Sharia-compliant Student Finance

Question

15:18:00

Asked by

To ask His Majesty’s Government what progress they have made towards the introduction of a Sharia-compliant student finance product.

My Lords, we are committed to delivering an alternative student finance product that is compatible with Islamic finance principles as quickly as we can. We are making good progress to achieve this. This month we are reconvening the alternative student finance working group for its first meeting since the election, which I am grateful to the noble Lord for being part of. We have also appointed a secretariat to take forward the sharia certification of the product.

My Lords, Muslim census research shows that over 6,000 students annually miss out on university entirely due to the lack of sharia-compliant finance. I know that the Minister is alive to the problem, its scale and its 11-year history. I thank her and her predecessor, the noble Baroness, Lady Barran, for the work that they have done or are doing in moving the alternative student finance project forward. However, progress is slow, largely because ASF is being produced sequentially to the lifelong learning entitlement, which is delayed in the Budget by a year. What is now the latest date for the full implementation of the ASF? We should surely be able to move faster. Can, for example, ASF development be uncoupled from the LLE and progressed in parallel? What consideration has been given to the use of outside contractors to speed things up?

I think it would be fair to say that that was the question I asked at the point at which it was suggested to me that we should link the delivery of the ASF to the introduction of the lifelong learning entitlement. I think that the last Government were right in making that decision, because the lifelong learning entitlement brings about a fundamental change to the system of student finance, and it is important that, to be able to access the alternative student finance provisions effectively, they are linked to the overarching system for student support. We are introducing the lifelong learning entitlement for applications from September 2026 and for courses and modules that begin from January 2027.

My Lords, will the Minister say what the Government are doing to raise awareness of sharia-compliant finance to all students and what training is being offered to those that work in this sector?

For students, we are raising information about, for example, degree apprenticeships that would allow students to study towards a degree while they work, without paying for tuition. Students can also find information on other forms of support on GOV.UK, including bursaries, scholarships and awards for eligible students to ensure that, as the noble Lord pointed out, we help to make progress for the about 6,000 students per year that the Muslim census suggested might not be able to access higher education because of the nature of mainstream student finance.

My Lords, I commend the tenacity of the noble Lord, Lord Sharkey, in pursuing this issue, which I know he has been raising since 2012. I recall being in debates with him on what became the Higher Education and Research Act 2017, when it seemed that a solution was close to being found. Yet, as he said, many young Muslims have a barrier to higher education because of this, and those who go to university none the less suffer severe financial hardship. But I disagree with him and say to my noble friend that, rather than separating the need for a sharia-compliant loan to be found and the lifelong learning entitlement, the lifelong learning entitlement’s rollout from 2026 should be used as a backstop. If it is not available to young Muslims, it cannot properly meet the reason that it is being established.

My noble friend is right. That is why, in working towards the lifelong learning entitlement rollout, we will also be making progress towards delivering the alternative student finance. We will be able to look at the details about the progress that has already been made and the steps we still need to make in the working group, which I am glad that the noble Lord, Lord Sharkey, will be able to attend.

My Lords, I am grateful to the Minister for answering my Written Question as to what the nominal value of student debt will be. In her answer, she said that, in five years’ time, the cumulative total debt will be £540 billion and, in 10 years, £869.4 billion. I understand that this is being used to kind of create more headroom for the Government’s borrowing. Is she really satisfied with student debt soaring to those levels?

I am not sure whether the noble Lord is arguing for a wholesale reform of the student funding system—it would be legitimate if he were, although this Government have taken a different route at this point. I think it is important, notwithstanding the impact on the national finances, to be clear for individual students that an increase in their tuition fees and the loan they take out to fund them will not increase their repayments, because repayments of this loan are wholly linked to earnings levels, so no student will repay higher levels per month as a result of the most recent decision that the Government have taken to increase tuition fees.

My Lords, interest rates are not only a problem for Muslim students. Can the Minister explain why it is appropriate that all students should pay a rate of 7.3%, which is somewhat usurious, for the period in which they are studying?

Obviously, we keep interest rates, which are linked to the RPI for student finance, under review. But in principle, as far as the student finance system is concerned, it is right that students who continue to get considerable benefit from higher education help to fund that higher education, alongside the taxpayer, who also of course stands behind the loan system. At the end of the period of its term, a loan will be written off for any student who has not repaid by that point.

My Lords, in welcoming the continuation of the initiative of the previous Government, it is also important that the principle of takaful, which is inherent in Islamic finance, is also made abundantly clear to the community. Building on my noble friend’s question on the issue of communicating, it is a barrier to entry and to higher education, particularly for young girls. These girls are often very high attainers.

The noble Lord makes a very important point. Perhaps I was not clear enough in response to his noble friend. Part of the work that we are doing is to engage with the Muslim community, firstly to ensure that the plans the Government are putting in place will be sharia-complaint and acceptable to the community, and also to ensure that the message about the ability to take up this student support in order to be able to undertake higher education is properly communicated. We are absolutely committed to continuing with that engagement, including with Islamic finance specialists.

My Lords, can I ask the Minister what the Government will be able to do to help prospective and existing students understand what their loan commitments mean for them? I have had recent experience with my own children and their friends, who had no idea what they signed up to several years ago.

I think the Student Loans Company works quite hard in order to ensure that students understand the commitments that they are taking on with student loan finance. But it is a fair point that it is important not just for the Government but for higher education institutions to be clear with students about what they are getting for their money, and then for us and the Student Loans Company to be clear with students about the impact later on in their life of the loans they are taking out. I will reiterate the point I made earlier that sometimes there is confusion among students, who think that student debt is similar to other forms of debt, when clearly it is very different. Repayment is linked to earnings levels and, at the end of the term, any remaining debt will be written off. I try to say that as frequently as possible. It is a fair challenge that we should ensure that as many students as possible understand that that is the situation with student debt.

Would my noble friend the Minister recommend that anyone who is confused should go on Martin Lewis’s website? He is very clear about this and it might help them to understand precisely what the scheme is all about.

My noble friend is absolutely right and I am pleased to say that I will be meeting with Martin Lewis, who does a sterling job of explaining not just this but many elements of finance. I will be keen to hear from him what more he thinks we should do to make the position clear.