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In the Name of God بسم الله

Usury,interest..revisited

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Accepting a student loan and using that money to pay for school and to live off of is that haraam? School loans will have to be paid back with interest so does this make accepting a student loan haraam?

Thank god some of us don't live in the US and have to pay back student loans with interest.

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Thank god some of us don't live in the US and have to pay back student loans with interest.

One of the many reasons why my children (Inshallah we will be blessed with one or some) wont be born here.

What about those of us that do?

I can't pay for college other than through student loans. I aint got no money.

Seriously! Do we just not seek an education here? It's almost impossible to seek a college education without a loan because not everyone will qualify or be eligible for a grant or scholarship and even if you do qualify for one of these more than likely it wont cover the entire cost. And if you want to make a decent living you need a college education basically so what do or can we do?

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Accepting a student loan and using that money to pay for school and to live off of is that haraam? School loans will have to be paid back with interest so does this make accepting a student loan haraam?

No, of course it's not forbidden. Education is an obligation, higher education is a relativemeans to prosperity and better sustenance. If a loan is the necessary means to that end, then it is fine. My only advice would be to try to pay for as much of school with summer and part time jobs as possible and to pay off the loan as fast as possible afterwards. I'm currently paying 1/3 of my paycheque to debt service in the interests of paying it off faster, which is really cutting into what would otherwise be a comfy middle class lifestyle. Not that I'm doing without anything I really need, but, you understand.

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No, of course it's not forbidden. Education is an obligation, higher education is a relativemeans to prosperity and better sustenance. If a loan is the necessary means to that end, then it is fine. My only advice would be to try to pay for as much of school with summer and part time jobs as possible and to pay off the loan as fast as possible afterwards. I'm currently paying 1/3 of my paycheque to debt service in the interests of paying it off faster, which is really cutting into what would otherwise be a comfy middle class lifestyle. Not that I'm doing without anything I really need, but, you understand.

Inshallah. I was told that this is different for Sunnis when it comes to loans in general, but of course I'm not a Sunni so I guess that doesn't matter.

Edited by abdullah218
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No, of course it's not forbidden. Education is an obligation, higher education is a relativemeans to prosperity and better sustenance. If a loan is the necessary means to that end, then it is fine. My only advice would be to try to pay for as much of school with summer and part time jobs as possible and to pay off the loan as fast as possible afterwards. I'm currently paying 1/3 of my paycheque to debt service in the interests of paying it off faster, which is really cutting into what would otherwise be a comfy middle class lifestyle. Not that I'm doing without anything I really need, but, you understand.

True, its not forbidden.

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Salam All,

I just wanted to add my thoughts on to this topic for what it is worth, although this discussion ended last month.

Kadhim: In response to your statements about the banking system and the costs involved in processing transactions, and exploitation vs reasonable rate i suppose as muslims we need to consider the following:

Riba (Usury) is one of the most debated terms Quranically as we are unsure of whether it means excessive interest or pure and simple interest. If Riba is excessive interest, then what we need to consider is the following:

If you get a home loan for example from a bank, and pay a "reasonable rate" of interest at lets say 5%, most people fail to understand that the interest is:

i) Charged per annum on the full amount of the loan.

ii) Home loans are never offered as a fixed rate for the life time of the loan, they do end up on variable and will tend to fluctuate.

So if you were to fulfil your contractual obligation over a period of 25 years, you would pay around 100% of the original value of the amount. Is this not now termed as usury? Considering that you will not be selling the home, and plan to hold onto it an live in it.

You see, you can not base the interest amount purely on the % number you see on the application, but must remember that interest is infact compounded over the life time of the loan. Therefore if you borrow 100k at a fixed rate of 5% the total interest on your loan is 75%.

So let me ask you this, if we were to rephrase the contract, and say, the bank will lend you 100k at 75% over 25 years. Is this now halal and reasonable?

Now in the case of Riba meaning interest then this would involve all interest transactions.

But according to the Hadiths of Imam Jafar Sadiq as : He talks about 1 dirham of interest? So is this meant to mean 1 dirham above the considerable rate?

You see the world is created and run in a way that almost nobody has the ability to stay interest free. But this is due to the fact that policy makers and designers of the system are not muslims, and in my own opinion, islamic banking system of halal interest is in the same books. Changing the word riba into profit does not make it right. And here in Australia we also have variable "profit rates", a total joke.

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Well, think about this from the perspective of the bank. (I know people don't like to do this, noone really likes banks, but they serve a beneficial function)

They service your loan for 25 years. People are working on your loan for 25 years.

The bank gives you money, and doesn't get it back for 25 years. There's a lot of other things they could have done with the money over that time. The bank could have invested that 100 000 in say, 10 small businesses, creating perhaps 20 jobs in the process and receiving, because the bank carefully analyzed the business plans before lending, say, 5% profit a year. Why would the bank lend to a person to buy a house for no profit when they could make a profit and help create 10 new small businesses?

Third, because of the time value of money from inflation, the bank has to charge some interest just to make sure the money collected is worth what they lent out. A dollar 25 years from now will not be worth what a dollar today is.

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(salam)

On the matter of Student Loans, surely they are halal? From what I've read (at least here in the UK) the interest rate is directly linked to the rate of inflation - so you end up paying back exactly what you borrowed, even if the numbers are slightly different.

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Well, think about this from the perspective of the bank. (I know people don't like to do this, noone really likes banks, but they serve a beneficial function)

They service your loan for 25 years. People are working on your loan for 25 years.

The bank gives you money, and doesn't get it back for 25 years. There's a lot of other things they could have done with the money over that time. The bank could have invested that 100 000 in say, 10 small businesses, creating perhaps 20 jobs in the process and receiving, because the bank carefully analyzed the business plans before lending, say, 5% profit a year. Why would the bank lend to a person to buy a house for no profit when they could make a profit and help create 10 new small businesses?

Third, because of the time value of money from inflation, the bank has to charge some interest just to make sure the money collected is worth what they lent out. A dollar 25 years from now will not be worth what a dollar today is.

The Reserve (Fiat currency) system in the US is a farce. The Reserve says to the bank "you need some money, sure, we'll write in our bank-account that now we have 100 million dollars which we create out of thin-air", and the Reserve Bank then gives that money to another inferior bank where you get your loan from. The inferior bank says "oh thank you Lord Reserve for that 100 million, and thank you Senator Lords who allow us (Legally, by Law) to loan out 9 times the amount we receive from Lord Reserve".

So now the inferior bank all the sudden, out of thin air, has 900 million $$$ it can loan out. So Mr Kadhim Bloggs rocks up to inferior bank and says "bonjour, i need a $400k loan please" and the bank says "why of course, here you go". Now Mr Kadhim Bloggs works for 25 years paying back the 400k (including interest would probably mean closer to 800k), 25 years of hard work which paying back, yup, you guessed it, Lord Reserve created *P00f* out of thin-air :D

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Banking regulations and the overall monetary system are other issues. As I said earlier, for sure, things should be regulated more heavily. But let's try to focus on the issue at hand, whether interest is usury, or whether usury is something else, etc.

I'll add that there's no way in the forseeable future I would even think of borrowing $400 000. I'd have to spend 100% if not more of my paycheque to make the payments on that. A modest $150 000 home, perhaps, if I can pay off my student loan first. :o If I end up buying a home, I'm going old school. Big downpayment, a modest place I can really afford.

Edited by kadhim
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