The Ruling on Taking a Loan from a Disbelieving Government

Question:
May Allah reward you, Honorable Shaykh. The last question says: I am among those who live in one of the disbelieving states, and our government has the custom of giving loans to Muslim and non-Muslim citizens alike. This loan is used by students to study in government universities. Repayment is due two years after graduation, and if it is not repaid within the two years, the government treats it with riba (usury or interest) and takes an increase on it. The question is: Is it permissible for Muslim citizens to take this loan?

Answer:
A loan that does not contain riba is permissible to take from a Muslim or a disbeliever. As for the one that contains riba, it is not permissible. If they impose this condition on him—that if he delays, the amount is increased on him—this is the riba of the pre-Islamic age of ignorance (jahiliyyah). The Prophet (peace and blessings be upon him) said: Every loan that brings a benefit is riba. If he takes the amount and returns to them the same amount, and they do not increase it, and they do not take interest or benefits from him, then there is no harm. But if not, if they benefit, if the lender benefits from this loan, then this is riba. Is it not permissible? Yes. And Allah the Exalted knows best, and may Allah send prayers and peace upon our Prophet Muhammad and upon his family and companions.