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Alternative Student Finance

Volume 699: debated on Thursday 15 July 2021

Motion made, and Question proposed, That this House do now adjourn.—(David Duguid.)

While we wait for Stephen Timms to come on the video link, the Dispatch Box will be sanitised. I know that the Minister will not touch it until that has happened.

I am grateful to have been granted this Adjournment debate today. Eight years ago, the Government pledged to introduce alternative student finance. That promise has still not been delivered, which has prevented large numbers of Muslims from entering higher education. The problem became serious in 2012, when tuition fees were drastically raised and it became impossible for most students to take a university course without a student loan.

For a significant number of British Muslims, having to take an interest-bearing student loan meant that they could not go to university at all. Riba—interest—is prohibited in Islam, as it was in Christianity until the middle ages. Some Muslim young people defer university until they have saved to pay their fees outright; some, with a heavy heart, take out a loan and feel bad about it ever after; others do not attend at all. That is the reality for young British Muslims today.

As Prime Minister, David Cameron promised to change that. In a speech at the World Islamic Economic Forum in London in 2013, he proposed alternative student finance, saying:

“Never again should a Muslim in Britain feel unable to go to university because they cannot get a Student Loan—simply because of their religion.”

The promise was clear. Eight years later, there is still not even a timetable for keeping it. It looks to young Muslims as if Ministers simply cannot be bothered.

A year after David Cameron’s speech, a Government consultation attracted 20,000 responses, a record number at the time. It showed that the loan system was deterring many Muslim students; 94% of the respondents believed that there would be demand for a sharia-compliant loan and 81% believed that the model proposed was acceptable. That model was a takaful system in which students would pay into the system to guarantee each other against loss, in a co-operative structure generally recognised as sharia-compliant. Repayments, debt levels and the cost to the Government would be the same as for conventional student loans.

The Government’s response to the consultation said that because of technicalities, the solution would take at least two years to deliver. Unfortunately, progress over the seven years since then has been glacial. In November 2015, a Green Paper said that

“we are looking to develop the ‘Takaful’ product more fully.”

A White Paper the following year said that there was a

“real need for a new option for students who feel unable to use interest-bearing loans...we will introduce an alternative student finance product for the first time. This will...avoid the payment of interest”.

That was six years ago.

The Higher Education and Research Act received Royal Assent in 2017, which campaigners hoped would allow implementation of the takaful loan model. Then Ministers said that the May 2019 Augar review would cover it. It did not; it just restated that

“students should be able to access finance support that is compatible with their religious beliefs. The government will need to consider carefully how the changes we are proposing...affect plans to introduce a system of alternative student finance for students who feel unable to access interest-bearing student loans for reasons of faith.”

Despite not addressing it, Ministers ever since have used the forthcoming response to the report as a justification for still not doing anything.

My constituent Fatima Khan contacted me. She wrote:

“The current pandemic only serves to intensify these challenges for Muslim students; with part-time jobs being lost and the economic decline affecting the livelihood of many of our families.”

Fatima did attend university, but has friends and family who were unable to do so.

I have been speaking to the campaigner, Asha Hassan, who is in the final year of her medical studies at the University of Exeter. She told the BBC in January that many Muslim students take out a student loan, but

“with a very heavy heart, and that also affects their studies as well.”

She managed to turn her A-level grades round at college in order to go to university, but then felt that she could not apply because of the interest problem. Fortunately, she had heard of the Government’s consultation in her first year after leaving college; she applied, and then deferred her entry in the hope that something would be available by 2016-17. It was only the promise of alternative student finance that meant that she managed to get that far. She kept going for years with the hope that, if she could just get through this year, alternative student finance would be available next year. She says now:

“Many miracles later, I’m going into my final year studying medicine, but it shouldn't take miracles for a student to want to progress and use their lives to contribute to society.”

And she is right.

