University Loans; a response.

This article is from Intellectual Issuance blog.

All praise is due to the Almighty Allah ﷻ.

I write this article in light of a recent student finance seminar led by my brother and senior in Islam, Shaykh Haitham Al-Haddad. I first wish to inform the reader of something that he/she should know; it is important that you think for yourself. Ever since our decline, we have forever passed on our cognition to another on matters that we are able to evaluate, leaving our minds desolate and unable to understand a given reality.

For those who question the validity of this article, please know it is built upon the work of the eminent mujtahid Sheikh Taqiuddin al-Nabahani, whom graduated from Al-Azhar University and the Dar-ul-Ulum college of Cairo, primarily upon his two renowned books; ‘Economic System in Islam’ and ‘Islamic Personality’, both of which I will cite here:

Al-Nabhani, T., 1990. The Economic System In Islam. Fourth edition.London: Al-Khilafah Publications. Al-Nabhani, T., 2005. Islamic Personality (al-Shaksiyyah al-Islamiyyah). London: Al-Khilafah Publications.

Having said this, I wish to point out that this is not a scholarly issue per se. By this I mean that if a reality is explicit to the Muslim and the hukm to that reality is also clearly understood, then the natural conclusion would be intelligible, i.e this point is not contingent upon a Mujtahid. For example: A scholar does not have to let us know that interest is haraam for it to be so (as this is qatai), nor do we need him to let us know that interest based loans are haraam for the same reason. Finally, this should not be understood as an attack on Sheikh Haitham, rather an analysis and critique of the ideas he has put forward in this seminar, and those who read this should take it as such. If anyone wishes to put forward a rebuttal, I will only ask of them to not be ad hominem nor superficial about it.

In the seminar, Sheikh Haitham began by stating a rule in Islam, that everything is halal except if there is a clear evidence provided to say it isn’t (for all matters except ibadah).

In actuality, this is inaccurate. In fact, it is the very misconception and misapplication of this principle that contributed to the demise of the khilafah, whereby new realities came unto the ottomans (such as legislation, et cetera) only for them to accept them as halal (due to a lack of evidence) when they were indeed far from it. Whilst the discussion is indeed intricate, the principle comes to be, as Sheikh Taqiuddin has put it; that every ‘thing’ (that is to say object) is permitted, ‘unless there is an evidence of prohibition and that all human actions are, in origin, restricted by the divine rules (aHkaam shar’iyyah), and no action can be undertaken until its rule (Hukm) is known’.

He then defined riba, as exchanging items for different amounts of the same item, that is to say exchanging money for a different amount of money.

Riba (usury) is however different from sarf (currency exchange). Sarf is taking one thing for another in the same type equally, or two different types equally (i.e exchanging one currency for another) and only takes place in the form of trade (Bay’u). Whereas Riba occurs in trade, but also in a loan (Qardh) and or in Salam (forward buying).

We must be concerned with the concept of Qardh here, as university loans are a form of loan that is taken out by the student whom repays it above a threshold to the government. In terms of a loan, interest is present in all its forms and must be regulated as such, that is to say it is haraam for a person to lend something to another person and expect more or less for it in return. Whilst Bay’u and Sarf can be exchanged for a different type and or amount, the loan (Qardh) can only be exchanged for the same amount and nothing else.

He then spoke about Mudarabah, as a justification for student loans.

‘Mudharaba is a contract where two persons (or more) participate in trading, where the capital comes from one of them and the work from the other. This means that the work will be carried out by one of them and the other will provide the property. The two partners agree on a certain share of the profit. An example of this is when one of them provides one thousand pounds and the other person works with it, and the profit is divided between them. So Mudharaba is a kind of work which is a legal means of ownership.’

Firstly, it is quite clear that to use this contract and link it to a student loan is absolutely erroneous for the following reasons: 1) Taking a loan from the government is not akin to initiating a contract between two partners whom seek to work together for business, this is a contract between a creditor and a debtor, namely a student and the government. 2) Profit is only involved for one party (the government) as opposed to both 3) This is an investment based contract which is different to that of the contract for a loan, whereby partners are tied only by the amount they owe or lent each other as opposed to the capital/effort they have invested. 4) The government lends to the student purely for their education and not for the job they may or may not attain, hence there is no profit upon a degree that the student is expected to make, thus mudharaba is not applicable 5) Finally, and perhaps most importantly, the subject matter upon which Mudarabah is concluded must be permissible in Islam – which in this case it is not (as it is an interest based loan).

This is in reality a loan and hence the hukm applies to it in that sense. Anyone who believes that this is not a loan with interest on it is honestly, in my humble opinion, trying to avoid the brute reality with obscure reasons just to get a degree. The reality is blatant but the reasoning seems to be complex.

