Can I Use a Refund from a Mixed Student Grant and Interest Based Loan?

From the Sunnah

Second: Is the Refunded Money Considered Prohibited Ribā? A distinction must be made between two matters: The principal amount of the loan that was received. The interest paid to the lender. The prohibition in an interest-based loan relates to the ribā contract and the additional interest attached to it. As for the principal amount borrowed, it is not inherently unlawful wealth. For this reason, scholars have stated that one who takes out an interest-based loan owns the borrowed principal, although he remains sinful because of the prohibited contract.

Third: The Ruling on Mixed Lawful and Doubtful Funds This issue falls under the chapter of mixed wealth. The jurists mentioned the principle: If lawful and unlawful wealth become mixed and cannot be distinguished, and the exact amount cannot be known, then the ruling is based upon predominant probability and the original certainty. The funds in this case consist of: A lawful grant. A student loan. The refunded amount is of unknown origin and cannot be identified as belonging specifically to one or the other. The basic principle is that this amount belongs to you because it was returned to you after your tuition fees were settled, and it is not an independent interest payment. Therefore, you are not required to dispose of it. Fourth: May This Money Be Used to Repay Debts? Yes. In fact, repaying debts is among the best ways to spend wealth. Abū Hurayrah رضي الله عنه reported that the Prophet ﷺ said:

Statements of the Scholars

Final Answer The interest-based loan is prohibited in principle, and repentance is required, along with a firm resolve not to return to it. Ribā is among the major sins and among the gravest forms of disobedience to Allah and His Messenger ﷺ. ʿAbdullāh ibn Ḥanẓalah رضي الله عنه reported that the Messenger of Allah ﷺ said: “A dirham of ribā consumed knowingly by a man is more severe than thirty-six acts of fornication.” (Authenticated by Shaykh al-Albānī in Ṣaḥīḥ al-Targhīb wa al-Tarhīb) And ʿAbdullāh ibn Masʿūd رضي الله عنه reported that the Messenger of Allah ﷺ said: “Ribā has seventy-three categories, the least of them being like a man committing intercourse with his own mother.” (Authenticated by Shaykh al-Albānī in Ṣaḥīḥ al-Jāmiʿ) If you were subjected to genuine coercion or did not have a real ability to refuse, then the sin may be reduced or removed according to your circumstances. The refunded amount is not the interest itself. Rather, it is part of the funds that entered your student account and remained after the tuition fees were paid. Since you cannot distinguish between the grant money and the loan money, you are not required to investigate further or dispose of the refunded amount. It is permissible for you to benefit from it in lawful ways. It is also permissible to use it to repay debts, and this is among the best uses for such wealth.