Kochi: The Kerala High Court recently ruled that banks are legally allowed to reject educational loan applications if the parents, acting as co-borrowers, have a poor credit or CIBIL score. The decision has come as a significant blow to several students who argued that their own future earning potential should be the only thing that matters.

The legal battle involved a group of students, including 19-year-olds Dilha Jan Govindan and Margaret M. Kochumuttom, who had their dreams of higher education put on hold. They took the State Bank of India and Indian Bank to court after being turned away because of their parents' financial history.

At the heart of the fight was a simple question: should a child suffer for a parent's past financial troubles? The students argued that an educational loan is meant to be repaid by the student once they land a job. They claimed that denying them funds defeats the whole point of the government's loan schemes, which are supposed to help poor but "meritorious students" get ahead in life. 

However, the banks stood their ground. They argued that they must follow strict rules set by the Indian Banks’ Association (IBA). To keep "bad loans", or Non-Performing Assets (NPAs), under control, they insisted that checking a co-borrower's credit history is a vital safety net.

Justice M.A. Abdul Hakhim, presiding over the case, ultimately sided with the lenders. While the court acknowledged the importance of education, it pointed out a hard legal reality: while there is a right to education, there is "no inherent right to get Educational Loan".

The court explained its reasoning through several key points:

  • No Fundamental Right: The judge noted that getting a loan for higher studies is not a fundamental right under the Constitution.
  • Changing Rules: Earlier court rulings in favour of students were based on old guidelines. The newer 2021 and 2022 schemes specifically state that credit reports are to be used for "ascertaining the credit discipline of the loan applicants".
  • The Guarantee Myth: Some students thought a government guarantee scheme (CGFSEL) meant banks did not need to worry about credit scores. The court disagreed, stating that the scheme is merely for "guaranteeing the Educational Loans disbursed by the lending Banks in case of any default by the borrower" and does not replace the bank's own eligibility checks.

In his final judgment, Justice Hakhim concluded that the banks' refusal was "sustainable". He dismissed the students' petitions, effectively ending this round of their legal struggle.

There was, however, one small silver lining for the students. The judge noted that banks should "reconsider the Applications" if the students can find another relative with a good credit score to stand in as a co-borrower instead of the parent with the poor credit record.