Education loan can be denied if parent as co-borrower has poor credit score, says Kerala HC

Published 24 July 2026 · finance

The Kerala High Court has ruled that an education loan can be denied to a student if the parent, as a co-borrower, has a poor

The Kerala High Court has ruled that an education loan can be denied to a student if the parent, as a co-borrower, has a poor credit score. However, the application could be considered if there is an eligible co-borrower with a sufficient credit score. The Single Bench of Justice M.A. Abdul Hakhim was considering a batch of petitions by students challenging the refusal of banks to grant educational loans on the ground that the parent who was the co-borrower in their loan had poor credit scores. The students sought a direction to the respective banks to grant the loans, ignoring the credit scores of their parents.

Petitioners’ contention The petitioners contended that the deciding factor should be the repayment capacity of the student upon securing a job after completing the education. They argued that the repayment of the education loans was guaranteed by the Central government through the Credit Guarantee Fund Scheme for Education Loans (CGFSEL). If loans were denied to meritorious students who do not have sufficient resources to meet their educational expenses, it would defeat the very purpose of the CGFSEL. The scheme allows students from economically weaker sections to secure collateral-free education loans of up to ₹7.5 lakh without requiring a third-party guarantor. The petitioners also contended that the refusal of loans violated their fundamental rights to education and life.

Response of banks The banking institutions responded that educational loans could not be claimed as a matter of right. The banks could approve the loans only if they satisfied the relevant conditions of the Indian Banks’ Association Model Educational Loan Scheme and the Master Circulars for Educational Loans. The petitioners could succeed in their claim if they demonstrated that their applications were denied in violation of the IBA Scheme. Dismissing the petitions, the court observed that the banking institutions had to recover the entire outstanding amount of the credit from the borrower with applicable interest and that they had to exercise all the necessary precautions and maintain their recourse to the borrower for the entire amount of the educational loan.

As per the CGFSEL, the maximum guarantee cover was only 75% of the defaulted amount. Moreover, the banks should first recover possible amounts by taking over the borrower’s assets and then remit the proceeds from the sale of such assets before claiming the guaranteed amount from the CGFSEL. The court held that it could not restrain the banks from considering the credit score of the co-borrower in education loans.