Is Student loan Halal or Haram?

Student loan halal or haram? The straight answer is no, if it involves any type of interest, and yes, if it does not involve any interest in it. There is no harm in taking a loan as per the Islamic finance system, all does matters is interest. There are clear rulings for interest in Islam, which say it is prohibited and is a great sin to either take or give interest. So, as far as the loan is concerned in India, through any banks or NBFC, it is clearly prohibited.

What are other alternative ways to take student loans?

There are a few societies in India that work locally and form cooperatives. They help families in financial struggle by offering them loans without interest. They have their own methods of earning and maintaining their cooperatives. Some are involved in business partnerships by giving loans to them and sharing both profit and loss. In case of student loans, they offer free loans for the welfare of society and help the community to grow. This is one way of getting away from the student loan halal or haram question.

But unfortunately, there are few of them and they are mostly in big cities like Delhi and Mumbai. Few cooperatives can be seen in tier 2 and tier 3 cities as well.

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Ruling of interest in Islam

In Islam, interest is completely banned due to its negative effect on society. According to Islam, Interest is that evil which makes the rich richer and the poor poorer if it is permitted in the society. As in the holy book Quran, it is stated that interest is prohibited and haram, and whosoever disobeys this will be fighting against Allah and His Messenger (p.b.u.h). In explanation, taking, giving, and writing interest is also haram. So, there is no question of student loan halal or haram.

In this era of immense development, one can clearly see the negative impact of interest on society. Exceptions are always there, but if we consider it as a whole, then it has a greater negative impact than its goodness. You can refer few research papers listed below for understanding the negative impact of the interest-based economy.

Below are references to many research papers to find the answer to whether student loan halal or haram. These are top scholars and have clearly mentioned the negative impact of student loan halal or haram.

Research Paper References(source: academia.edu)

Abdullah, A. K. (2013). Pitfalls of Riba or Interest-Based Financing. International Journal of Advanced Research.

 Abdullah, A. K. (2015). Advancing Well-Being with Interest-Free Finance. International Journal of Advanced Research.

Ağri, T. & Orhan, Z. H. (2018). İslam İktisadı Perspektifinden Faiz (Vol. 1).  İstanbul: İslam Iktisadi Araştırma Merkezi.

 Aristotle.  (1999). Politics. Batoche Books.

 Ayub, M. (2017). İslami Finansı Anlatmak (Vol. 1). İstanbul: İktisad.

Bayındır, A. (2016). Ticaret Ve Faiz. İstanbul: Süleymaniye Vakfı.

Bayındır, S. (2005). Faizsiz Bankacılık. İstanbul: Rağbet.

 Bayındır, S. & Ustaoğlu, M. (2018). The Issue of Interest (Riba) in the Abrahamic Religions. International Journal

Of Ethics And Systems, 5.

Bećirović, S., Plojović, Š.  & Ujkanovi, E. (2010). The Impact  of Interest  on the Economy. International Scientific Conference.

Chapra, M. U. (1992). Islam and The Economic Challenge: The International Institute of Islamic Thought.

Chapra, M. U. (2010). Prohibition Of Interest, Does It Make Sense? (2 Ed.). South Africa: IDM Publications.

Checherita, C. & Rother, P. (2010). The Impact of High and Growing Government Debt on Economic Growth (Vol.1237). Germany: European Central Bank.

 Diwany, T. E. (2008). Faiz Sorunu. M. Saraç (Trans.). İstanbul: İz.

 Hassan,  M. K.,  Kayed, R. N.  &  Oseni, U. A. (2003). Islamic Banking & Finance, Principles, and Practice. England: Pearson Education Limited.

Hassan, M. K., Kayed, R. N. & Oseni, U. A. (2013). Introduction to İslamic Banking & Finance. England: Pearson Education Limited.

Hassan, R., Othman, A. A. Salleh, S. & Husssin, M. A. (2016). Islamic Banking and Takaful. Malaysia: Pearson Malaysia Sdn Bhd.

Hossain, M. S. (1992). Interest, Society. Economy: İslamic Economics Research Bureau.

Iqbal, Z. (1997). Islamic Financial Systems. World Bank Publication.

 Khalid, D. I. (2016). Riba (Interest) as a Cause of Imbalance Society and Its Islamic Perspective. International Journal of Advanced Research, 4.

Khan,  M.  (2009). Interest-Free Economy. Peace Publication. Marx, K. (2003). The Capital (Vol. 1). Eris Publication.

 Obaidullah, M. (2008). Introduction to Islamic Microfinance. India: IBF Net (P) Limited.

 Rahim, A. & Rahman, A. (2010). Islamic Microfinance: an Ethical Alternative to Poverty Alleviation. University Publication Center, 4, 284-295.

Rahman, M. H. (2009). Interest. Bengal Press. Uluslararası İslam Eğitimi Kongresi

 Rahman, S. H. (1991). In the Economy, the Prophet (Peace Be Upon Him) Has Ten Points. Dhaka: Rajshahi Student Welfare Association.

Rethel, L. (2010). Whose Legitimacy? Islamic Finance and the Global Financial Order. Review Of International Political Economy.

Sadeq, A. H. M. (1992). Al-Ghazali on Economic Issues and Some Ethic Juristic Matters Having Implications for Economic Behavior (Vol. 7).

Islamic Economics Research Centre: Islamic Economics Research Series, King Abdulaziz University.

Saleem, M., Khan, M. & Siraj, S. (2013). The Impact of Interest Based Banking on Socio-Economic Environment.  International Journal Of Scientific And Research Publications, 3 (11), 5.

 Saraç, M. (2016). Sürdürülebilir Kalkınma İçin Faizsiz Finans Sisteminin Önemi ve Gereği. Yerel Kalkınma Derneği.

Saraç, M. (2017). Finans Teorisini Yeniden Düşünmek (Vol. 2). İstanbul: İktisat.

 Uludağ, S. (2010). İslam’da Faiz Meselesine Yeni Bir Bakış. İstanbul: Dergah.