Can Banks Refuse Education Loan To Student Due To Parent's Low Credit Score? Kerala High Court Answers

The Kerala High Court has ruled that banks can refuse education loan to students if their parent, who signs the loan as a co-borrower, has a poor credit score. [2026 LiveLaw (Ker) 387]Justice M.A. Abdul Hakhim dismissed a batch of petitions filed by students challenging the banks' refusal to grant them educational loan.The petitioners argued that denial of loan to them on the basis of parent's credit history was illegal since the loan is to be repaid by the students who are availing them. They contended that the deciding factor should rather be their repayment capacity, upon securing a job after education.The petitioners further pointed out that denying loan to meritorious students, who do not have sufficient means, would defeat the very purpose for which educational loan scheme was formulated by the government.It was further argued that the Central Government's Credit Guarantee Fund Scheme for Educational Loans (CGFSEL) protects banks if borrowers fail to repay.The banks however maintained that education loan is not a right and it is granted only if applicants satisfy the conditions laid down in the Indian Banks' Association's (IBA) education loan scheme and the banks' own guidelines. These rules allow banks to consider credit score of a co-borrower/parent before grant of educational loans.After hearing the parties, the Court agreed that there is no right to educational loans and no fundamental right to higher education as held by the Division Bench in in Arya v. Reserve Bank of India (2015).Reliance was also placed on Haritheeth P. v. The Branch Manager, State Bank of India, which held that banks can reject loan applications if the co-borrower has an unsatisfactory credit record. The Court also relied on the objective of the Credit Information Companies (Regulation) Act, 2005 to render its finding. “in the light of the decision of the learned Single Judge in Haritheeth P. (supra) considering the extant IBA Model Educational Loan Scheme, the prayer of the Petitioners to reconsider the Application of their Educational Loan disregarding the Credit Score/Credit History of the co-borrower parent could not be allowed…Considering the objectives of the Credit Information Companies (Regulation) Act, 2005, it could not be said that the Bank shall not consider the Credit Score/Credit Report of the co-borrower when the Bank considers an Application for Educational Loan.”Next, looking at the contention raised regarding CGFSEL, the Court found that the same is not a scheme for granting loans but for guaranteeing the educational loans granted by the banks in case of default.The Court also referred to the various clauses pointed out by the banks and opined:“It is clear from these provisions that the Applicant has to satisfy the eligibility conditions as per the IBA Model Educational Loan Scheme to get an Educational Loan. The provisions of the CGFSEL could not be considered for the grant of Educational Loan under the IBA Model Educational Loan Scheme. The CGFSEL does not in any way dilute provisions in the IBA Model Educational Loan Scheme. In view of the responsibility of the lending institutions to recover the defaulted loan even after getting 75% of the defaulted amount from the Guarantee Fund under the CGFSEL, it could not be said that the confirmation of satisfactory Credit Score/Credit Report of the Applicants and Co-Applicants for Educational Loan is unwarranted on account of the CGFSEL providing guarantee to the Banks.”The Court then went on to dismiss the pleas and clarified that the banks must reconsider the petitioners' application if they provide eligible co-borrowers with satisfactory credit scores.Case No: WP(C)Nos. 40358/2025 and connected cases Case Title: Dilha Jan Govindan v. State Bank of India and Ors. and connected casesCitation: 2026 LiveLaw (Ker) 387Counsel for the petitioners: K. Jaishankar, Sabu Francis, Varughese M. Easo, Vivek Varghese P.J., Benny T., L. Ram Mohan. M. Aubrey Abraham Isaac, T.U. Sujith Kumar, Saju J. Panicker, Kurian K. JoseCounsel for the respondents: S. Ambily, Rupa R. Nair, K.K. Chandran Pillai (Sr.), B.S. Suresh Kumar, Ashley John, Ranjana V., Anusree C.S., Nemi P.N., P. Sajeev (Perumpalam) – CGCClick to Read/Download Judgment

Can Banks Refuse Education Loan To Student Due To Parent's Low Credit Score? Kerala High Court Answers

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Can Banks Refuse Education Loan To Student Due To Parent's Low Credit Score? Kerala High Court Answers

K. Salma Jennath

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