Her oldest sister, Zainab, finished college in the first year of the tuition-fee hike. She wanted to go to university. When it became so costly, and taking out an interest-bearing loan was the only way to pay for it, she decided that she could not and took a job instead. Asha’s other older sister, Sumaya, wanted to study education and become a primary school teacher. She wrestled with whether to take out a loan. She applied, and was offered a place. Her friends persuaded her instead to study nursing as it was funded, and so she signed up through clearing at the last minute. Asha’s younger sister, Amina, wanted to study physiotherapy. She was unconcerned because the course was Government funded. She took a year out for volunteering. Unfortunately, the following year’s intake was no longer funded, so she was forced to give up. She would have loved to have become a physiotherapist, but she has not done so.

Asha has assembled on social media this week responses from others. The comments she has received include these:

“I regret taking an interest-based loan, and wish I had chosen other options.”

“Interest loans are forbidden in my religion (Islam). I do not have any alternative as I am not wealthy enough to pay the fees without taking out a loan.”

“I am always thinking about how to pay back quickly to get rid of the interest.”

“I’m going to have to work quite a lot to keep up with payments and living costs which may have an effect on my university experience.”

Asha is organising a demonstration, led by school children and students, outside the Department tomorrow to highlight this long-standing injustice of Muslim students being unable to attend university, or suffering anguish if they do so. I hope the Minister will be able to get a message to those who join that demonstration.

British Muslims make up nearly 5% of the UK population. In the borough that I represent, it is about a third of our population. It is very hurtful that the Government simply cannot be bothered to keep the promise they made eight years ago to so many people in that community. Muslims make up around 10% of students. The number could and should be higher. Young people want to take part in higher education, and the prospects for our economy demand that they should be able to do so as well.

In 2018, the Sutton Trust’s “Home and Away” report recommended what they called a “halal student loan” to give more Muslim students the chance of higher education, and to give those who do more choices by allowing them to choose to live away from home—to make that affordable for them without taking an interest-bearing loan. It argued for Muslim young people to have the same social mobility chances as non-Muslims, and surely we should all agree with that.

David Cameron made his promise in 2013 and young Muslims have waited patiently. How much longer must they wait? Many have given up. Some think that the Government will never deliver what has been promised.

The “Alternative Student Finance” report, commissioned by the Department and published in 2019, set out the key attraction factors of alternative student finance as follows:

“a ring-fenced pot where contributions fund the education of others and so benefits future students rather than go to a profit-making organisation; does not accrue interest but instead involves a fee or contribution; available to everyone regardless of background or religion; is straightforward…permissible under Islamic law and would be approved by a council of scholars; fair, as it neither advantages nor disadvantages individuals in comparison to the mainstream student loan.”

It concluded that the takaful model would be a

“positive move on the part of Government.”

The report included pen portraits of some of those affected. One was a young woman who went straight from her A-levels to university and studied a subject she had not considered before because the course was funded by the Government, so she would not need an interest-bearing student loan. It was a demanding course and she was insufficiently interested in the career that it was leading to, so after six months she dropped out. She said:

“I ended up doing a course that I didn’t want to do, at a university that I didn’t want to be at, I inevitably didn’t enjoy it and that’s why I dropped out”.

She still hopes that she might get to university one day.

Last month, I tabled early-day motion 227, which calls on the Government to introduce alternative student finance in time for the 2022-23 academic year. The Minister will tell us that the Government remain committed to solving the problem at some unspecified future date, but I want her to be clearer about the timetable. Will students who want to start university in 2022-23 have access to alternative student finance?

I commend the efforts of Lord Sharkey and Lord Sheikh in the other place on this issue. Lord Sharkey tabled an amendment to the Financial Services Bill that would have given the Government six months to introduce a sharia-compliant finance product for tuition fees. In moving it, he noted the repeated failure to take the issue seriously, citing Ministers’ “absurdly unfriendly and unfeeling” responses that make

“no attempt to reassure or comfort the Muslim community.”—[Official Report, House of Lords, 14 April 2021; Vol. 811, c. 1329.]

