Student Loans in the UK - By Mufti Amjad Mohammed

Summary

This video discusses the UK student loan system, focusing on tuition and maintenance loans, and their permissibility under Islamic law. The speaker explains that loans must be repaid when a graduate earns over £21,000, with interest based on inflation. The concept of Riba (interest) is highlighted, showing how inflation contributes to an increased repayment amount. The speaker argues that these loans are impermissible for Muslims due to interest, offering an alternative suggestion of lobbying for Sharia-compliant arrangements to allow Muslim students to access higher education.

Takeaways

• 😀 The UK student loan system requires repayment once a graduate earns over £21,000 per year, with monthly repayments increasing as income rises.
• 😀 Student loans include tuition fee loans and maintenance loans, with repayment terms outlined on the official government website.
• 😀 Monthly repayments for student loans are based on income thresholds, with nothing owed if earning below £21,000, and a set percentage required for higher incomes.
• 😀 Interest on UK student loans is based on inflation plus a fixed amount of up to 3%, which is added to the loan amount once the repayment threshold is reached.
• 😀 The inflation component of interest is viewed as riba (usury) under Sharia law, as it leads to paying back more than the original loan due to the decreased value of money over time.
• 😀 Inflation essentially reduces the purchasing power of currency, which means the value of the loan becomes higher as time passes, causing the borrower to repay more than borrowed.
• 😀 A comparison is made between paper currency and gold, showing how inflation in paper money is considered riba, while gold's intrinsic value remains constant, which avoids the riba issue.
• 😀 According to Sharia, a loan should be repaid with the exact same amount borrowed, not more, even if the value of money has changed over time.
• 😀 A practical example is given with gold: if a person loans out a kilogram of gold, they should receive back the same amount of gold, not more or less based on price fluctuations.
• 😀 The transcript argues that UK student loans are not permissible for Muslims due to the inflation-linked interest, and suggests lobbying for Sharia-compliant alternatives to enable Muslim students to pursue higher education without violating religious principles.

Q & A

What is the primary focus of the script regarding UK student loans?

The script primarily focuses on explaining the structure of UK student loans, specifically tuition fee loans and maintenance loans, and examines whether these loans are permissible under Islamic law due to the involvement of interest (riba).

What are the income thresholds for repaying a UK student loan?

According to the UK government's guidelines, you must start repaying your student loan once you earn over £21,000 per year. If your income exceeds this threshold, you are required to make monthly repayments based on your earnings.

How does the repayment structure for a student loan work?

The repayment is a percentage of your income over the £21,000 threshold. For example, if you earn £25,000, you would pay back one-third of the amount exceeding £21,000. Monthly repayment amounts increase as your income rises.

How is interest calculated on UK student loans?

Interest on student loans is based on inflation. While you're studying, the interest rate is the rate of inflation plus 3%. Once you start earning above the £21,000 threshold, interest rates increase depending on your income level, from inflation plus up to 3%.

Why is the interest on student loans considered 'riba' (interest) in Islamic law?

The inflation-based interest is considered riba because it adds a cost to the original loan amount. In Islamic finance, interest is prohibited, and the value of money should not change due to the passage of time, which is why inflation-based interest raises concerns.

How does inflation affect the value of money in the context of student loans?

Inflation causes the value of money to decrease over time, meaning that the amount borrowed will not have the same purchasing power in the future. The script explains that even if you borrow a certain amount, you might have to pay back more because of the decrease in the currency's value over time.

Can the value of money borrowed in the past change, and how does this relate to inflation?

Yes, the value of money borrowed in the past can change due to inflation. For example, if you borrowed £25,000 in 2013, the amount you repay in the future may be higher due to inflation, even though you originally borrowed £25,000.

What is the concept of 'like-for-like' repayment in Islamic finance?

In Islamic finance, the borrower should repay exactly what they borrowed, without any increase due to inflation or interest. The script compares this concept to a scenario involving the borrowing and repayment of gold, illustrating that the repayment should be the same quantity, not an inflated value.

Is a university degree considered a necessity for getting a good job according to the script?

The script suggests that a university degree is not necessarily essential for obtaining a well-paid job. Many individuals earn a good income without having attended university, and the decision to pursue a degree should be weighed carefully.

What alternative financing method does the script suggest for Muslim students seeking higher education?

The script suggests that Muslim students should consider borrowing money from family and friends rather than taking out government-backed student loans, as this would avoid the issue of riba. The money can be repaid once the student starts earning.