British universities have begun advertising government-backed, interest-free student loans designed to comply with Islamic financial principles, with the scheme expected to become available as early as the 2026-27 academic year, The Telegraph reports.
The Alternative Student Finance scheme is primarily aimed at Muslim students who avoid conventional loans because Islamic law prohibits the payment and receipt of interest. However, students of all faiths will be eligible to apply.
Under the proposed system, borrowers will make payments equivalent to those made by students using conventional loans. However, instead of interest, they will pay an equivalent contribution based on the Islamic finance principle of Takaful, a system of mutual financial support.
The repayments will be ring-fenced and used to finance future students joining the scheme rather than being returned to the Treasury's general funds.
The arrangement has drawn criticism from opponents, who argue that separating repayments could create a two-tier education system.
Suella Braverman, Reform UK's education spokesperson, described the initiative as an "outrageous anti-British scheme" and claimed it could divide society.
She also questioned the arrangement, arguing that British taxpayers would still bear the financial burden if borrowers failed to repay their loans in full.
Despite the criticism, several leading universities have already started informing prospective students about the scheme.
The University of Bristol describes it as an interest-free UK government loan compatible with Islamic finance principles. The University of Leeds has also advised applicants that it could be available in the 2026-27 academic year.
University College London, City St George's and Newcastle University have similarly advertised the proposed financing arrangement as non-interest-based or Sharia-compliant. De Montfort University has also described the product as certified under Islamic financial principles.
The UK government commissioned the Islamic Finance Council UK to develop the scheme, spending more than £365,000 in public funds on the initiative.
The proposal comes amid concerns that conventional student loans discourage some Muslim students from pursuing higher education. A 2021 Muslim Census survey of nearly 39,000 British Muslims found that 80% of students felt conflicted about taking conventional student loans, while 71% said the existing system discriminated against Muslims.
However, some Islamic scholars consider existing student finance arrangements permissible. The University of Cambridge, for instance, informs students that conventional student loans are backed by the UK Fatwa Council.
The Department for Education (DfE) has yet to announce a specific launch date, but the scheme is expected to be introduced as part of wider changes to student finance.
A DfE spokesperson rejected claims that the alternative arrangement would give Muslim students preferential treatment.
"It would be completely false to assert that Alternative Student Finance arrangements would give favourable treatment to Muslim students," the spokesperson said.
The spokesperson added that graduates would repay the same amount regardless of which financing system they used, including an equivalent alternative to interest.
The government said the initiative would enable thousands more students to access higher education without compromising their religious beliefs.