What is Margin Money in Education Loan?

Published date: 07 Aug 2017 Updated on: 22 Apr 2019

When it comes to education loans, there is a lot of financial jargon that confuses students, and margin money is one of them. Not familiar what is the meaning of this term?

Don’t worry we will go step by step:

Assume Mr. X is going to a US university where overall expenses for two years is INR 45 lakhs. Mr. X approached GyanDhan (he made a smart choice, I’d say!) for his education loan requirement and got a loan sanctioned of INR 30 lakhs. This means that Mr. X will take care of INR 15 lakhs himself for his higher education and this 15 lakhs or 33.33 %  { (1-30/45)*100 } is the margin money in Mr. X’s case.

So the formula for the margin money in percentage is : (1-loan amount sanctioned / overall expenses )*100

In the first semester, Mr. X requires Rs.10 lakhs for tuition fees and living expenses. When Mr. X approaches his bank, the bank will provide INR 6.67 lakhs as per the 33.3% margin calculation above, once Mr. X either pays 3.33 lakhs to the university directly and shows the receipt to bank or deposits it in the bank so that the bank can transfer the entire 10 lakhs to the university. Please note Mr. X can use each penny of INR 30 lakhs sanctioned but at each disbursement, he will get 66.7% of the requested amount. And that’s why having lower margin money is always beneficial.

Margin money is inversely proportional to overall expenses for a given loan amount, it means lower the overall expenses higher will be the margin money for a given loan sanctioned amount. For students going to the US, when calculating EMI overall expenses, banks typically double the amount mentioned in I-20 letter which decreases the margin money for the students. We realize that this is not a fair reflection because the living expenses in I-20 letter are always more than the actual (one of our team members studied abroad). At GyanDhan, we are helping students in address concerns on the margin money by taking up their cases with the partner banks. Just another reason for interested students to contact us or register with us. 

Banks have an upper limit on the % of overall expenses they are going to fund, which varies from 85% to 100% in the case of our partners. The remaining amount is what is required from the customer as the margin money. The number quoted by banks is the maximum limit of the expenses bank will bear and exact margin money depends on a case to case basis. For example:

Let’s assume overall expenses is INR 45 lakhs and the maximum amount the bank can fund is 85%.

1. Mr. X can get 85% of INR 45 lakhs from the above bank, i.e INR 38.25 lakhs. If the student gets a loan of 38.25 lakhs, the margin money is 15%

2. If Mr. X gets loan sanctioned for INR 30 lakhs, then the margin money required by the banks is no longer 15% but 33.3% as shown in the calculations in the start.

Most of our partner banks have either no processing fees or flat fees. This is critical as this means that the student must maximize the loan amount that they can apply for. This helps in dealing with unforeseen circumstances, and reduces the margin money, without any upfront costs.

Want to discuss in details? You can easily check your loan eligibility on our website and our education loan counselor will contact you for further discussion. Also, if you are planning to take an education loan via SBI, then we have launched a new service of door pickup of documents (at zero cost) which will reduce your time and effort substantially.