Part 1 | Part 2
Alhamdulilah, I have been blessed to be amongst those who were given the opportunity to attend the AlKauthar, Real Deal Course: Fiqh of Business Transactions by Shaykh Tawfique Chowdhury recently. In this course, the haram behind many of our day to day transactions were exposed but one of the issues that really intrigued me was that of HECs (University Student Loans). It is because it affects many of us today but unfortunately there seems to be very little information available on this topic.
In this two part series, I hope to address this issue and clear up the ambiguity surrounding it, insha Allah. I have structured this article in a way that the reader can go through all the basics first in order to give them a clear understanding on how the ruling is derived.
A term that I will be using throughout this post is the term ‘riba’ – meaning interest.
In the Name of Allah, Most Merciful, Most Gracious
Islam is the religion of knowledge therefore it is no surprise that the first aayah of the Qur’aan to be revealed enjoined reading- the key to knowledge. Allaah says:
“Read! In the Name of your Lord Who has created (all that exists). He has created man from a clot (a piece of thick coagulated blood). Read! And your Lord is the Most Generous. Who has taught (the writing) by the pen. He has taught man that which he knew not”
The Prophet himself (may Peace and Blessings be upon him) encouraged all the Sahabahs to seek knowledge, both religious and secular. In his time, there were great knowledgeable figures, such Ibn Abbas (May Allah be pleased with him), specializing in the tafsir of the Quran; Abu Hurayra (May Allah be pleased with him), specializing in Prophetic narrations; Khalid bin Waleed (May Allah be pleased with him), specializing in war fare; Zaid bin Thabit (May Allah be pleased with him) specializing in the knowledge inheritance and the Hebrew language. All these sahabahs were the finest in their fields, in fact it has been reported that Zaid bin Thabit was so intelligent that he learned the Hebrew language in less than 15 days to a level better than the scholars of Hebrew amongst the Jews of that time.
Therefore if the Muslim community want to be the leaders of tomorrow, it only makes sense that we are constantly producing the best of the best in each profession in order to maintain our position as the elite of the society.
By gaining knowledge one gains wisdoms and removes themselves from ignorance which is the prime cause for the collapse of a society.
In Australia, when a student finishes high school, a large portion of them go to university but unfortunately university today comes with a huge price tag. Many students are unable to pay for their fees therefore they take on what is called a HECs Loan. Before getting into this loan, students do their research and see whether this is permissible to take or not. Since there is very little information with regards to the Islamic perspective on this, they turn to universities and ask them about it, to which they are told that such loan is interest free. Therefore they take the loan and go on to attain a qualification, walhamdulilah.
The problem is that when the student is in the middle of their education, their debts keep increasing and questions begin to arise, the little voice inside them becomes louder… Why are they charging me more then I initially owe them? Why are my debts increasing every year? Is this really interest free as the universities say or is it something else? Are we obliged to pay this debt off even if we do not find a job? What does Islam really say about this?
In the following two articles, I hope to shed some light on the Islamic perspective of such loan, address these questions and put an end to all these doubts bithnillah.
HECS-HELP is a loan available to eligible students enrolled in Commonwealth supported places. A HECS-HELP loan will cover all or part of the student contribution amount.If you receive a HECS-HELP loan, the Australian Government pays the loan amount directly to your higher education provider (provider) on your behalf. A HECS-HELP debt is recorded for you with the Tax Office against your Tax File Number.
Interest and indexation of your HELP debt
There is no real interest charged on your HELP debt. Your accumulated HELP debt is indexed annually to reflect changes in the Consumer Price Index (CPI). The indexation adjustment is made by the ATO on 1 June each year and applies to the portion of debt which has remained unpaid for 11 months or more. On 1 June each year, all unpaid debts incurred between January and June of the previous year will be indexed and become part of your accumulated HELP debt. Debts incurred between July and December of the previous year will also become part of your accumulated HELP debt but will not be indexed until 1 June of the following year.
If there is no interest applied on this loan then why is there is a big fuss about it, many may wonder. That’s true, this loan definitely looks interest free and sounds interest free but it also must taste interest free for it to really be an interest free loan! 🙂
So before we dive right into the issue of HECs, let’s start off with a few basics. When it comes to business transactions, what are the goals and purposes of the Shariah? What does it want to preserve? Why does it allow certain things and forbid others?
The Shariah has three main goals when it comes to business dealings; one of them is the prevention of oppression. Allah does not allow oppression to take place in his legislation nor does he allow us to oppress one another regardless of whether they do this willfully or through coercion.
The Shariah has prohibited or stipulated rigorous conditions upon a transaction that may have any elements of oppression within them. It is for this reason that dealing with transactions containing riba is strictly prohibited by the Shariah as it is a direct oppression.
In fact, one of the biggest oppression one can do to them and their community is to engage in riba, because of this we find many passages in both the Quran and Sunnah mentioning the consequences and evils of engaging in such action.
The crimes of dealing with riba are so serious that Allah, the All Mighty, has declared war upon those who do so
“O you who believe! Leave that which remains upon you from riba, if indeed you are believers. If you do not, then take notice of war from Allah and His Messenger. And if you repent, then for you is your capital investment; you should not wrong, nor will you wronged” [Surah Al Baqarah: 278-279]
Allah has not waged war on anyone else except the one who deals with riba – not the one who is a murderer, the thief, the fornicator, the fraudster or any other criminal.
The scholars of Islam feared riba so much that they would avoid to walk in the same street as the one who dealt with riba in fear that Allah’s punishment would descend upon that person whilst they were present and they would be too scared to even have anything to do with people who dealt with riba.
The Prophet (may Peace and Blessings be upon him) declared the consumption of riba to be worse than a man committing adultery with his own mother and in other narrations he states that devouring riba is more severe than committing adultery 36 times.
If this is the case, then how can we expect Allah to accept our prayers, our zakaat, our fasts, our selfless contributions to the society if we have taken up arms against arms against Allah and his Messenger? How then can we expect Allah to grant us true success in this world and in the hereafter when we are engaged in a sin greater than sleeping with our own mothers?
My dear brothers and sisters ponder on this for while. If we truly understand the intensity of this great sin, none of us would dare to be a part of it no matter what benefits it seems to gives us.
HECs… Riba or not?
Now that we covered some of the basics, let’s see how HECs works exactly through this example:
Aisha, a student from university incurs a debt of $15,000 back in 2005 and decides to pay it off 3 years later. How much would it cost her to pay it back? Let’s have a look:
$15,000 is the initial debt
The CPI rate is applied on June 1st every year.
$15,000 x 2.8 % (2006 CPI)
$15,420 x 3.4% (2007 CPI)
$15944.28 x 2.8% (2008 CPI)
As you can see in the example above, the debt keeps increasing year by year. The more Aisha delays it, the more she owes. This is similar to how compounded interest works.
Therefore if the same student wishes to pay of the $15,000 loan 3 years later then she would have to pay an extra $1,390.72.
Let’s look at a parallel example:
A relative gives you $15,000 to purchase a car and allows you to pay it back within 3 years. He then tells you to pay a $1390 extra on top of the amount. Most people would disagree to such a deal because it is interest.
If that’s the case then what makes this different to a HECs loan?
Therefore, this loan is a direct oppression towards the student as it makes it harder for them to get out of this debt and as a result, it is prohibited regardless of whether the student consents to this, for Allah does not allow oppression to take place even if were to be done willfully.
As for it being a cost of currency inflation, Islamically minor devaluations or revaluations in currencies are overlooked by the Shariah. It is only in extreme cases, such as in the case ofhyper inflations, it is taken into consideration and the debts need to be paid at a new rate.
Furthermore, it is a well known fact that according to economists CPI in and of itself is usually overestimated. If one were to measure the true inflation then it would much less. In fact this is why the majority of scholars do not allow this and consider indexation (CPI) to be a type of riba.
Does this mean one should stop studying and boycott universities?
SubhanAllah, Never! If one wishes to pursue an education at a university then they should take the HECs placement, continue their education and benefit from it but they must try their best to pay off their debt before the CPI is applied.
This totally possible to do, our brothers and sisters in North America are already doing this because they do not have such a HECs system. They are able to attend university and do well in their classes AND still pay it off.
Shaykh Tawfique, being an entrepreneur and business mentor himself mentioned that there are many benefits for student who earn money in order to pay off their fees. These include:
- They begin to value money more
- They become more careful in their spending
- They avoid careless spending that is common amongst the youth today.
- Money gives them the ability to understand finance and money management.
- The experience gained whilst working can give more value to their resume
- It keeps their mind off useless things, i.e. opposite gender, wasting time.
- Money teaches them to become more responsible and mature.
- Earning money takes them out of their comfort zone, challenges them to new things, allows them to think out of the box and increases their creativity.
- It creates a leadership attitude
- The student gains respect for the money their parents work hard for.
- Also in the long term, many economists agree that paying off the HECs debt upfront can save you a lot of money in the long term.
Paying off your debts early is a win-win situation because not only are you gaining the benefit of pursuing an education but most importantly you are pleasing Allah and in turn you become a better Muslim and a better member of the society for truly success does not only lie in our qualifications rather it is attained when we put Allah as our priority in our life.
“And whosoever fears Allah and keeps his duty to Him, He will make a way for him to get out (from every difficulty). And He will provide him from (sources) he never could imagine.” (65:2-3)
Further Questions & Answers
(asked during the course, answered by Shaykh Tawfique Chowdhury)
The Government gives you a discount when you pay large amounts towards your HECs fees, upto 20%. Is this permissible to take?
The bonus is permissible inshaAllah as it is like saying – if you pay earlier, then you only have to pay 90% of what you owe.
Am I allowed to go on Hajj with a HECs debt?
Yes, it is allowed to go on Hajj as long as your creditors allow you to go for Hajj. In this case your creditors are not stopping you from Hajj as they do not require you to pay it off straight away. Obviously the longer you leave it, the more it becomes but if you repent sincerely and try your best to pay it off after you return then it is okay.
I have already completed my degree and am currently in a big HECs debt, what should I do?
First of all repent to Allah and try your best to pay it off (see part 2 of this article for some ideas) – paying this off takes more preference then giving sadaqah (charity). If you are not able to do that then you are eligible for zakat. That being said, do not let this deter you from using your degree to help others because once you stop giving, you stop living.
The government doesn’t require us to pay off the debt, if we earn less than a certain amount per year or if we go overseas (or we die)? Do we still have to pay it off?
If Muslims behave this way then we will always be the down trodden community. We want to be leaders of the world because that is what Allah created us for, “You are the best of nation created for the Mankind” meaning for the leadership of mankind to guide them to the truth
How can we expect to be leaders when we are not leaders ourselves? Do you like a leader who steals? A leader who cheats? Would you listen to a leader who is unethical in their behavior? Do you like a leader who always tries to find shortcuts in order to make a personal gain, to make a buck for themselves? You don’t call such people a leader, they are the ones who at the bottom. If we start to behave that way then it’s wrong and you should try your best to pay it back. Use this opportunity to bring out the entrepreneurial spirit in you. You do have the ability to pay it off and also make more money on top of that.
 Ibn Sa’d in Tabaqat alKubra (2/358)
 Recorded in Sunan Ibn Majah, Al-Hakim, who graded it Sahih
 “One dirham of Riba that a man devours, while knowing it is Riba, is more severe (in crime) than thirty-six acts of fornication (or adultery).” (Ahmad with a Sahih chain of narration)