People want to pay off their student loan quickly for a bunch of reasons:
- Commercially its better as you pay less interest
- Emotionally, you feel like you’re engaged in haram and want to get out of it as soon as possible
- You believe that Islamically you need to get out of it as soon as possible as the student loan is haram
Point (1) is true, and point (2) is primarily an emotional argument that only has any basis if (3) is true. In this article we explore whether (3) is true.
In order to do that we need to decide two things:
- Is a student loan haram?
- Is there any Islamic justification for paying it back ASAP?
Let’s get into it! (Plus a link to an exclusive “How to Purify Your Wealth” Guide at the end)
Is a student loan haram?
There are a few arguments made by people who argue a student loan is not haram:
- Student loans charge interest rates that track inflation.
- Student loans are a necessity
- A student loan is not really a loan in the shari’ sense
(1) used to be true but no longer is as the student loan company in England & Wales now charges above-inflation interest rates.
(2) is potentially a good argument, but only if it really is a necessity. And by that I mean you have properly tried to avoid student loans by taking the following 6 steps (as outlined in a recent video we did):
- Consider do you need to go to university? A university degree isn’t the only route to a successful career. Really interrogate why you want to go to university. Check out this article for more on this line of reasoning. Additionally, if you’re going to a lower-ranked university, your job prospects will be lower, so factor that into your calculation. You could work for three years, or you could end up with a big debt after three years and work at a job that pays marginally more than you would have otherwise secured.
- Take a gap year and work. This is genuinely going to really strengthen your CV and give you life skills.
- Minimize costs whilst at university. Many students see university as a time to have a bit of fun and spend a bit more than they could or should. I know, I’ve been there myself. But if you’re otherwise going to take out a student loan, taqwa dictates that you don’t eat out every night and rent the best room in halls. Taqwa dictates that you cycle everywhere and take advantage of the 16-25 railcard. You should consider living at home if you can too.
- Work whilst at university. This is great for quite quickly building up a good amount of money. Particularly summer internships that pay well, for example in the City.
- Get a scholarship. As a student facing a student loan, it is really not acceptable that you haven’t spent the time even looking for a bursary or grant. Yes you may not get it, but so many Muslim students take out a loan and say “its a necessity”, and they’ve not even tried to find a bursary. Check out the lists here and here.
- Gap years during university. This is something that people don’t often give the due thought it deserves. A year working in industry, say, after your second year, is an amazing way of securing a job for after university, gaining real-life work experience, and earning some money. I know people who took more than one gap year during university. Ultimately it didn’t harm them one bit.
So that leaves argument (3). Our respectful view is that this is not a good argument.
There are a few factors given for why a student loan is not a traditional loan in the fiqhi sense:
- You don’t have to pay until you hit a certain threshold.
- You have to pay a fixed amount of your salary as opposed to working the payment amounts out from a basis of paying back the full amount over a term.
- The debt expires after 30 years from the month you graduate.
- You never actually take possession over the loan. It is paid directly to the university.
There are compelling argument for why this could be viewed as an intergenerational grant mechanism subsidised by the government. Some prominent scholars take this position. For example, Shaykh Haitham gives his view here (see also this written summary of the position).
However in our view, a student loan is a loan. There are enough qualities of a loan here to make it such:
- The paperwork all refers to it as a loan. Everyone thinks of it as a loan. It is called a loan.
- Interest rate is charged, and above inflation level
- The amount you owe piles up and compounds over the years
- You could end up paying up to £150,000 for a £60,000 debt.
The wider implications of saying a student loan is not a loan are also very worrying. You open up the doors to a whole bunch of clever structuring in the City, and soon every “loan” is not really a loan.
As a lawyer, if you tell me that not taking possession over an interest-bearing loan is a work-around to the haram activity of consuming an interest-bearing loan, my imagination will start racing and I’ll give you a bunch of interesting structures that you can use to work around interest – but in reality still avail of an interest-bearing loan.
We respectfully disagree with analogizing between a student loan and a mudarabah contract (see simple explanation here) as well. While it might seem prima facie intuitive that the Student Loan Company are entering into a partnership with you and hoping you’ll succeed, and if you do, they’ll take a 9% portion of your profits for 30 years, there are important differences. Firstly, the total amount you pay is not fixed only to your salary. The total amount you pay is fixed to the compounding interest-bearing loan that is still owed. Secondly, you can pay in lump-sum and reduce the overall loan you will ultimately pay. Thirdly, the Student Loan Company don’t see it this way. For them this is a loan.
