23/08/2011 09:30 BST | Updated 22/10/2011 06:12 BST

Muslim Students cry Usury to Avoid Interest on Student Loans. Is This Fair?

The Independentreports that an organisation representing Muslim students in Britain is protesting against the coalition government's reforms to university finance.

The Federation of Student Islamic Societies (FOSI) warns that young Muslims could be forced to sacrifice higher education as a result of the higher rates of interest under a new university loans system. The Indy's Poppy McPherson writes:

Under some interpretations of Islamic law, the acquisition of loans - particularly those which accrue interest - is forbidden. The new system requires graduates who earn above £21,000 to pay interest levels of up to 3 per cent above inflation. The National Union of Students (NUS) has warned it could be two years before a suitable system is arranged [to accommodate Muslim students].

A FOSI spokesman said:

Under Islamic law interest is seen as something that is prohibited. Previously, the interest rate was at the market rate of inflation. The problem now is that the interest is above the market rate. Because the rate of interest is above the rate of inflation, it is quite blatant usury.

The first point here is also blatant: in Britain, we do not operate under Islamic law. The student finance system has to be devised according to British laws, not those of a religion observed by 3 per cent of the UK population.

Second - and less comforting, but historically apt - thoughout the ages, the spiritual has had to adapt to the temporal (and of course vice-versa). Usury, or the charging of interest of any kind (not necessarily excessive) on a loan, was outlawed by Christian churches for hundreds of years. The first instance of secular law overriding the church was when Henry VIII's parliament passed 'An Acte Agaynst Usurie' in 1545. Islamic banks have already devised a number of methods of rewarding savers, such as entrance into Premium Bonds-style lotteries; or direct investment is encouraged instead of loans.

The third point is most pressing to the present situation of universtiy finances. The Government takes a sizeable hit on the currently interest-free student loan book. The Browne Review identified student loans as a straightforward and fair way of reforming university financing and shifting the burden from the taxpayer to graduates. Removing what was effectively a middle-class subsidy was the right thing to do. The state should not be handing out cash that in some cases will be invested in ISAs or unit trusts, so providing an easy return for students who don't truly need their loans.

The money to finance universities needs to come from somewhere. The nervous fees and funding fudge contrived by coalition ministers means that not enough is going to come from students. HE institutions will still rely for some years to come on direct grants from the state. For the state to afford this, there has to be more of a contribution from those who can afford it most - the graduates earning enough money to pay off their loans, with interest.

One could just charge Muslim students more for their higher education in the first place, and allow them to forego the payment of interest at a later date. The tuition fees policy of the Scottish Government is an example of how the authorities can get away with discriminating against students within the same state without blinking an eyelid.

If Muslim students do not want to pay interest on their student loans because doing so would contravene their faith, then I have some sympathy for them. However, we cannot have a situation in which some graduates end up paying less because they happen to observe a different religion to their peers.

Solutions? The floor is open for comments.