Zakat and Student Loans

[PyariCgudia]

If you’re in the net negative from student loans, do you pay zakat?

[obaid1982]

Re: Zakat and Student Loans

Well, this situation should not really happen. If you do have any savings, pay off some portion of your loan.

[PyariCgudia]

Re: Zakat and Student Loans

Seriously? This is the state of most muslim students in the Western world these days, people take out loans for their education, and then spend some years, sometimes up to 10 years, paying them off. So, if you're worth net negative, do you pay zakat?

[teggy]

Re: Zakat and Student Loans

It would be best to consult an actual scholar on this because Zakat being one of the pillars of Islam; you would want to be absolutely sure on how to proceed about it.

Personal opinion; if you’re following a repayment schedule and a part of your earnings goes towards that repayment, then just subtract that+your living expenses from your earnings, and pay zakat on what you’re left with on a monthly/yearly basis. Plus I believe there’s a minimum in excess that you must have to pay Zakat.

             **Question:**

             
              **I have taken out a student loans to the value of 5000. I currently have 8000 in my bank account including the loan amount. 

The student loan only has to be paid back once I earn a certain salary. If I do not earn above the threshold I do not have to repay the loan.
There is no interest (in the normal sense) as such on the loan but it does accrue a rate of inflation on the principal amount.
Also the loan can be repaid at any given time regardless of financial position.
With regards to this, I have the following questions:

1. On what amount is Zakat liable?
2. Do I need to repay the loan even if I do not earn a salary above the
   required threshold
3. Are these type of loans halal?

**

                           **Answer:**

In the name of Allah Most Compassionate Merciful
I hope you are fine and in the best of health and iman.
A1.
You will deduct your 5000 loan and any other debt that you have. What you are left with, if it is above or equal to the minimum threshold for zakat then you will pay zakat on the remainder after deducting the 5000 and other debt that you have.
A.2
You will eventually be working and their will be interest accrued on that amount, even if not at present. So it is best to repay the loan as soon as possible by either taking an interest free loan from an Islamic bank or private trust or from relatives and friends. This is not a huge amount as such. In other words, try to repay the loan and make it your priority.
A.3
These types of loan are not halal, as they will eventually accrue interest whenever you come around to repay them. [And a financing condition of potential interest payments in the future is also considered riba and therefore not halal - Faraz]

And Allah alone knows best

Student loans, Zakat, and Permissibility

If you have a mortgage, do you have to pay zakat?

[TLK]

For the long term loans, you just deduct the total of your 12 payments from you savings. You do it every year till you get out of the loan.

[KKF]

Re: Zakat and Student Loans

isn't there a contradiction in Islamic way of life? we worry about zakaat on student loans but ignore paying interest on the loans...just saying so!

it's like the guy [in Khuda Gawaah] who had rishwat money in his pocket and was looking for Halaal meat shop...what a confused state of affairs. :(

[teggy]

Re: Zakat and Student Loans

isn't there a contradiction in Islamic way of life? we worry about zakaat on student loans but ignore paying interest on the loans...just saying so!

it's like the guy [in Khuda Gawaah] who had rishwat money in his pocket and was looking for Halaal meat shop...what a confused state of affairs. :(

She will beat you up. See post numbers 2 and 3.

[KKF]

Re: Zakat and Student Loans

She will beat you up. See post numbers 2 and 3.

i don't think so...she is a decent girl and it's not decent to beat someone up...eh? :)

[X2]

Zakat is on wealth or net savings. So lets say today your actual liabilities are more than your assets, then there is no wealth to pay zakat on.

But then again I am not a scholar of religion, and am told simple logic does not address these issues. Makes sense to me and I have not seen a good enough argument against the approach.

[X2]

TLK - but your liability is not the total of your payments for the year, you owe the total amount which is a real liability. That real liability has to be compared to your real assets. An argument can be made of total current value vs future value for payoff and what amount needs to be compared to your current total assets.

The issue that I see is that someone can be paying zakat on some supposed wealth, but in any situation where there is an impact to the income stream, the liability does not go away barring a bankruptcy.

The argument is not against giving, but to me that becomes sadqa and given at a level an individual is comfortable, but zakat obligation seems a bit too much

[PyariCgudia]

Re: Zakat and Student Loans

Well, that means I might have had to pay zakat for the past 2 years which I didn't do. Because I was in debt overall.

If I pay up my zakat then by guestimating for the past two years should I pay that lump sum now or wait? Or pay it slowly off as I can in the near future?

