All praise is due to Allah, peace and blessings be upon the Messenger of Allah and upon all his family and companions.
A university grant is classified in Sharia as a gift, and stipulating repayment of funds upon failure to honor its conditions makes it a conditioned gift. According to some legal scholars , a conditioned gift is permissible, and it is close to what is called in Sharia ‘Umra and Rokba’. They have disagreed on the ruling of this condition; the Shafiites are of the view that the gift is valid and the condition is invalid; whereas, the Malikites and one narration of the Hanbalites are of the view that the condition is valid and they work on meeting it. Accordingly, a conditioned gift is permissible, and the condition governing it is accredited from an Islamic view point. Prophet Mohammad (PBUH) said: “A Muslim meets the conditions that he/she approved of.” {Narrated by Al-Hakim}.
Omar bin Al-Khatab was reported to having said: “Conditions approved by both parties and do not violate the rulings of Sharia determine the right of each.” Thus, the grant is valid and the condition is binding, and a student must honor what he had committed himself to in the first place.
However, it is prohibited to impose a fine on the grant`s funds because this involves usury (Riba) although it is a penal condition on a sum that has become a debt. And Allah knows best.