Education loan can be rejected if co-borrower parent has bad credit score, says Kerala HC

The Single Bench heard a number of petitions by students challenging banks’ refusal to provide education loans on the grounds that a co-borrower’s parent had a bad credit score. | Photo credit: RK Nithin

The Kerala High Court has ruled that an education loan can be denied to a student if the co-borrower parent has a bad credit score. However, the application could be considered if there is an eligible co-borrower with a sufficient credit score.

Single Judge MA Abdul Hakhim was considering a series of petitions by students challenging banks’ refusal to grant education loans on the grounds that a parent who was a co-borrower of their loan had a bad credit score. Students sought guidance from appropriate banks to provide loans, ignoring their parents’ credit scores.

Petitioners’ contention

Proponents argued that the student’s ability to repay should be decisive in securing employment after graduation. They argued that repayment of education loans was guaranteed by the central government through the Credit Guarantee Fund for Education Loans (CGFSEL) scheme. If loans are denied to deserving students who do not have sufficient resources to meet their educational expenses, it would defeat the very purpose of CGFSEL.

This scheme enables students from economically weaker sections to secure unsecured education loans of up to ₹ 7.5 lakh without requiring a third party guarantor. The petitioners also alleged that their fundamental rights to education and life were violated by the denial of the loan.

Bank response

The banking institutions replied that education loan cannot be claimed by right. Banks could sanction loans only if they fulfilled the relevant conditions of the Indian Banks Association Model Educational Loan Scheme and the Master Circulars for Educational Loan Scheme. The claimants could succeed in their claim if they could demonstrate that their applications were rejected in breach of the IBA scheme.

The court rejected the motions and stated that the banking institutions had to recover from the borrower the entire loan amount owed with the appropriate interest and that they had to take all necessary measures and preserve the borrower’s option to appeal the entire amount of the education loan.

According to CGFSEL, the maximum guarantee coverage was only 75% of default. In addition, banks should first recover the possible amounts by taking over the assets of the borrower and then remit the proceeds from the sale of those assets before claiming the guaranteed amount from CGFSEL.

The court ruled that it cannot prevent banks from considering a co-borrower’s credit score for education loans.

Published – 24 Jul 2026 13:52 IST