In response to the debate, the Minister, Lord True, said that, before that could happen,

“complex policy, legal and systemic issues need to be resolved”.—[Official Report, House of Lords, 14 April 2021; Vol. 811, c. 1332.]

However, Governments have repeatedly promised to sort it out and it is more than eight years since David Cameron made the first promise. I hope that the Minister will not simply read out a list of departmental excuses that boil down to: we cannot be bothered.

The all-party parliamentary group on Islamic finance recently wrote to the Prime Minister. I was one of the 50 signatories along with other parliamentarians, Muslim organisations and student groups from across the country, and we are awaiting his response. I hope he recognises, as his predecessor did, the need for and benefits of alternative student finance. For eight years, British Muslims have been given hope that such interest-free loans will be provided. David Cameron’s promise gave rise to optimism and confidence that the Government would remove financial barriers for those wanting to attend university, but, time after time, those hopes have been dashed.

Muslims are missing out on university and Muslim young people are left to struggle and wrestle over the conflict between what they believe in and their hopes for university study. As the Government recognised eight years ago, our system should not be doing that to people. Will the Minister commit not just to the principle of alternative student finance but to a clear timetable for delivering it in time—I hope—for the 2022-23 academic year?

I congratulate the right hon. Member for East Ham (Stephen Timms) on securing this important debate on sharia-compliant student finance. I also thank the hon. Member for Strangford (Jim Shannon) for being present today.

I assure the House that I understand the issue and the concerns held by some in the Muslim community about student finance, which were carefully and articulately delivered by the right hon. Member for East Ham. Islamic finance is well established in the UK. Financial institutions have been providing sharia-compliant financial services for nearly 40 years, and the UK is the leading western centre for Islamic finance. This Government continue to promote the growth of the Islamic finance sector, supporting domestic financial inclusion and our connections with key markets abroad.

As the right hon. Gentleman stated, in 2013 the Government announced their intention to introduce a form of student finance compatible with Islamic finance principles. That was followed by a consultation and a Government response in 2014, which confirmed the chosen model for sharia-compliant product. As he outlined, the Government took new powers in the Higher Education and Research Act 2017 to enable the Secretary of State for Education to provide alternative payments in addition to grants and loans, and appointed specialist advisers in October 2017 to design the product.

I thank the right hon. Member for East Ham (Stephen Timms) for bringing this debate forward. I believe there should be no financial discrimination for our students; they should all be able to avail themselves of equal opportunity, regardless of religion. Does the Minister agree that ensuring that all students have the means to afford further education is one thing, but that because of their religion they may have difficulty doing so? Does she feel there is a clear equality issue to be addressed here, so that nobody is directly discriminated against?

Of course this Government want our education system to be open and accessible to all, no matter what their religion, race or background. This Government have been considering the alternative student finance product very carefully, alongside their other priorities, as they conclude the post-18 review of education and funding and respond to the detailed recommendations of the independent panel chaired by Sir Philip Augar. We had intended to respond to the Augar review in full, along with addressing ASF, but the last spending review was only a year’s spending review and we intend to respond in full in due course. We decided to align a decision on the implementation of ASF with the outcome of the post-18 review, to ensure that the terms of any eventual package under ASF are the same as those for mainstream student support. We will provide an update on sharia-compliant student finance products when we conclude the post-18 review of education and funding.

Looking more broadly, I can assure hon. Members that this Government are committed to ensuring that higher education is accessible to all—everyone can then benefit, no matter where they come from, their religion or their race. That goes to the point made by the hon. Member for Strangford.

In 2020, the proportion of English 18-year-olds entering higher education had increased to a record entry rate of 37.9%. Even more encouragingly, the proportion of English 18-year-olds from disadvantaged backgrounds entering higher education had more than doubled, increasing from 11.3% in 2006 to 24% in 2020. In 2020, 18-year-olds from disadvantaged backgrounds were proportionally 80% more likely to enter full-time higher education than in 2009.