So our view (and that of a few scholars we have discussed this point with) is that student loans are haram, but, if you have mitigated as much as you can, and you really need to go to university and it will be genuinely worthwhile for you, a student loan may be seen as a necessity and availed of. Here is a good scholarly video on the topic too.
Is there any Islamic justification for paying it back ASAP?
The Qur’an states: O ye who believe! Fear Allah, and give up what remains of your demand for usury, if ye are indeed believers. (2:278)
So if you’re actually earning the interest in a transaction, you should of course stop taking the interest ASAP once you realise it is haram. However, if you’re giving it, you can’t decide that, as the contract you entered doesn’t give you that optionality. So you have the choice of either paying the interest in the instalments set out in the contract, or you can accelerate the payments as much as you can to get out of the haram arrangement.
The question is – is the point of doing the haram the point you took out the loan, or is there an ongoing haram that is going on throughout the duration you are paying the interest back?
The argument for seeing the haram as a “snapshot” action is that the actual act of you agreeing to the loan agreement was the thing that bound you to all other actions. It is that which is haram, and so everything else is neither here nor there, and there is no concept of “continuing haram”.
However, further to discussion with scholars, ultimately we think it is recommended to be pay back your student loan ASAP (without putting yourself in excessive hardship) for two reasons:
- Abu Hurairah reports that Rasulullah (sallalahu ‘alayhi wa sallam) said: “When a person fornicates, his Iman leaves him (and hovers above his head) like a shadow, his Iman returns to him when he stops this act’.”(Sunan Tirmidhi, Hadith: 2625 and Mustadrak Hakim, vol. 1 pg.22).
This hadith shows that, for some sins, the Sharia deems them so bad that the sin increases the longer the duration of the sin. You wouldn’t want that duration of being without iman to go on for any length of time.
And taking interest is such a sin. Interestingly this following hadith links interest to the awfulness of adultery: From Abu Hurayrah: The Prophet, said: “Riba has seventy segments, the least serious being equivalent to a man committing adultery with his own mother.” (Ibn Majah)
So we would suggest that, to get out of the cycle of having to pay a haram payment every month, one pays off the student loan in bigger chunks so as to minimise the number of haram payments one has to make and the length of time that such a loan hangs over one’s head.
- There is also a spiritual element here. One cannot possibly feel more connected with Allah and his religion while in a brothel than if one were in one’s home. Similarly, ongoing sin (or at least interaction with a continuing aspect of a sin you entered long ago) could well hold one back from a deeper connection with Allah (swt).
Eman is something that wears out: Abdullah ibn Amr reported: The Messenger of Allah, peace and blessings be upon him, said, “Verily, the faith of one of you will wear out within him, just as a shirt becomes worn out, so ask Allah to renew faith in your hearts.” (Mustadrak). So eman is not a logical/mechanical thing. It is a spiritual/emotional/psychological thing. That’s why the following hadith makes sense:
Abu Hurayrah narrated that the Prophet said: “Iman has more than 70 branches. The most excellent among these branches is the saying of “Laa ilaaha ill Allah” (there is no God but Allah), and the smallest branch is to remove an obstacle from the wayside. And “Haya” (modesty) is an important branch of Iman.” (Muslim).
We think that taking out a student loan is in principle impermissible (especially where you haven’t even considered properly all the other options out there to avoid or mitigate a student loan) but can be availed of using necessity/haajah arguments if you really can’t find a way to pay.
Do also check out the following resources which set out very practically how to avoid student debt:
This article on how a little bit of regular saving can add up to a lot.
If none of those strategies work then that still shouldn’t stop you going to uni and availing of student loan – but you’d be using necessity/haajah argument. So all steps to avoid that should be fully explored.
For commercial reasons we think it may be a sensible idea to pay your student loan back as quickly as you can easily do so, especially if you are a higher earner, as you will eventually end up paying it off, but with a lot of interest if you leave it late.
But more importantly, Islamically, the state of being in an interest-bearing loan transaction is one that should be avoided. It is spiritually damaging to one for as long as one is in that transaction. However, this doesn’t mean that you have to put the repayment of your student loan above all else. What it means is you should make its repayment a priority, but also be pragmatic about living life in a way that’s not overly difficult for you.
And as promised, here is the link to our How to Purify Your Wealth Guide.
As ever, we welcome debate and comment and look forward to hearing your thoughts and experiences on this sensitive but important subject.