Is an Interest-Free Student Loan Permissible for a Bursary?

Answered by Shaykh Irshaad Sedick

Question

My university requires students to take out a government student loan to be eligible for a bursary.

The loans are interest-free, carry no early-closure penalty, and are waived on death. I do not intend to use the money and will close the loan once the bursary application is processed. Is this permissible?

Answer

In the name of Allah, the Entirely Merciful, the Especially Merciful.

Yes, this is permissible. The loan carries no interest, the debt you take on is genuine, and you are not misrepresenting anything to the university.

The Loan Is Lawful

A loan free of any increase over the principal is a lawful transaction, and lending in that form is among the most praised of dealings in Islam.

The general principle governing transactions is that things are permissible until something establishes otherwise (al-asl fi al-ashya’ al-ibaha). [Suyuti, al-Ashbah wa al-Naza’ir]

Since the government’s loan carries no interest, no fee, and no penalty for early settlement, there is nothing in the contract itself to object to.

Your Purpose Does Not Corrupt a Lawful Contract

You genuinely enter the loan, you genuinely become liable for the debt, and then you genuinely repay it. It is not a sham arrangement dressed up as a loan.

Once the money is lent, it is yours as the borrower, and holding it and returning it are your rights, just as spending it would be. Taking a lawful contract for a lawful purpose you have chosen can’t make it unlawful.

Where Deception Would Enter

The Prophet (Allah bless him and give him peace) said, “Whoever deceives us is not of us.” [Muslim]

Deception here means stating something untrue on an application, overstating your need, or concealing something you were asked to disclose. None of that exists here.

The government assesses your financial position accurately, and then the university tells you it does not mind whether you spend the money or return it. You are satisfying a stated procedural requirement, openly and honestly.

Principle and Practical Guidance

Always be honest on both applications and share anything they ask about. Carefully read the terms of the loan and bursary and follow them. If either says the money must be used for study or limits early closure, you must respect that.

The Prophet (Allah bless him and give him peace) said, “Muslims are bound by their conditions.” [Abu Dawud; Tirmidhi]

Keep the money safe until you close the loan, and do not invest it, because you have promised to return it. Once your bursary is processed, close the loan and pay back the debt as soon as possible.

And Allah knows best.

[Shaykh] Irshaad Sedick
Checked and Approved by Shaykh Faraz Rabbani

Shaykh Irshaad Sedick was raised in South Africa in a traditional Muslim family. He graduated from Dar al-Ulum al-Arabiyyah al-Islamiyyah in Strand, Western Cape, under the guidance of the late world-renowned scholar Shaykh Taha Karaan (Allah have mercy on him), where he taught.

Shaykh Irshaad received Ijaza from many luminaries of the Islamic world, including Shaykh Taha Karaan, Shaykh Muhammad Awama, Shaykh Muhammad Hasan Hitu, and Mawlana Abdul Hafeez Makki, among others.

He is the author of the text “The Musnad of Ahmad ibn Hanbal: A Hujjah or not?” He has been the Director of the Discover Islam Centre, and for six years, he has been the Khatib of Masjid Ar-Rashideen, Mowbray, Cape Town.

Shaykh Irshaad has fifteen years of teaching experience at some of the leading Islamic institutes in Cape Town). He is currently building an Islamic podcast, education, and media platform called ‘Isnad Academy’ and has completed his Master’s degree in the study of Islam at the University of Johannesburg. He has a keen interest in healthy Prophetic living and fitness.