Bank Can't Deny Education Loan To Student Solely Due To Parent's Poor CIBIL Score: Karnataka High Court

Highlighting that the 'creditworthiness of a parent' cannot impede the 'educational aspirations or constitutional rights' of a student, the Karnataka High Court has quashed a rejection letter issued by Karnataka Grameen Bank which denied an educational loan of Rs 12.5 lakhs to a student pursuing B.E. in Artificial Intelligence. [2026 LiveLaw (Kar) 267]

“…A CIBIL score is merely one indicator of past credit behaviour. It is not a statutory disqualification nor can it become the sole determinative factor while considering an educational loan…”, the single judge bench of Justice Sachin Shankar Magadum sitting at Dharwad noted at the outset.

Observing that loan applications cannot be rejected solely on the ground of the parent's adverse CIBIL score or credit history, the single judge bench noted that such 'inflexible' practises could 'perpetuate economic inequality across generations'.

“…The creditworthiness of a parent cannot eclipse the educational aspirations and constitutional rights of the student…”, the court remarked in its order.

“…A rigid insistence upon a parent's credit score would render the educational loan scheme illusory for the very class of students for whose benefit such schemes are predominantly intended. If banks are permitted to reject every educational loan application on the basis of the parent's adverse credit history, students belonging to financially distressed families would stand excluded from higher education, thereby frustrating the constitutional vision of social justice and equality of opportunity”, the court held by applying the doctrine of proportionality.

Significant to note that the Kerala High Court had, earlier this month, held that banks can refuse education loan to students if their parent, who signs the loan as a co-borrower, has a poor credit score.

In the present case, the petitioners were a father-son duo, aggrieved by the rejection endorsement issued by the Bank in October 2025 when an application was made for an educational loan to fund the son's BE Artificial Intelligence Course. The Bank had then reasoned in the endorsement that the father had been classified a defaulter and his CIBIL score was low, making the loan application 'ineligible' for consideration.

Before the High Court, the petitioners relied on a Kerala High Court judgment[in W.P.(C) No.17222/2023] that that educational loans cannot be rejected solely based on CIBIL score or credit history, and that such schemes should not be shut off to financially not well-off families so as to perpetuate economic inequalities.

The court, after hearing the contentions, held that the Bank is an instrumentality of state under Article 12 of the Constitution. Referring to Article 21 [Education as facet of the right to life], Article 14 [Doctrine of non-arbitrariness] and Articles 38, 39(b), 41 and 46 of the Directive Principles of State Policy, the court held that rejection of loan based on father's CIBIL Score has no rational nexus with the object of promoting the student's access to education:

“…Education has consistently been recognised by the Constitutional Courts as an indispensable facet of the right to life guaranteed under Article 21 of the Constitution. Although higher education may not be a fundamental right in the strict sense, access to higher education cannot be rendered illusory by arbitrary State action…”, the court reasoned.

The court also distinguished between educational loans and commercial borrowers, and said as to what can be expected out of both, since the student's future earning capacity is the security for repayment in educational loans. The court also noted that while CIBIL Score is relevant for commercial financing, such insistence on CIBIL Scores cannot be made in the case of educational loans, which are founded on 'an altogether different public policy consideration'.

“… Unlike commercial lending, an educational loan is an instrument intended to facilitate access to education, promote human capital and secure the constitutional promise of equal opportunity. The borrower in substance is the student, whose future earning capacity constitutes the real security for repayment. The educational loan scheme is therefore an investment in the student's future and not merely a commercial transaction based on the existing financial status of the family”, the court observed.

Noting the above, the court directed the bank reconsider the application afresh without treating the adverse CIBIL score as the sole or determinative ground for rejection, applying the proportionality rule. The court has also asked the bank to consider covering expenditure already incurred towards the first academic year by the student. The timeline for completing the above procedures would be two weeks, the court has noted in the order.

“…Even assuming that the parent's adverse credit history could be regarded as a relevant consideration, it cannot become the sole or overriding factor resulting in outright rejection of the application. The respondent-Bank is required to examine the academic credentials of the student, the recognised educational institution, the employability prospects of the course pursued, the repayment mechanism available under the educational loan scheme and other relevant parameters”, the court concluded, citing that consideration of CIBIL Score alone would be contrary to Article 14 of the Constitution.

Hence, the rejection endorsement issued by the Gramin Bank was quashed and sent back for reconsideration.

Case Title: Sanket & Anr. v. Regional Manager, Karnataka Grameen Bank & Anr.

Case No: WP No. 109488 of 2025

Citation: 2026 LiveLaw (Kar) 267

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