

Jazaakallah khair. May Allah bless your effort, and that of all the Ulema i kiraam. Forgive me if this letter causes any difficulty/inconvenience. Inshallah I look forward to your response.

Yours faithfully,
Imrose Mahmood.

In the name of Allah, the Most Gracious, the Most Merciful.

Answer:

Wa alaykum assalaam wa rahmatullahi wa barakatuh.

It should first be understood that the current form of student loan is indeed impermissible. Whether one calls it a loan or a tax, the fact remains that one is receiving an amount of money, making it a loan and not a tax, in exchange for a repayment of increased value, which is Riba [1]. It is therefore imperative that both students and working adults who signed up to the current student loan system endeavor to transfer to the new system as soon as it is available.

This applies to those who chose to take on a student loan in ignorance, those who took it knowing it was impermissible, and those who followed the opinions put forward by some scholars that accepting student finance is permissible out of necessity. Even if that opinion were a valid one, it will no longer be valid once the new alternative student loan comes into place, since the existence of a Halal alternative means the necessity no longer exists [2].

Regarding your first question, the government has yet to release the full details of how the new alternative student finance scheme will work, but Takaful is indeed an acceptable transaction in the Hanafi Madhab [3]. It is reasonable to imagine a finance system based on Takaful that would be valid just as many of the modern Islamic insurance products have done, and their consultation with reliable Islamic authorities suggests that the resulting product will most likely meet the satisfactory criteria for a Shari’ah compliant loan system. Regardless, given that the alternative student finance system is the closest we have to a Halal solution with no obvious flaws from what we currently know, we will have no choice but to accept it as the best alternative to student finance once it is available.

Even if there arise certain aspects which some Madhahib disagree with, every Madhab should acknowledge that in the light of the growing requirement for a degree in seeking a career in the UK, as long as the new alternative system does not go against any of the core principles of Islam that all the Madhahib agree upon, it should be accepted as a valid solution by all. In the meantime, we can assume that it will indeed be Shari’ah compliant, particularly given the fact that it is being designed specifically for this purpose.

For your second and third questions, one must understand that having a loan which increases with interest is not impermissible in itself. What is impermissible is paying that interest [4]. This has three consequences. Firstly, if those who are still in education were to pay off each year’s loan before interest is added, then no Riba will have taken place. Secondly, the less one pays, the better, and if one never pays the added interest, then no Riba has occurred. Finally, if one pays their initial installments intending to pay back the original cost rather than the added interest, then as long as the total amount they pay under the current system does not exceed the initial cost of the loan, then it is possible that any payments may be excused.

Thus, if it is possible to switch to the alternate finance system, then one should aim to pay the minimum amount possible before doing so, and they should do so with the intention of paying off the initial payment rather than the added interest. They should then seek to switch to the Halal alternative as soon as they are able to do so, after which they may pay off their loan freely.

For your fourth and fifth questions, if one is unable to switch to the new student finance system once it is available, then the issue here comes down to necessity. Once one has accepted student finance and interest has been added, one is legally and contractually obligated to pay that loan with the added Riba. For such a person, there are a number of options available to mitigate the sin incurred, with the earlier options being superior to the latter ones.

The best option would be to restrict oneself to careers and sources of income that ensure they will not earn more than the annual payment threshold until the 30 years have passed and the debt is waived. Otherwise, one can seek to switch to an alternative career that pays less or take other measures to decrease their salary, minimizing the amount of interest paid. If this too is not possible, then one should plan ahead, calculate their likely future income, and seek to ensure that the amount of income earned over the 30 years will result in a total payment which is below the amount initially granted to them by the student finance system. And lastly, if one’s income is high enough that it is guaranteed they will earn enough to pay back the entire loan, including interest, and they are unable to adopt any of the previous options, then they should seek to pay off the loan as soon as possible so as to minimize the total amount of Riba paid.

To conceal one’s true income would not be a permissible solution; it would simply be replacing one sin, that of paying Riba, with another, that of lying and breaching one’s contracts, while also risking legal repercussions [5].

Earning enough for oneself and their family is a necessity upon every male Muslim, provided this does not entail abandoning other obligations such as Salah [6]. So, if one has a career with an automatic salary progression system which prevents them from decreasing their salary, and finding an alternative career would put them through great hardship, only then may they seek to follow the latter options over the previous ones.

In any case, even if one never earns above the payment threshold, anyone who has entered into the current student finance system should still endeavor to seek forgiveness sincerely for entering into what is potentially a Riba transaction and strive to minimize the amount they pay [7].

Should you wish to share this Fatwa with others, it would be best if you share it as it is, keeping both the question and answer intact and citing the source.

And only Allah s.w.t knows best.

