As you know, after graduation, you have to pay back student loans with interest over time. However, for Muslims, this goes against their faith due to the belief that money has no intrinsic value. This can be a barrier for Muslim students to attend university, due to the high costs that come with it. But, there are ways to work around this. Halal student loans allow students to access financial arrangements for higher education. If you’re looking to see what could work for you or you’re simply curious, this article has you covered. Here’s more about halal student loans in the UK.
What is a halal student loan?
So, what is a halal student loan? Essentially, it is a student loan that complies with Muslim beliefs (see the key features below). In Islam, certain financial practices, like paying or receiving interest (Riba), are prohibited. Halal finance is designed to comply with Islamic law, ensuring that Muslims can manage their finances without compromising their beliefs. Therefore, halal student loans allow Muslim students to receive financial aid for further education without compromising their religious beliefs. This removes a barrier to higher education that many Muslim students currently have to deal with.
Key features of halal student loans
Interest-Free structure
The most defining feature of halal student loans is having an interest-free structure. In traditional finance, loans typically accrue interest, meaning the borrower pays back more than they initially borrowed. However, in halal finance, this concept of interest (or Riba) is strictly prohibited under Islamic law. Therefore, halal student loans need to be structured in a way that avoids the charging of interest. This approach not only aligns with religious principles but also offers a more ethical and transparent financial solution. Borrowers can plan their finances more effectively, knowing the amount they need to repay remains constant, without the worry of accumulating interest.
Compliance with Islamic Law
Halal student loans should be meticulously designed to comply with Islamic law, which governs not only the absence of interest but also the nature of the investments and transactions. Islamic finance principles emphasise ethical, moral, and socially responsible investing. For instance, funds from these loans cannot be used for activities that are considered harmful or unethical in Islam, such as gambling or alcohol-related businesses. This compliance ensures that the entire process, from the loan’s origination to its repayment, upholds the principles of fairness, transparency, and social justice. For Muslim students, this compliance is crucial as it allows them to adhere to their faith while accessing necessary financial resources for their education.
Repayment terms
Another significant aspect of a halal student loans is flexible repayment terms. Recognising the financial challenges faced by students, especially during the early stages of their careers, these loans would be structured with more accommodating repayment plans. This flexibility might include deferred payments until after graduation or tailored repayment schedules based on the borrower’s income levels. Some halal loan structures might even consider profit-and-loss sharing arrangements, where the lender shares in the financial success or challenges of the borrower. This approach not only eases the financial pressure on students but also aligns with the Islamic finance principle of risk-sharing between the lender and borrower.
Overall, the key features of halal student loans – their interest-free nature, compliance with Islamic law, and flexible repayment terms – make them a viable and ethical financial solution for Muslim students in the UK. These features ensure that students can pursue uni without compromising their religious beliefs.
What’s the difference between halal student loans and typical student loans?
The primary difference between typical student loans and halal student loans is that there is no interest involved. Rather than charging interest, the lending institution or bank charges fees or alternative structures to fund the transaction. The other primary difference between the two is that the government has yet to develop the infrastructure for halal student loans. Despite first proposing a form of student finance compatible with the Muslim faith in 2013, the government has still yet to implement this.
Government’s Alternative Student Finance
The government has come up with the scheme of ‘Alternative Student Finance’, for any students that are unable to use the current student finance system. It will be designed and structured in the same way as the regular student finance program to make sure that all students are treated the same.
The initial stage will be completed in March of this year. However, the introduction of the Lifelong Learning Entitlement in 2025 means that Alternative Student Finance will become available after 2025 to line up with this launch. Even then, the government aims to launch it as soon as possible after the LLE’s launch, meaning that it may not even be accessible then.
What to do in the meantime?
While the government’s alternative student finance will help students in the future, it’s not helpful to students right now. So, what can you do in the meantime? If you are in need of student finance but going through official student finance is not feasible, there are alternatives. If you are looking for a halal student finance alternative, these are some options you can consider:
- Research Islamic finance products and services
- Look into Islamic scholarships
- Speak to Islamic finance advisors
- If you’re currently at university, speak to your uni’s finance team and ask them for details of hardship funds/grants
- Consider interest-free loans from family
- Consider applying for NHS-funded courses (or other courses)
- Look at studying abroad where halal financing is possible
Obviously, this is not an ideal scenario. It’s the hope that new changes coming to student finance will mean that halal student loans will be possible.
So, this is everything you need to know about halal student loans. Whether you’re looking for information for your own studies or just simply curious, this article should hopefully give you a clearer picture of what a halal student loan is and what you need to do to get one.
If you’re looking to find out more about the typical student loans, check out this article for everything you need to know about university student finance.
