British universities are now openly advertising government-backed “interest-free” student loans designed around Islamic finance rules.
The Alternative Student Finance product, based on the principle of takaful, replaces interest with a mutual “contribution” that is ring-fenced to fund other students on the same scheme rather than flowing back into the Treasury.
Official forecasts already expect nearly half of student debt never to be fully repaid, so British taxpayers will underwrite the shortfall while the ring-fenced pot serves a program primarily aimed at Muslim students, the Telegraph reports.
The scheme is open to anyone eligible for student finance, yet it exists because Islamic law prohibits interest.
Universities including University College London, Bristol, Leeds, City St George’s, Newcastle and De Montfort have begun telling applicants the loans could be available in the 2026-27 academic year, describing them as “compatible with Islamic finance principles,” “non-interest bearing” and “sharia-compliant.”
The Department for Education paid the Islamic Finance Council UK more than £365,000 in public money to design it and has presented the arrangement as one of the first state-backed sharia-compliant student loan systems in the world.
Suella Braverman, Reform’s education spokesman, said: “This outrageous anti-British scheme creates a two-tier education system and divided society. The scheme from Labour proves they are addicted to double standards in all aspects of British life.”
She added that offering sharia-compliant loans risked “creating parallel institutions that are incompatible with the British way of life” and that “the whole idea is made even more farcical by the fact that the Treasury, and therefore British taxpayers, will have to foot the bill if they fail to pay.”