Written by Maulana Yusuf Badshah
Checked and approved by Mufti Tosir Miah
Darul Ifta Birmingham

 

 

[1] Raddul Muhtar, vol. 5, pg. 168-169, Darul Fikr:

بَابُ الرِّبَا هُوَ لُغَةً: مُطْلَقُ الزِّيَادَةِ وَشَرْعًا (فَضْلٌ) وَلَوْ حُكْمًا فَدَخَلَ رِبَا النَّسِيئَةِ وَالْبُيُوعُ الْفَاسِدَةُ فَكُلُّهَا مِنْ الرِّبَا فَيَجِبُ رَدُّ عَيْنِ الرِّبَا لَوْ قَائِمًا لَا رَدُّ ضَمَانِهِ لِأَنَّهُ يُمْلَكُ بِالْقَبْضِ قُنْيَةٌ وَبَحْرٌ (خَالٍ عَنْ عِوَضٍ)

Surah Al-Baqarah 275:

{ 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 ۞}

[2] Raddul Muhtar, vol. 1, pg. 446, Darul Fikr:

إذْ الضَّرُورَةُ الْعَجْزُ الْمُبِيحُ لِتَرْكِ أَدَاءِ الرُّكْنِ

[3] Raddul Muhtar, vol. 5, pg. 281-282, Darul Fikr:

كِتَابُ الْكَفَالَةِ مُنَاسَبَتُهَا لِلْبَيْعِ لِكَوْنِهَا فِيهِ غَالِبًا وَلِكَوْنِهَا بِالْأَمْرِ مُعَاوَضَةَ انْتِهَاءٍ (هِيَ) لُغَةً الضَّمُّ، وَحَكَى ابْنُ الْقَطَّاعِ كَفَلْته وَكَفَلْت بِهِ وَعَنْهُ وَتَثْلِيثُ الْفَاءِ. وَشَرْعًا (ضَمُّ ذِمَّةِ) الْكَفِيلِ (إلَى ذِمَّةِ) الْأَصِيلِ (فِي الْمُطَالَبَةِ مُطْلَقًا) بِنَفْسٍ أَوْ بِدَيْنٍ أَوْ عَيْنٍ كَمَغْصُوبٍ وَنَحْوِهِ كَمَا سَيَجِيءُ؛ لِأَنَّ الْمُطَالَبَةَ تَعُمُّ ذَلِكَ وَمَنْ عَرَّفَهَا بِالضَّمِّ فِي الدَّيْنِ إنَّمَا أَرَادَ تَعْرِيفَ نَوْعٍ مِنْهَا وَهُوَ الْكَفَالَةُ بِالْمَالِ

[4] Sahih Muslim 1598

حَدَّثَنَا مُحَمَّدُ بْنُ الصَّبَّاحِ، وَزُهَيْرُ بْنُ حَرْبٍ، وَعُثْمَانُ بْنُ أَبِي شَيْبَةَ، قَالُوا حَدَّثَنَا هُشَيْمٌ، أَخْبَرَنَا أَبُو الزُّبَيْرِ، عَنْ جَابِرٍ، قَالَ لَعَنَ رَسُولُ اللَّهِ صلى الله عليه وسلم آكِلَ الرِّبَا وَمُوكِلَهُ وَكَاتِبَهُ وَشَاهِدَيْهِ وَقَالَ هُمْ سَوَاءٌ

[5] Surah Al-Isra’ 34:

{ … وَأَوْفُوا۟ بِٱلْعَهْدِ ۖ إِنَّ ٱلْعَهْدَ كَانَ مَسْـُٔولًۭا ۞}

[6] Mishkat Al-Masabih 2781:

عَنْ عَبْدِ اللَّهِ بْنِ مَسْعُودٍ قَالَ: قَالَ رَسُولُ اللَّهِ صَلَّى اللَّهُ عَلَيْهِ وَسَلَّمَ: «طَلَبُ كَسْبِ الْحَلَالِ فَرِيضَةٌ بَعْدَ الْفَرِيضَة»

[7] Surah Az-Zumar 53:

{قُلۡ يٰعِبَادِىَ الَّذِيۡنَ اَسۡرَفُوۡا عَلٰٓى اَنۡفُسِهِمۡ لَا تَقۡنَطُوۡا مِنۡ رَّحۡمَةِ اللّٰهِ​  ؕ اِنَّ اللّٰهَ يَغۡفِرُ الذُّنُوۡبَ جَمِيۡعًا ​ ؕ اِنَّهٗ هُوَ الۡغَفُوۡرُ الرَّحِيۡمُ‏ ۞‏}

Surah Al-Baqarah 178-179:

{ يَا أَيُّهَا الَّذِينَ آمَنُوا اتَّقُوا اللَّهَ وَذَرُوا مَا بَقِيَ مِنَ الرِّبَا إِن كُنتُم مُّؤْمِنِينَ ۞ فَإِن لَّمْ تَفْعَلُوا فَأْذَنُوا بِحَرْبٍ مِّنَ اللَّهِ وَرَسُولِهِ ۖ وَإِن تُبْتُمْ فَلَكُمْ رُءُوسُ أَمْوَالِكُمْ لَا تَظْلِمُونَ وَلَا تُظْلَمُونَ ۞}