What is the Islamic ruling for Student Loans?
In the name of Allah, Most Compassionate, Most Merciful.
Allah states in the Quran, “Allah has permitted transactions and has forbidden riba” (Surah Al Baqarah v.275)
Ali ibn AbuTalib narrates that he heard Allah’s Messenger (sallal lahu alayhi wasallam) curse those who took usury, those who paid it, those who recorded it, and those who refused to give sadaqah. And he used to prohibit wailing. (Tirmidhi: 858)
In light of the above and similar ayaaths and ahadiths, scholars have ruled that it is unlawful for a Muslim to get involved in any kind of interest.
The word riba literally means excess. In Shariah terms it refers to excess on one side. [i.e. where a loan is arranged with the condition that the borrower will return to the lender more than and better than the quantity borrowed.] (Durrul Mukhtar, Vol 4, P197)
Therefore it is clear that student loan where interest is charged is clearly not permissible and also those loans where it is stated that only inflation would be charged. The reality in those loans is that there is excess on one side and in truth it is exchanging money for money with more from one side which is clearly Riba and prohibited. By using the term “inflation” the reality of the transaction will not change as consideration is given to the substance of the transaction and not the terms used.
And Allah knows best.
Darul Ifta, Birmingham