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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.
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.
A new system of Postgraduate Loans for Masters' degrees in the UK has
been in operation since the 2016-17 academic year. Students aged under 60 on the first day of their programme can borrow a maximum of £10,000 (2018-19: £10,609.00) to help pay tuition fees and/or
living costs for both taught and research based Masters'
programmes. More information on Postgraduate Loans can be read on our pages here.
Interest is charged at current RPI (Retail Prices Index) plus 3%
with repayments normally due from the April following course completion.
In addition to the
Postgraduate Loans Scheme, the government has also announced a separate PhD
Loans Scheme for student starting from 2018-2019 onwards, aimed at students
without Research Council funding, as a means of expanding access
to PhD study for postgraduates. There is more information on our webpages here.
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.
The PCDL scheme will end on January 2019. The Government announced in June 2018 that they will close to new borrowers on 24 March 2019. The final date to apply for inclusion on the PCDL training provider list or register a new course will be 30 November 2018. The final date for learners to submit applications to The Co-operative Bank will be 25 January 2019.
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. You would need to find alternative funding such
as family, friends, savings, etc, to cover the cost of your
education. Some factors you may wish to consider are:
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.
If you started your course before 2016, you might qualify for a Maintenance
Grant, depending on your household income.
The UK government has been exploring the possibility of an Alternative
Finance system available alongside traditional student loans that will avoid
the payment of interest 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 chapter 4, paragraphs 27-36 of the November 2015 government green
paper 'Fulfilling our potential Teaching Excellence, Social
Mobility and Student Choice [PDF 2,197KB] sets out the details
of this (paras 27-36).
The latest available information is set out on pages 59
and 60 of the government's White Paper 'Success as a knowledge economy' [PDF 13,948KB] published
in May 2016, which explains that the government is committed to
introducing the new product, however there are currently no
timescales for this.
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.
Rayan Bank (formerly Islamic Bank of Britain)
Rayan Bank currently
provides bank accounts that comply with Sharia Law. For more information on the
services offered and how to apply, please visit their website. The bank
provides additional financial services such as home financing, savings and