Assalamualaikum. Given that it’s August, the most common question in floatation is about the the Islamic Ruling on Student Loans in the UK.
To make things more accessible, I penned down the conclusions from my study of the contract in this Article
Please have a read
Baarakallahufeekum
https://www.islam21c.com/islamic-law/new-fatwa-on-student-loans/
Dr. Sajid Umar
Point 1: Both the parties in the contract consider that a debt has been created, in the sense the word “debt” is used in everyday language and in English law. The student who borrows the money feels he or she is in debt. The government has sold the student debts to private companies, the last sale was in 2017. This was a unilateral decision, the consumers (students with loans) were not consulted, further evidence that is not an investment partnership. The private companies who buy these student debts consider them to be debts, they expect to collect the debts together with the interest. If one assumes that the student loan does not create a debt then what exactly is being sold to the private companies?
Point 2: The minimum repayments required are salary-linked which makes the collection of the debt easier to manage through HMRC. The total amount actually paid is not linked to the salary but how quickly the debt is paid off. Someone earning a lesser salary such as £35,000 can end up paying much more in total than someone earning a much bigger salary such as £70,000. The total amount paid is not just salary-linked but it is also time-linked as are all interest based loans.
Example: Over the last 30 years, the average RPI has been 3.3%. If the student loans interest rate is fixed on this basis at 6.3% (RPI+3%) then someone with a student loan of £50,000 who earns a fixed £35,000 salary will pay almost £100,000 over a period of 30 years but will not manage to pay off the loan based on repayments of 9% of salary. On the other hand someone with a fixed salary of £70,000 will be able to pay off the £50,000 loan in just over 10 years and the total amount repaid will be around £75,000. The person who earns less can end up paying more in the total amount paid back.
Do either of the above points have a bearing on the fatawa.