Margin Money in Education Loan

Margin money is the percentage of money the bank decides the borrower must pay from their pocket to the total loan amount. The bank will minus a certain percentage of money from the total expense and grant the rest to the student. In simpler words, the difference between the total required sum and the granted amount can be called margin money.

The total amount required - Bank granted amount = Margin money (to be deposited by you)

Assume Mr. X is going to a US university where overall expenses for two years are INR 45 lakhs. Mr. X approached GyanDhan (he made a smart choice, I’d say!) for his education loan requirement for abroad study 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.

(1- (Loan Amount Sanctioned) / Overall Expenses) )*100

Lets understand it through an example

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.

Let us take a look at the margin money fixed by different public and private sector banks and NBFCs for their education loans.

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 form 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. 

10% is the normal margin money for SBI loans. However, this can be increased if the total loan amount increases and vice versa.

HDFC Credila offers 0% margin money. Private lenders like Avanse, Auxilo, Incred and Prodigy Finance also offer loans with 0% margin money.

Margin money can decrease only when the bank grants more of the total expense. It is up to the decision of the lender. 

There is no immediacy to deposit margin money in a single go. The applicant can deposit it when the loan amount is granted. Semester-wise depositing is also possible.