Articles on Islamic Economics

Financing Higher Education Privately in an Interest Free Way

Salman Ahmed Shaikh

Higher education has become a necessity in current times with increased competition in labor market and increased demands on keeping up with changing skills set. Nevertheless, the cost of obtaining higher education has also increased a lot in recent times.

Public scholarships in developing countries are not enough to accommodate everyone willing to obtain higher education. Hence, there is a need for providing some financing arrangement to enable people to obtain higher education.

In this regard, finance department of universities can launch a scheme in which students have to pass a screening exam to establish and validate their ability, skills and potential. Those students who pass the screening exam will have their tuition fees funded by the scheme. The scheme could be sponsored by government funds, student bodies, alumni network, university endowments and funds donated by the corporations and philanthropists.

To obtain tuition fee funding, the beneficiaries will have to sign a undertaking with scheme organizers which should stipulate that once they get employment, students will share a given percentage of their income with the scheme for a given period of time.

Universities can be asked for collaboration on two fronts,

i) Provide some scholarship funds as contribution from their part, and

ii) To issue degree with mention of the fact that the degree holder is in such a contract with such scheme.

If beneficiaries change jobs, the new employers as a policy can be asked to obtain NOC from the scheme organizers. The beneficiary will request NOC from such schemes so that details about how much remuneration is paid and which employer hires which beneficiary comes in full knowledge of the scheme organizers.

There could be another potential problem which needs to be solved. Knowing that initial success will always have to be shared, the candidate may prefer low paid jobs initially than he otherwise would have and then look for better jobs afterwards.

If he had to pay a lump sum interest amount, he will have been forced to look out for better paid jobs and excel in the process as well and pay the bank’s interest and loan amount as quickly as possible. Nevertheless, looking from another perspective, the scheme will be encouraging people not to remain idle even if there is no better paying job available. The scheme is encouraging them to gain experience and change their fortunes in good as well as troubled times. This is most suited to developing countries where people do not have public sector social safety nets and unemployment insurance to depend on.

There could be additional problems to consider. What if a person loses employment in the middle of the contract? In such a case, it seems that a better approach will be that the person should be asked to share salaries once he gets re-employed and the contract period will have a pause until he gets re-employed.

Another considerable addition to this financing scheme could be to arrange certain memberships with publishers, libraries, HR agencies and educational institutions so that the beneficiary can be provided further facilities of discounts on books, membership with libraries, teaching opportunities and potential employment having registration with some HR agency. This will act as a social deterrent and increase the social opportunity cost of a willful default.

1 reply »

  1. Interest Free Financing needs to be promoted that is the lesson of the Islam. In this regard, we have to take serious action against interest based financing activities and provide them all Riba free solutions.


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