Banks Should Not Deny Educational Loan Citing Liabilities Of Student's Parents : Kerala High Court

The Kerala High Court recently directed the Bank of India to disburse the loan applied for by the petitioner on the ground that she was a meritorious student and that repayment possibilities of educational loans were not to be assessed on the parents' financial position.

"If the ability of the parents of the applicant to repay the loan cannot be a consideration for granting an educational loan, according to me, the liability, if any, of the parents shall not also be an impediment for the bank in considering an application for educational loan", the High Court observed in the judgment.

Justice P.B Suresh Kumar while allowing the petition observed that 'the object of all Educational Loan Schemes formulated by Banks pursuant to the direction issued by the Reserve Bank of India in terms of the said Circular is to ensure that a meritorious student shall not be deprived of the opportunity to pursue higher education merely on the ground that he/she does not have resources for the same.'

The petitioner is a second-year BAMS student whose request for an educational loan was declined by the Bank of India, a public sector bank. According to the petitioner, she secured admission through the centralized allotment process of the State in 2019 on the basis of her rank in the National Eligibility Cum Entrance Test, 2019.

Since her family could not raise the entire balance fee for the course and since they did not have any collateral security to be offered for availing an educational loan for the entire balance fee, the petitioner along with her father applied to the bank for an educational loan of Rs.7,50,000/- for which no security is insisted by the bank in terms of its Educational Loan Scheme. 

However, she was informed by the bank that her request could not be considered for there was no satisfactory evidence to show that she will later be able to pay the deficit fee and that her father was not generating any income currently from his business. 

The Court observed that The Central government had framed a policy fro institutional funding considering that higher education is progressively being privitised and has become a very costly affair, to ensure that no deserving student was denied the opportunity to pursue higher education for want of financial support. The RBI had similarly issued a circular of Model Educational Loan Scheme prepared by the Indian Banks' Association to formulate appropriate educational loan schemes. 

'The object of all Educational Loan Schemes formulated by Banks pursuant to the direction issued by the Reserve Bank of India in terms of the said Circular is to ensure that a meritorious student shall not be deprived of  the opportunity to pursue higher education merely on the ground that he/she does not have resources for the same.'

The revised guidance notes on Model Education Loan Scheme for pursuing higher education issued in 2015 also clarifed that it was a socially and economically relevant scheme aiming to provide need-based finance to meritorious students for taking up higher education and that the repayment possibilities of educational loans under the scheme are not to be assessed based on the financial position of the parents, but based on the projected future earnings of the students on employment after education. 

Considering the above arguments, the Single Bench noticed that if the contentions raised by the bank are accepted, the same would defeat the object and purpose of the scheme. Accordingly, the Court held as follows:

'I am of the view that the stand of the bank that the family of the petitioner may not be in a position to pay the deficit fee payable by the petitioner for the course and therefore the petitioner is not entitled to the loan applied for, is unsustainable in law.' 

Case Title: Devika Soniraj v. The Zonal Manager, Bank of India

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