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Fatwa CenterTaking Loans From University With Interest
Question
I'm a postgraduate student in Canada, but originally I'm from Egypt. I've been here in Canada a year. I have a relative, who has finished the High school in Canada and is starting her undergraduate studies at a Canadian University. This relative has the Canadian citizenship. I want to declare that her case is not an individual one, but a common case among many Muslim students in many western countries. Her, as well as her family's, current financial situation does not allow paying the tuition fees for her education. Usually students, including Muslims of them, apply for loans to study, hoping that during summer or after their graduation they will find a job and will be able to pay back these loans. In the following few paragraphs, I will explain to you the system of loans (financial aid) offered by the universities here. A student can be given a loan from the Canadian Federal Government. The amount of the loan depends on the field of study and the needs of the student, but has a maximum that a student can take over his study period. In fact these loans have interest that are paid by the Government on behalf of the student so long as the student is registered at the university. After the student stops/finishes his studies, they start asking him to pay the loans back. If the student pays back the loans right after his studies, he is not required to pay any interest. However, if the student cannot pay the loans right after he stops/finishes his studies, they give him a period of 6 months (may be extended to a year in certain circumstances) after which the student starts to pay interest in addition to the loans (i.e. the Government is no longer paying the interests and instead he/she will have to pay these interest). My question is as follows. If the student will be (inshaa Allah) able to pay back his loans right after finishing/stopping his studies (through working for example in summer or if his parents may get better salary) to avoid paying the interest, is it allowed for him, in view of the Islamic Sharee’ah, to go through such system. Note that if the student will be able to pay the loans right after he finishes/stops his studies, he will not be required to pay any interest from those paid by the Government during his course of study. The Government pays the interest for the loans that the student takes during the period of his study. Please reply as soon as possible as the semester is about to start.
Answer
All perfect praise be to Allah, The Lord of the Worlds. I testify that there is none worthy of worship except Allah, and that Muhammad 
is His slave and Messenger.
Any loan that incurs interest is Riba (usury and/or interest). It is not permissible for a Muslim to deal in Riba transactions.
The transaction you described includes some prohibited matters:
First, signing a contract, which stipulates that you will have to pay interest on the loan if there is any delay in paying it back before the deadline. This contract is pure Riba.
Second, your falling in Riba itself if there is any delay in paying after the deadline.
In addition, your conviction that you will pay the loan back before the deadline does not make it lawful to you to sign such a contract.
We advise you to do the following:
Firstly, try to save an amount enough to pay the university tuition fees or accommodation, even by taking a loan from a friend or a relative. Gather your savings from summer to pay the tuition fees for the following year, till you get rid of the prohibited Riba.
Secondly, you can apply to the university for a scholarship or grant which are often given by universities in the west. If all the doors are closed to you and you cannot get support from any of the institutions or the individuals, and if you are certain that you will be able to pay back such a loan before the deadline (i.e. without interest), then you can take it as an ultimate solution.
Allah knows best.
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