Alternative Student Finance: Student Bank Account

Key Details

Description

The Department for Education (DfE) is establishing an alternative student finance (ASF) product, compatible with Islamic finance principles, to enable all students, regardless of their faith, to access Higher Education (HE). Whilst the current student finance system provides interest-bearing loans for students entering HE study, some students, particularly those who identify as Muslim, do not feel able to access these loans due to their faith. ASF will address this barrier by providing a faith-sensitive equivalent to the current loan product. Students accessing ASF will not suffer any detriment nor experience any advantage through choosing to access student support via this route. The ASF system will be based on a ‘Takaful’ model, to provide a form of group-based mutual support. Recipients will receive financial support for HE and, in return, will commit to making contributions back to the scheme in the future which will be used to help other students go to university. ASF recipients will make the same total contributions as those who opt for the conventional student loan product. Like the conventional student loan scheme, these contributions will be based on what people earn and will therefore be of the same amount and made at the same time as repayments for conventional student loans. Legislation has been put in place, through the Higher Education and Research Act (HERA) 2017, to enable ASF to be introduced. At present, we are working closely with a group of specialist advisors to develop a robust ASF model. Alongside this, the Government is also reforming the wider student finance system. The introduction of the Lifelong Loan Entitlement (LLE) will significantly change how students access learning and financial support. We intend to introduce ASF as soon as possible after the LLE, so that both reforms work cohesively to expand opportunity and support for all learners. To ensure that ASF funds are managed in accordance with Islamic finance principles, the DfE is exploring the banking arrangements required. This will include establishing a bank account that can hold and move funds in a compliant manner, including that the account must not bear or generate interest. This engagement activity is focused on generating insights from the market, including market interest in fulfilling this service, feasibility of account options, the anticipated availability of compliant accounts meeting DfE’s requirements, expected costs for the required account and estimated timeframes to establish and operationalise the account. We are keen to identify whether there are innovative solutions that may help deliver better public services and value for money. We anticipate that there will be a contract for this service. The supplier must be able to: • provide evidence of how it handles and holds money in an Islamic finance compliant manner • facilitate the transfer of funds • be fully regulated with FCA/MPM compliance. We expect that a full specification of requirements will be provided after this exercise, in line with an invitation to tender if/when issued.