Is interest-based educational loan allowed?

The issue of interest in any form, including that associated with educational loans, is addressed in the Qur'an. The Qur'an explicitly prohibits usury (riba), stating: Those who swallow usury cannot rise up save as he ariseth whom the devil hath prostrated by (his) touch. That is because they say: Trade is just like usury; whereas Allah permitteth trading and forbiddeth usury. 2:275. This verse makes it clear that while trade is permissible, usury is not, indicating a strict stance against charging or paying interest.

Further elaboration on this prohibition is provided in the verse: O ye who believe! Devour not usury, doubling and quadrupling (the sum lent). Observe your duty to Allah, that ye may be successful. 3:130. This verse emphasizes the seriousness of engaging in usury and encourages believers to remain conscious of their obligations to Allah.

In the context of educational loans, many scholars argue that taking loans with interest is not permissible, as it falls under the category of usury. However, there are discussions in Islamic finance about alternatives, such as interest-free loans or other financial products designed to comply with Islamic law.

Ibn Kathir explains that the overarching principle is that creditors are entitled only to the principal amount without any increase (interest), and that being lenient with debtors is encouraged, especially in cases of hardship (Tafsir Ibn Kathir). This sentiment is echoed in Shia commentary as well, which reinforces the idea that one should not impose additional financial burdens on others (Majma al-Bayan).

In conclusion, based on these interpretations of the Qur'an and the teachings of the Prophet Muhammad ﷺ, interest-based educational loans would generally not be considered permissible in Islam. Instead, seeking alternative funding methods that do not involve interest is advisable.