Question:In the US, we have a student loan in which the government pays the interest while the student is in school, and after the student finishes school, he will have to pay the principal plus interest. But if the student pays the loan back while in school, he will not have to pay the interest. Is it permissible to sign a contract for this type of loan if the student anticipates that he will pay off the entire amount before he graduates ?
Answer:Regarding this issue we want to look at it from a couple angles. The first is that we want to distinguish between the one who has accepted Islaam and this is his condition and the one who was already a Muslim when involving himself in this transaction.
As it relates to the one who has accepted Islaam, he is not accountable for these types of transactions in the Sight of Allaah سبحانه و تعالى as the Prophet صلى الله عليه و سلم accepted money from the people acquired before Islaam then it stays in his possession as he had no knowledge of the Islaamic rulings before he accepted Islaam, and likewise, Islaam ereases/demolishes anything that came before it from sins.
 Some of the Sahaaba accepted Islaam and they (previously) used to trade in alcohol products, gambling and these types of things and it has not been reported that the Prophet صلى الله عليه و سلم told them to give back any of that money or to leave it off. This is except for interest i.e. if he is one that someone owes interest to then he has to give up the right to interest because at this point he has become a Muslim and he cannot accept interest from anyone.. The Prophet صلى الله عليه و سلم as is mentioned, extinguished the interest of al-Abbas i.e. he could not accept any of the interest owed to him after he accepted Islaam, but it didn’t have anything to do with the interest that was given to him begore Islaam.
As for the Muslim, it is not permissible for him to involve himself in the type of transaction mentioned in the question, and that is because in Islaam the end does not justify the means. All transactions that involve interest are not permissible in Islaam. The Prophet صلى الله عليه و سلمcursed the one who takes Riba (Interest) and the one who gives Riba and the one who is a witness to Riba… to the end of the hadith. Even if this individual does not have the ability to study because he cannot afford it if he does not get involved in this type of transaction, then this doen not make it permissible and he still cannot utilize this type of transaction as the end does not justify the means.
Answered by: Shaykh Saalih as-Suhaymee حفظه الله
Title of Lecture: General Questions & Answer Session
Date of the Lecture: March 11th, 2006