STUDENT LOANS & FINANCIAL AID
1. Q: Can a student take a loan just to access attached grants, if they already have enough money?
A: Yes, if the loan is interest-free for a set period (e.g., six months) and the borrower:
- Does not need the loan itself
- Plans to repay it within the interest-free period
- Takes it solely to access grants
Then this is permissible, based on the principle:
“Al-umūr bimaqāsidihā” – Actions are judged by intentions.
2. Q: Are student loans that include interest (riba) permissible in Islam?
A: No. If the loan contract contains riba (interest), then it is haram by default.
3. Q: What if the student loan has no interest?
A: If the interest is completely waived, such as the Canadian federal loan, then the loan is permissible.
4. Q: Can I take a loan with a six-month interest-free period?
A: If you are 100% certain you will pay off the loan before interest is charged, it is permissible. If there is any risk you won’t repay in time, it becomes impermissible due to the riba clause.
5. Q: Can students take riba-based loans if there are no halal options and they can’t afford education otherwise?
A: Yes, in this case, it falls under darurah (necessity) and is permissible temporarily, as long as:
- The student genuinely cannot afford tuition
- No halal alternatives are available
- The loan is used only for what’s needed
- The career is a career that the Muslim community is in need of and will benefit the community. (eg. Doctor, nurse, teacher, etc. If someone decided to take out a loan to go into acting or art for example that would not be considered a necessity therefor not permissible)
6. Q: If a student or their family has enough money but chooses not to use it and instead takes a riba-based loan, is it allowed?
A: No. This is not a necessity. Choosing riba out of convenience or to “take advantage” of loans is sinful.
7. Q: If I have wealth or my parents can pay, can I still take the loan?
A: No. That is not a darurah (necessity). Choosing to take a loan just to save your own money or out of convenience is sinful.
8. Q: If a federal student loan is enough, can someone still take a provincial (riba-based) loan?
A: No. If the federal halal/interest-free loan is sufficient, you are not permitted to take additional riba-based loans from other sources.
9. Q: What if the federal loan is not enough to cover education expenses?
A: In that case, if no halal option is available, you may take the riba-based loan with the intention to repay it as soon as possible, under the darurah (necessity) ruling. (see Question # 5)
10. Q: Are administration or processing fees allowed in Islamic finance?
A: Yes, as long as they are flat and fixed, and not linked to the loan amount.
11. Q: When do administration fees become impermissible?
A: If the fee increases based on the loan size, it is considered riba in disguise.
✅ Example of permissible:
- Loan = $100,000 → Fee = $50
- Loan = $2,000 → Fee = $50
❌ Example of impermissible:
- Loan = $100,000 → Fee = $1,000
- Loan = $5,000 → Fee = $50
12. Q: What is considered “darurah” (necessity) in Islamic law?
A: Darurah refers to a situation where:
- A person faces harm or serious loss without a prohibited act
- No halal alternatives are available
- The action is taken only to the extent necessary
13. Q: What is the difference between a general ruling and a darurah-based exception?
A:
- The general ruling on riba is always haram.
- But in exceptional cases of darurah, riba may be temporarily allowed.
The exception does not change the ruling, it only applies to rare cases.
14. Q: What is the principle regarding alternatives and necessity?
A:
“If a halal alternative exists, there is no darurah.”
You must exhaust all Islamic options before considering a prohibited one.