Regarding riba
Firstly islamic rules are principle based and not black and white rules. So the situation must be analysed in order for one to make a decision.
Devouring interest
Notice wherever the quran mentions riba it refers to DEVOURING interest.
And for their taking riba even though it was forbidden for them, and their wrongful appropriation of other peoples’ property, We have prepared for those among them who reject faith a grievous punishment. (4:161).
O believers, take not doubled and redoubled riba, and fear God so that you may prosper. Fear the fire which has been prepared for those who reject faith, and obey God and the Prophet so that you may receive mercy [3:130-2].
Those who benefit from riba shall be raised like those who have been driven to madness by the touch of the Devil; this is because they say: “Trade is like riba” while God has permitted trade and forbidden riba. Hence those who have received the admonition from their Lord and desist, may have what has already passed, their case being entrusted to God; but those who revert shall be the inhabitants of the fire and abide therein for ever. [2:275]
O believers, fear God, and give up the riba that remains outstanding if you are believers. If you do
not do so, then be sure of being at war with God and His Messenger. But, if you repent, you can have your principal. Neither should you commit injustice nor should you be subjected to it. (2: 278 - 279).
There is one verse however in Surah Rum
That which you give as riba to increase the peoples’ wealth increases not with God; but that which you give in charity, seeking the goodwill of God, multiplies manifold. (30:39).
If you read different tafsir this is meant if you give as a gift and expect the person to pay you back capital + interest.
See -
http://www.tafsir.com/default.asp?sid=30&tid=40413
The hadith where the Prophet SAW saw punishments are also for those who DEVOUR interest
Yes there is a hadith that the one who pays interest and receives interest are the same. And both payer and receiver of interest are cursed.
However, there is a slight distinction between devouring and paying. This is probably the reason why Imam Abu Hanifa RA said there is no for muslim in dar-ul-Harb.
Consider the Ayat
إِنَّمَا حَرَّمَ عَلَيْكُمُ الْمَيْتَةَ وَالْدَّمَ وَلَحْمَ الْخَنْزِيرِ وَمَآ أُهِلَّ لِغَيْرِ اللَّهِ بِهِ فَمَنِ اضْطُرَّ غَيْرَ بَاغٍ وَلاَ عَادٍ فَإِنَّ اللَّهَ غَفُورٌ رَّحِيمٌ
He has only forbidden dead flesh, blood, the flesh of swine, and any animal which is slaughtered as a sacrifice for other than Allah. But if one is forced by necessity, without willful disobedience, nor transgressing, then, Allah is Pardoning, Most Merciful [An-Nahl 16:115].
Note the principle is noted that if under necessity Allah will forgive the sins.
It does not say that haraam will become Halaal, instead haraam will always be haraam. However, Allah has revealed that he will forgive sins if the condition is met.
Necessities of this day and age: Student loan
Student loan, as mentioned earlier is a necessity if one needs education. Otherwise majority of muslims in the west generations after generations would live to be taxi drivers or lower class admin workers and none would be in a prominent position or place of authority.
Education is fard and also it is stressed that muslims know about the latest technologies and are not lagging behind.
If someone, if my child had the flare or ambition to persue a subject would I force him to be a taxi driver or corporate slave just because I am not able to afford university? I may look for zakat or sadaqah first but if nothing works then you do not have a choice but to take out a loan.
Buying a house
With regards to house, it is the mans obligation (Fard) to provide security and financial security to his family. He must provide both.
Living under rent has a big problem, which is if a man losses his job or source of income he will be forced to leave his house and live in an estate.
Now imagine having 2 little kids and (Allah forbid) man gets terminally ill, disabled, involved in an accident, where would your kids go. Would you condemn them to live in a council estate for the rest of their lives. Allah would question you as to why you did not make them pious and educated.
If none of the above on retirement when you are not able to work who is going to pay the rent. If the kids are gonna be taxi drivers they will hardly be able to afford a place for both of you.
Don't think you can rely on your pension either, as all pensions are sourced from a mixture of fixed interest securities, bonds and equities. (In terms of equity there is not distinction between halaal and haraam business). As mentioned above devouring interest is forbidden. Declaring war on Allah and his Prophet SAW. So pension is a no.
Where will you go. Is it not better to take a mortgage out and pay 700 towards interest and capital over 20 years rather then 700 pounds a month towards rent? At least then you will have a place to yourself.
Conclusion
This is my research on the subject. I am no aalim or mufti but a student of Islam.
I do not say interest, paying or receiving, is halaal they are both haraam. But for necessity, to take your first step to get yourself financially secure i.e. an education, a house, a business, that is a mans need and can not be avoided to fulfil his obligation. Taking out a loan knowing it to be wrong is fisq a sin. However, taking a loan to get an education or house may in the long term prove constructive to the muslims whereas not taking a loan and living like 3rd class citizens would be destructive.
Not taking out loans may prove to be much more disastrous to the community as well as your offspring.
You can not change the system unless you know about it and unless you are in a position of authority. We can not just sit back and live like 3rd class citizens. Once you are set up and secure we can think of ways to eradicate this disease altogether.
I would recommend everyone to read The late Mufti Muhamed Shafi RA work on this. It very informative and a real eye opener on today's economic system.
Starts here from page 28 onward
http://www.islamibayanaat.com/MQ/English-MaarifulQuran-MuftiShafiUsmaniRA-Vol-1-Page-638-688.pdf
Continues here until page 20.
http://www.islamibayanaat.com/MQ/English-MaarifulQuran-MuftiShafiUsmaniRA-Vol-1-Page-689-741.pdf
Hope this helps