Looking at Muslim students in particular, we know from the latest published Higher Education Statistics Agency data that about 11% of the student population were known to identify as Muslim, with more than 62,000 first-year undergraduates in England doing so in 2019-20. There were also a further 28,000 Muslim first-year postgraduates in this academic year. In total, looking across all years, levels and modes of study, there were more than 200,000 students identifying as Muslim in the same academic year. Although these figures are encouraging, there is clearly so much more to be done, as the right hon. Member for East Ham has pointed out.

Participation in higher education is, of course, not the outcome in itself. We need to do much more to ensure that the whole system focuses on outcomes that students achieve so that we can put students, their needs and their careers ambitions first, be that in higher education, further education or apprenticeships. I want the whole of our post-education and education system to help people to fulfil their potential by equipping them with the skills and the knowledge to pursue their careers, be it as a teacher, electrician, lawyer, entrepreneur or nurse. That is at the heart of our reform agenda.

Last year, the Prime Minister announced the lifelong loan entitlement, which recognises the realities of a fast-moving economy and the changing world of work. People need and want to be able to study and train in different ways and at different times of their lives under a flexible system. That will make it easier for students to access courses much more flexibly throughout their life. It will be available for both modules and full years of study, at higher, technical and degree levels—levels 4 to 6. It will also enable people to fit study around work, family and personal commitments or, equally, to retrain and upskill as their circumstances and the economy change.

Turning to the existing student finance offer, I would like to take this opportunity to explain the existing loan offer and the other forms of financial support available. The current student finance system is not profit-making. Unlike commercial alternatives, student loans are available to all eligible students regardless of background or financial history. Loan repayments are linked to income, not the rate of interest or the amount borrowed. For undergraduate loans, repayments are calculated at a fixed rate of 9% of earnings above the payment threshold, or the weekly or monthly equivalent. Borrowers are protected. No repayments are required when borrowers’ earnings drop below the threshold, and any outstanding debt, including interest accrued, is written off after 30 years, with no detriment to the borrower.

No commercial loans offer that level of support and protection to the borrower, with income-contingent repayments and outstanding debt written off after the loan term ends. However, I reiterate that I understand and recognise the concerns of the Muslim community and those echoed by the right hon. Member for East Ham about these loans. That is very much why we have looked into this issue, and we pledge to report back.

Looking beyond student loans, the Government provide a range of non-repayable grants to assist students with particular needs. Grants are available to support childcare, where a student has an adult dependant or where a student is disabled. Universities also provide students with a range of support under their access and participation plans, which are designed to encourage participation from under-represented groups. Higher education providers wishing to charge tuition fees above the basic fee level of £6,000 must agree a plan with the Office for Students that sets out their targets and planned expenditure to improve access and participation. Through these plans, higher education providers deliver a range of support, including bursaries and grants to assist with fees and living costs, as well as activities such as school outreach, attainment-raising activities, summer schools and support targeted at key groups such as care leavers. These plans are designed to deliver greater and faster progress in accessing participation in higher education.

Looking at the financial system as a whole, a key aim for the Government is to ensure a sustainable balance of contributions towards the cost of the system between the student and the taxpayer, and to ensure that support is targeted most at those who need it. The Government’s contributions towards the cost of higher education are significant. More than half of the value of higher education undergraduate loans is forecast to be written off. This subsidy is a conscious investment in the long-term skills capacity of the people and the economy of this country.

As I mentioned earlier, the Government are still carefully considering our response to the post-18 review. I assure the right hon. Member and the House that alternative student finance is an important part of those considerations. I thank him for his passionate speech today and the individual stories that he shared. I would like to assure him and members of his community that, as we have previously committed to, we will provide an update on alternative student finance as we conclude the post-18 review of education and funding, and I would be more than happy to meet him to discuss this further.

Question put and agreed to.

House adjourned.