[teggy]

Re: Zakat and Student Loans

Question: Assalamu alaikum. I have a question regarding unpaid zakat. I estimate that I earned 141,000 USD before taxes over a 3.5 year period, broken down like this:
year 1: $24,000
year 2: $35,000
year3: $70,000
Do I have to pay 2.5% on that total amount of $141,000? **
Answer: Walaikum As-salaam wa Rahmatullahi wa Barakatuhu,
May Allah reward you for being concerned about the zakat you owe. I will try my best to walk you through the process of calculating your zakat, which you can then use to figure out how much you owe.
The Basics of Zakat
Zakat is obligatory (fard) upon every legally responsible (i.e. a sane adult) Muslim who possesses the nisab (minimum zakatable amount) for one whole lunar year. The zakatable amount is counted from monetary wealth and trade goods while excluding basic living needs (house, furniture, clothing, vehicles, etc.). Furthermore, debts are subtracted** from this amount, such that if one has $1000 more than the nisab but is in debt for $1500, they do not have to pay zakat.
*The current nisab value can be found at e-nisab ? live nisab values
Estimating a Zakat Due-Date
Based on the above definition, you first owed zakat one year after you first came into possession of more than the nisab amount (around $4925 as of April 2012). Since you do not know for sure when this happened, you should try to establish this date based on your best estimation. Perhaps looking into your bank records will help.
If you accumulated your nisab after you started working, then think about how much you made per paycheck, and how much of that you normally spent versus how much you kept, and then calculate from that when you surpassed the nisab. Your first due-date for zakat, then, would be one lunar year from that date.
You can use the following tool to calculate the (approximate) Islamic lunar calendar date from a specific Gregorian calendar date (and vice versa): Hijri and Gregorian calendar, Date conversion, Special Islamic days and events.
Paying Each Year
Estimating your zakat due-date is important because it will prove a vital reference point for calculating zakat amounts for years that you missed paying it. Once you figure out the due-date, you now have to determine (or use your best estimation) how much money you had to pay zakat on every year on that date.
Once you have settled upon a date, even if it is an estimate, there is no further need to worry about it. The main takeaway is to do your best in estimating a starting point, and then being consistent in paying your zakat based on that date thereafter.
Sample Case
So, for example, Hassan needs to pay zakat for the past 3 years.
First, he estimates his zakat due date to be the 20th of Dhul Qa`idah.
Second, because his financial records are in Gregorian Dates, he determines the Gregorian Zakat Due-Dates for the past 3 lunar years: 1) November 8th, 2009; 2) October 28, 2010; and 3) October 18th, 2011
Third, he uses his financial records to estimate how much money he had to pay zakat on for those dates:

1. 11/08/2009: $23,000; 2) 10/28/2010: $27,000; 3) 10/18/2011: $31,000
   Finally, he calculates the zakat he owes by multiplying 2.5% to each amount and adding them:
   Year 1: 23000 x .025 = $575; Year 2: 27000 x .025 = $675; Year 3: 31000 x .025 = $775; Total: 575 + 675 + 775 = $2025
   Your Situation
   So in order for you to get a clear idea of how much zakat you owe, you need to:
2. Determine or estimate your zakat due-dates for the years you missed.
3. Determine or estimate the amount of zakatable money you had on each of those dates. Remember that what matters is not how much you earned over those 3.5 years, but how much zakatable money you possessed on the dates when it was due.
4. Multiply these amounts by 2.5% and then add them together to find your total owed zakat. I would encourage you to add a little more to this amount out of precaution, perhaps by increasing your zakat an additional 3%. (In the above case, that would mean Hassan pays $2085 instead of the initial $2025)
5. Give this amount in zakat over time and in amounts that are manageable. It does not have be paid immediately, especially if doing so would entail hardship.
   More Information on Zakat
   For more advice on matters related to zakat and financial planning, I encourage you to take the course “Money Matters” here at SeekersGuidance. You can also look to the following answers for some more information and advice:
   Years of Past Due Zakat, and Zakat on Non-Selling or Damaged Trade Goods
   Zakat Questions: Resetting Start Date, Miscalculations, and Debt Deduction
   Is Zakat Due on Savings for Which Zakat was Paid the Previous Year?
   Zakat: How to Calculate & Whom to Give
   May Allah give us all the tawfiq to fulfill our rights and duties in this world so that it may benefit us in the next.

SeekersGuidance - How Do I Determine How Much Zakat I Owe? – Answers

Again, use this information for reference purposes, but please do seek advise from a Mufti/Scholar, any person of knowledge that’s accessible to you for best course of action.

