Kerala High Court clarifies: No right to education loan where co-borrower has poor credit profile

Background of the dispute

A series of writ petitions came up before the Kerala High Court, all raising a common grievance. The petitioners were students enrolled in various educational programmes who had approached different bank branches for education loans.

In every case:

  • The education loan application had been turned down;
  • The rejection was founded on the low or adverse Credit Score/Credit Report of the co-borrower – typically one of the parents; and
  • The students sought a direction to the banks to sanction education loans without taking into account the parent’s credit score.

Except in one writ petition (W.P.(C) No.45597/2025 where Indian Bank was the respondent), State Bank of India was the respondent bank. Given the identical nature of the legal issues, the High Court decided all petitions together by a common judgment.

The respondent banks filed detailed statements and produced documents, including successive versions of the IBA Model Educational Loan Scheme, to justify their stand.

Arguments advanced on behalf of the students

Challenge to reliance on parent’s credit history

Counsel appearing for the petitioners argued in substance that:

  • Refusing education loans solely because the co-borrower/parent has a poor Credit Score or adverse Credit Report is arbitrary and illegal.
  • An education loan is expected to be repaid by the student after completion of the course, based on the student’s future earning capacity.
  • Therefore, the focus of eligibility should be on:
    • The student’s academic merit, and
    • Reasonable likelihood of employability after studies,
      rather than on the parent’s previous borrowing track record.

The petitioners stressed that many meritorious students come from economically weaker backgrounds and their parents may have suffered past financial setbacks. If banks refuse such students loans by citing the parent’s poor credit history, it would:

  • Defeat the underlying policy of the education loan scheme, and
  • Deny deserving students the opportunity to pursue higher education for want of funds.

Purpose of the Model Educational Loan Scheme

The petitioners relied on the Model Educational Loan Scheme framed by the Indian Banks’ Association (IBA), which was drawn up pursuant to a Central Government policy decision. They highlighted that the Scheme aims:

  • “To provide financial support from the banking system to meritorious students for pursuing higher education in India and abroad”; and
  • To ensure that economically weak but meritorious students are not denied higher education and receive financial assistance on reasonable terms.

The contention was that a strict insistence on a good parental Credit Score is inconsistent with and undermines these core objectives.

Reliance on CGFSEL to neutralise credit score concerns

In W.P.(C) No.4667/2026, an additional argument was raised based on the Credit Guarantee Fund Scheme for Educational Loans (CGFSEL). Counsel for that petitioner submitted:

  • CGFSEL provides a guarantee by the Central Government (through the designated Trustee Company) in respect of eligible education loans.
  • Because default risk is substantially covered by this guarantee mechanism, the bank’s reliance on the credit record of either the borrower or co-borrower becomes irrelevant or substantially diluted.

In other words, once CGFSEL exists to cushion banks against default, refusal of loans on the basis of co-borrower’s poor Credit Score is said to be unjustified.

Reliance on earlier High Court precedents

To support the plea that parental Credit Score is not a valid disqualification, petitioners cited earlier Single Bench decisions of the Kerala High Court:

  • Noorjahan N.S. v. The General Manager, State Bank of India and Others [2019:KER:72386]
  • Pranav S.R. v. The Branch Manager, State Bank of India and Others [AIR 2020 Ker 161]
  • K.M. George v. The Branch Manager, State Bank of India and Others [2020:KER:335641]
  • Kiran David v. Assistant General Manager, State Bank of India, Tvm and Another [2022 (2) KHC 373]

They also relied on Aleena Sreejith and Another v. Union of India and Others [2024:KER:27888] to argue that CGFSEL supposedly obviates the need for credit-score based rejection.

Constitutional arguments

The petitioners further contended that:

  • Denial of education loans on the ground of co-borrower’s credit history violates Article 14 (equality before law) and Article 41 (right to education and assistance in certain circumstances) of the Constitution of India.
  • In effect, meritorious students from families with past financial defaults are being treated unequally, even though the loan is meant to be serviced by the student after qualification.

On this basis, they sought directions to the banks to disregard the co-borrower’s Credit Score and sanction the loans.

Stand of the respondent banks

No fundamental or absolute right to an education loan

Counsel for State Bank of India and Indian Bank submitted that:

  • There is no fundamental right or inherent legal right to obtain an education loan.
  • Loans can be sanctioned only in terms of the IBA Model Educational Loan Scheme and each bank’s Master Circulars on education loans.

They relied on the Division Bench judgment in Arya v. Reserve Bank of India [2015 (4) KLT 478], which, following Kasinathan v. Branch Manager, Canara Bank, Town Hall Road, Madurai [Laws (Mad)-2012-4-52], held that: