Islamic Viewpoint on Student Loans – An Overview

This fatwā seeks to provide clarity on the issue of the current loans system and whether the repayment of student loans contains interest and is, therefore, prohibited.

The fatwā begins by addressing the common understanding regarding student loans that repayment is commensurate to inflation rates, rather than outright bolt on interest. While this may be the case, this fatwa submits that the agreement still falls foul of Islamic law. The fatwā explains that sharīʿah ruling does not mandate the value being the same as borrowed, but rather that the units repaid be the same as borrowed, and this is not the case in the matter of student loans as they stand currently. This fatwā explains that it is with this key distinction that the problem with the current system lies.

Drawing on two key hadiths in relation to ribā and usury, this fatwā provides clear and precise examples of what ‘equal units’ amount to and how an unequal sale can constitute ribā in this regard. In the case of ribā, where there is vast possibility for inequality between lender and lendee, the fatwā emphasises the importance for the Muslim of avoiding unequal exchange.

In concluding, the fatwā deems the current student loans situation (2013) to amount to ribā which is prohibited, on the basis that the lender demands an increment on the basis of inflation.

For a complete discussion on this topic, please refer to the accompanying research paper here.