[PyariCgudia]

Re: Zakat and Student Loans

Oye crap. I hope Edhi doesn't die. I don't know who else to donate to without worrying my money is going in the wrong direction.

[teggy]

Re: Zakat and Student Loans

You can give Zakat to help out anyone who's in dire need. Be it blood relations, or people that you know are in need. Edhi of course is an excellent organization, and best recipient for zakat.

[quote]

There are eight groups of people on whom Zakat should be spent, as mentioned in the Quran:

"The alms are only for the Fuqara' (the poor), and Al-Masakin (the needy) and those employed to collect (the funds); and to attract the hearts of those who have been inclined (towards Islam); and to free the captives; and for those in debt; and for Allah's Cause, and for the wayfarer (a traveler who is cut off from everything); a duty imposed by Allah. And Allah is All-Knower, All-Wise." [Al-Quran 9:60]

"They ask you as to what they should spend. Say: Whatever wealth you spend, it is for the parents and the near of kin and the orphans and the needy and the wayfarer, and whatever good you do, Allah surely knows it." [Al-Quran 2:215]

"(Alms are) for the poor who are confined in the way of Allah-- they cannot go about in the land; the ignorant man thinks them to be rich on account of (their) abstaining (from begging); you can recognize them by their mark; they do not beg from men importunately; and whatever good thing you spend, surely Allah knows it." [Al-Quran 2:273]

"And give to the near of kin his due and (to) the needy and the wayfarer, and do not squander wastefully." [Al-Quran 17:26]
[/quote]

[KKF]

Re: Zakat and Student Loans

You can give Zakat to help out anyone who's in dire need. Be it blood relations, or people that you know are in need. Edhi of course is an excellent organization, and best recipient for zakat.

true but zakaat can NOT be given to non-Muslims. parents can NOT be given zakaat money but siblings can be. there are guidelines where you can spend zakaat monies. best way is, as you mentioned, to give it to needy people you know. there are a lot of poor people in North America and that can be your own city.

our masjid gives out zakaat money to local families who are below poverty line. same goes with fitra money.

[obaid1982]

Re: Zakat and Student Loans

Seriously? This is the state of most muslim students in the Western world these days, people take out loans for their education, and then spend some years, sometimes up to 10 years, paying them off. So, if you're worth net negative, do you pay zakat?

Zakat is paid on Savings. If one is under loan, he/she should really be paying as much payment of the loan as possible, not just the bare-minimum. If you do that, you should not have a significant amount of savings for which to pay zakat on. Hope that clarifies.

[TLK]

X2 yaraa, in that case people who have 30 years loan on their house will never be eligible for many many years to pay zakat. His loan will always be greater than his savings.

[psyah]

Re: Zakat and Student Loans

@PyariCgudia

Oye crap. I hope Edhi doesn’t die. I don’t know who else to donate to without worrying my money is going in the wrong direction.

Peace Sister PyariCgudia

The need of the day is here .. STAND4SYRIA | Standing For Humanity With Our 100% Donations Policy

And I am personally connected to them … Syria needs aid.

[PyariCgudia]

Re: Zakat and Student Loans

X2 yaraa, in that case people who have 30 years loan on their house will never be eligible for many many years to pay zakat. His loan will always be greater than his savings.

Yeah I was thinking just this thought, which prompted me to open the thread. If long term loans applied, most muslims in the west wouldn't be paying zakat, we're all in debt ourselves. To some bank or the other.

[X2]

TLK

Yes. Savings may be less than the loan amount for a long time. Assuming we are not factoring in equity which grows with time as well.

If your savings are less than what you owe then I don't see wealth.

Person A has a mortgage- he just bought a house. The final price of the house would be 500K, he can pay it off today for 350K, and has 20K equity in the house.

He has 40K in his savings account.

Some people would say he owes zakat on the 40K

Others would say its 40K minus payments due this year. Some may say its his

If he dies tomorrow, what is the total wealth he is leaving behind for his kids? Zakat is on wealth...assets-liabilities. Plus it's not due on your house anyways. So even if he has 80% equity that can't be used in this calculation to complicate it a bit. It will be savings minus loan amount.

Why make it more complicated. Once the place is paid off or assets are higher than liability and the individual has wealth then zakat on wealth is needed. Until then pay sadqa as much as you want.

Again just my view. But it's really based on a net worth perspective. Net worth minus asset value of house to be specific

Now people may go on a tangent and talk about interest being haram, and fine, even if we go by that. Loan is not haram.

If I have you a million dollars to but a house. Do you not owe me a million dollars? However long the period of repayment is does not matter. What matters is when what you owe is less than what you have saved.