The question that must be asked is, what is the nature of the subject matter (student loans) here? The respected scholar Sheikh Haytham al-Haddad has unfortunately used a specific investment contract and misapplied it to another one of Qardh.

In fact, to call this an investment is utterly absurd, for according to Islam, I would not have to pay an ounce of my income back to the government, rather suffer the losses on what I invested, which according to the Sheikh, is myself, which has no place in Islamic financial contracts. Rather this is clearly a loan and not an investment, for it is a duty upon the debtor to repay the creditor with interest upon what was borrowed.

What is the reality of a loan?

A loan can be defined by an agreement between two parties in which one gives the other a sum of money with the expectation of it being paid back in full amount. The one who supplies the money is known as the lender and the one who takes it is known as the borrower. The borrower is said to be in debt to the lender.

What is the reality of a university?

A university is an educational institution, in which students attain academic qualifications and a place where research is done. In the United Kingdom, universities charge students a fee of £9000, in exchange for their academic services. These are known as tuition fees and are standardised at the aforementioned amount.

What is the reality of interest?

According to the Oxford dictionary, Interest can be defined by “money paid regularly at a particular rate for the use of money lent, or for delaying the repayment of a debt”. In Islam, ‘riba’ is understood to be the process of making money upon money, that is the surplus on top of the principal.

What is the reality of Student Finance England (SFE) and Student Loans Company (SLC)?

The former is a government owned regulatory body, which administrates student applications in respect to their finance. The latter is a non-profit, government owned organisation that aims to “provide loans and grants to students in universities and colleges”.

What is the reality of the interest based university loan system?

This information has been taken directly from UCAS, the SLC and SFE. The student applies for a tuition fee loan of £9000 through SFE by signing a specific contract, in which it is clearly stated that interest is charged. The SLC behaves as an intermediary by paying the tuition fees to the university whilst the student is left in debt to the government. The student ultimately pays back this loan through a PAYE scheme once he/she earns above a threshold and has graduated.

To clarify, the student initiates this loan by signing the contract with SFE. Although the student may never see the money he/she borrowed, it is paid on their behalf to the university by the SLC. What happens with this money is irrelevant as the debt lies between the student and the government-based organisation and this matter is not altered when the SLC pays the university on the student’s behalf.

Is interest permitted in Islam?

As primitive as it seems, the answer to this question is no. It is categorically forbidden and it is a major sin. Allah swt says: “O you who believe, fear Allah and give up what remains of your demand for riba, if you are indeed believers. If you do it not, take notice of war from Allah and His Messenger.” (2:278-279).

Hence it is clear, even from the mouths of the ones who credit the funds to the debtor, that the student loan is comprised of interest and interest is strictly forbidden by Allah, a matter which would, if he took it, initiate war against the Almighty.

If you are still doubtful on this very clear matter, then know the following evidence:

Abû `Abd Allah al-Nu`mân b. Bashîr relates that he heard Allah’s Messenger (peace be upon him) say: “That which is lawful is clear and that which is unlawful is clear. Between the two are doubtful matters that few people have knowledge about. Whoever avoids these doubtful matters absolves himself of blame with respect to his religion and his honor. Whoever falls into doubtful things will fall into what is unlawful, just like the shepherd who grazes his flock too close to a private pasture is liable to have some of his flock stray into it. Every king has a private pasture, and Allah’s private pasture is what he has prohibited. Verily, in the body is a small piece of flesh that if it is healthy, the whole body is healthy and if it is sick, the whole body is sick. This small piece of flesh is the heart.”
[Sahîh al-Bukhârî and Sahîh Muslim]

Finally, I wish to inform those who read this, that there are viable alternatives to university and also feasible routes to attaining the funds necessary for a degree.

For those who have their heart set on university: It is possible to reduce your tuition costs with bursaries/scholarships/grants available from your own university (which do not involve interest and are simple offer and acceptance contracts which transfer funds from the government or university to the student without the expectation of repayment). It may also be wise to seek an apprenticeship or a firm which can actually fund your academic qualification. Perhaps consider working for a year or two, so as to save funds for all three years (or even intermittently between years). There are also many reputable universities in Europe and abroad, whose tuition fees are often much lower. As a last resort, it may be possible to borrow from family and or friends (with no interest of course).

For those who are indifferent and merely want a career: Internships are becoming very popular, especially post rise in tuition fees. I know of many students that have taken their A-level and IB grades to pursue experience based careers. In fact, most of these students began apprenticeship and internship programs or from the bottom of a job in their desired field so as to work their way up – and they have done just that.

That being said, if you have the relevant funds to go through an academic institution without committing haraam, then I would definitely recommend it!

And I leave the rest unto Allah, for indeed He knows best. Ws.

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