Nearly twenty years after the National Democratic Alliance government introduced an education loan scheme to benefit students from poor families, India’s public banks continue to deny loans to students whose parents have poor credit ratings. The Indian Banks’ Association, a representative body of all banks with offices in the country, had prepared this proposal as a model education loan scheme in 2000. The next year, the NDA government announced the scheme in the union budget, promising concessions to students wishing to pursue higher education, and the Reserve Bank of India notified it in April that year. But the experience of students and the continuing need for judicial intervention indicates that the scheme’s implementation is not steered by the benefit to aspiring students, but by the caution of banks.
The RBI’s circular stated that the loan scheme “aims at providing financial support from the banking system to deserving/meritorious students for pursuing higher education in India and abroad.” To be eligible under the scheme, students should have scored 60 percent in the qualifying examinations for graduation courses; for Scheduled Caste or Scheduled Tribe applicants, the requirement was 50 percent. The scheme permitted all commercial banks to provide loans “subject to repaying capacity of parents/students,” with a ceiling of Rs 7.50 lakh for courses in India and Rs 15 lakh for courses abroad. Further, it offered a moratorium on the repayment of the loan for the period of the course and one year afterwards, or six months of getting a job, whichever came earlier.
“The main emphasis is that every meritorious student though poor is provided with an opportunity to pursue education with the financial support from the banking system with affordable terms and conditions,” the RBI’s circular stated. “No deserving student is denied an opportunity to pursue higher education for want of financial support.” Yet, students from economically disadvantaged backgrounds who apply for an education loan are commonly rejected by public-sector banks, citing their parents’ low CIBIL score. A CIBIL score refers to a three-digit number issued by the Mumbai-based credit-information company TransUnion CIBIL, which was formerly known as the Credit Information Bureau India Limited.
Banks refer to this score while assessing the creditworthiness of a potential borrower. However, the RBI’s circular does indicate that the students, and not their parents, are considered the principal borrowers. In fact, in August 2015, the Indian Banks’ Association released “Revised Guidance Notes” on the education loan scheme. “The student borrower has no credit history and as such he is assumed to be creditworthy as this is a futuristic loan,” the Guidance Notes state. It even addresses circumstances where an applicant-student’s parents have a poor credit rating. “It is likely that the joint borrower for the loan has a credit history and any adverse features could have a bearing on the assessment of credit risk … To overcome this, the bank may, as a prudent measure insists on a joint borrower acceptable to the bank, in case of adverse credit history of the parent/guardian of the student.”
But none of these appear to be implemented in practice. Vani Rajeev, a student pursuing her bachelor of science in radiology, was one such student whose education-loan application was declined by the State Bank of India citing her single mother’s poor credit history. “We had applied for the loan in February,” Anju Jayan, Vani’s mother, told me on the phone. “My daughter does not have her father. She only has me. I had a CIBIL record since I had applied for a housing loan before. The loan was rejected because of my CIBIL record.” In February 2020, Jayan applied for a loan of Rs 4 lakh for her daughter’s education, but SBI’s Kulasekharamangalam branch, in Kottayam, rejected the application soon after.