STUDENT LOANS AND SHARIA LAW

Some Muslims and members of other faiths may be deterred from taking out the UK government's student loans, due to the interest payment system.

We have prepared this page of information for undergraduate and postgraduate students who need to finance their education, and who also have questions or concerns about Sharia compliance.

Interest-free overdraft facility

Student Loans for undergraduates

Postgraduate Loans

Other loans for study

Alternatives and consequences

Sharia-compliant financing

Interest-free overdraft facility

Most UK banks offer home undergraduates a student bank account with an overdraft facility which is interest-free up to a specified limit. The same bank may at the same time charge non-students interest on an overdraft.

Student loans for undergraduates

The UK government offers eligible undergraduate students a Tuition Fee Loan and Maintenance Loan as part of the Student Finance funding system in the UK. These student loans incur interest on the repayments. Before 2012 this interest was set at the rate of inflation, not at a commercial rate. Therefore, the value of the amount repaid was the same as the value of the amount borrowed. However, since 2012, interest is charged at the rate of inflation plus 3 percent during the period of study.  The interest rate then varies after studies, between the rate of inflation only and inflation plus 3 percent, according to earnings.

Postgraduate Loans

A new system of postgraduate loans for Masters degrees in the UK will be introduced for the 2016-17 academic year. It is expected that students aged 60 and under will be able to borrow a maximum of £10,000 to help pay tuition fees and/or living costs for both taught and research based Masters programmes. Interest is set to be the current RPI(Retail Prices Index) plus 3% with repayments normally due from the April following course completion, but students taking out a loan in 2016-17 will not have to repay this until 2019 so they will have a year's break. The postgraduate loan repayment webpage explains using examples how loans will be repaid including what interest is charged and how repayments are calculated for students who are repaying both undergraduate and postgraduate loans. The scheme has not yet been finalised but there is detailed information available at: www.findamasters.com/funding/guides/new-uk-postgraduate-loans-scheme.aspx

In addition to the Postgraduate Loans Scheme for Masters courses, the government has also announced a separate PhD loans scheme. Instead of providing a replacement for Research Council studentships, the loans have been suggested as a way of expanding access to PhD study for students who would otherwise self-fund all or part of their doctorates. Exact details of the PhD loans have yet to be confirmed, and it is currently unclear when they will be implemented. More detailed information on the proposals is available at: www.findaphd.com/funding/guides/uk-phd-loans-scheme.aspx

Other loans for study

Some other loans for study do attract a commercial rate of interest. For example, some students may choose to take a Professional and Career Development Loan (PCDL) or other form of bank loan to fund their studies (especially for postgraduate study). Some people believe that this is not Sharia-compliant while others believe that if such a loan is crucial to a student accessing education, then it can be. It is unclear whether PCDLs will continue to be available from 2016-17 once the new Postgraduate Loans Scheme has been introduced.

Alternatives and consequences

As we explain below, the UK government is intending to introduce an Alternative Finance product, the 'Takaful' fund as a specific Sharia-compliant alternative that is comparable to the government Student Finance system. However, this would require the introduction of new legislation and it is currently unclear what the timescales for this are. Until the new system is introduced, it is important to understand that if you decide for faith reasons not to take a loan for your studies, this may have an effect on your eligibility for other sources of funding plus, you would need to find alternative funding such as family, friends, savings, to cover the cost of your education :

  • There are University Financial Assistance Funds at QMUL to help students facing financial hardship. If you are a home undergraduate student who is eligible for UK government Student Finance, you can only apply to the University Financial Assistance Fund if you have taken your full Maintenance Loan entitlement. If you are a home postgraduate student, you must have made provision to pay your tuition fees and basic living costs
  • Banks often want to see evidence of a Maintenance Loan before opening a student account with the interest-free overdraft facility
  • Some trusts and charities specifically exclude students who are entitled to a Maintenance Loan, whether they have taken it or not
  • If you are entitled to claim welfare benefits as a student, the Benefits Agency will assume you have taken your loan entitlement and will reduce your benefit entitlement accordingly

However, it is worth noting that some elements of government Student Finance are not repayable. These include supplementary grants for dependants or disability related course costs. Depending on family income, you may qualify for a non repayable Maintenance Grant, and a National Scholarship Programme or QMUL Bursary. These could form part of a package of finance to fund your study. You might wish to discuss possible options with a Welfare Adviser in the Advice and Counselling Service.

Sharia-compliant financing

The UK government has been exploring the possibility of an Alternative Finance system available alongside traditional student loans that is not interest based, but results in identical repayments to the conventional system. This funding would be Sharia (Shariah, Shari’ ah) compliant and overseen by a Sharia advisory committee. The UK government undertook a public consultation ending in September 2014 which has resulted in an agreement to offer an Alternative Finance product. This 'Takaful' product has received preliminary approval from Al Rayan Bank's Sharia supervisory committee and it is anticipated that the government will bring in legislation to introduce the new system but it is not yet clear whether this will be from 2016-17 or later. More details about the Takaful product are set out in the November 2015 government green paper 'Fulfilling our potential Teaching Excellence, Social Mobility and Student Choice (Chapter 4, Social mobility and widening participation, paragraphs 27-36 Alternative(Sharia-compliant) finance). 

Some financial institutions have Sharia-compliant financial services. They guarantee that money held in these accounts is not invested in industries such as gambling, alcohol or weapons manufacturing. For more information, visit the banks' websites: