Margin Money in Education Loan (2025)

Many Indian students dream of pursuing their higher education from abroad, particularly in the US. However, talking financially, this dream costs a lot! But if the student is determined, then comes the stage of education loan which will cover the finances related to higher studies. To get the required education loan, there comes a term known as “margin money”, which has left many students wondering what margin money is.

Margin money is a term used when you are taking a loan. It is nothing but a percentage of the total loan amount that you have to pay from your own pocket. Many times, we have seen people asking what is margin money in loan? So, you can define “margin” in an education loan as a part of the total educational expense that you or your family must contribute.

Imagine Ajay is planning for higher education at a university in the United States, where the overall expenses for two years amount to INR 45 Lakh. Ajay approaches GyanDhan for his education loan requirements (smart choice, right?) and gets a loan sanctioned for INR 30 Lakh.

 

In this scenario, Ajay needs to arrange the remaining INR 15 Lakh himself. This INR 15 Lakh is the margin money. So, while the bank covers a significant portion of the education expenses (INR 30 Lakh), Ajay has to contribute INR 15 Lakh from his own funds.

 

Here’s a simple breakdown:

• 
  Total education expenses: INR 45 Lakh
• 
  Loan sanctioned by the bank: INR 30 Lakh
• 
  Margin money (Ajay’s contribution): INR 15 Lakh

 

The margin money is inversely proportional to the overall education expenses of the student education loan. The higher the education loan amount, the lower will be the margin money. As we discussed above, Ajay wants to go to US for his higher studies. Here, the bank will consider 100% of the expenses in its calculation. This will, in return, decrease the overall amount of education loan margin money. We are sure that this process might not appear fair because the overall education expenses referred to in the I-20 are always greater than the actual ones.

When it comes to education loan margin money, various lenders such as public banks, private banks, and Non-Banking Financial Companies (NBFCs) have different requirements and specifications. Understanding the need for margin money involves looking at the practices of each type of lender. 

Public Banks:

Public banks like SBI, UBI, and BOB typically provide education loans with collateral, meaning the borrower must pledge an asset against the loan amount. To ensure that the borrower is financially backed up and shares some responsibility, these banks do not cover 100% of the education expenses. Instead, they require the borrower to contribute a certain percentage of the total cost. This borrower’s contribution is what we refer to as margin money.

 

For example, if a public bank sanctions an education loan, it might cover 85% of the total expenses, leaving the remaining 15% to be covered by the borrower as margin money.

Margin Money of Public Banks:

Private Banks & NBFCs:

Private banks, such as ICICI Bank, Axis Bank, and IDFC First Bank, offer unsecured education loans. These banks often have pre-approved lists of universities and colleges. One of the significant advantages of taking an education loan from a private bank is that it covers 100% of the education expenses. This means there is no requirement for margin money from the borrower.

 

NBFCs like HDFC Credila, Avanse, Auxilo, and InCred also provide unsecured education loans. Unlike private banks, NBFCs do not have pre-approved lists of colleges or universities. However, they share the same benefit of covering 100% of the education expenses, eliminating the need for margin money.

 

While both private banks and NBFCs do not require margin money and cover 100% of the education expenses, they generally charge a slightly higher interest rate compared to public banks. This higher interest rate reflects the unsecured nature of the loans and the increased flexibility they offer.

 

Understanding how loan margin is calculated for education loans is crucial for effective financial planning. Margin money is the portion of the total education expense that a student or their family must contribute, while the remaining amount is covered by the loan.

 

Margin money is inversely proportional to overall expenses for a given loan amount, which means lower the overall expenses higher the margin money for a given loan-sanctioned amount. For students going to the US, when calculating EMI, banks typically double the amount mentioned in the 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 the I-20 form are always more than the actual (one of our team members studied abroad).

 

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 the bank will bear and the exact margin money depends on a case-to-case basis.

 

Let’s break it down with an example for clarity:

Scenario 1:

Overall Education Expenses: INR 45 Lakh

Maximum Bank Funding: 85% of overall expenses

Maximum Loan Amount: 85% of INR 45 Lakh = INR 38.25 Lakh

Margin Money: 15% (because the bank covers 85% of the total expenses)

If Ajay gets a loan sanctioned for INR 38.25 Lakh, he needs to contribute margin money of INR 6.75 lakh

Margin money: INR 45 Lakh - INR 38.25 Lakh = INR 6.75 Lakh (which is 15% of the total expenses)

Scenario 2:

Overall Education Expenses: INR 45 Lakh

Loan Sanctioned: INR 30 Lakh

Margin money calculation:

Here, the margin money required would be calculated as follows:

Margin money: INR 45 Lakh - INR 30 Lakh = INR 15 Lakh

Margin money percentage: (INR 15 Lakh / INR 45 Lakh) * 100 = 33.3%

 

Margin money significantly influences the total repayment and loan tenure by determining the loan amount sanctioned. Let us understand how it impacts the loan repayments:

Loan Amount and Interest:

• 
  Higher Margin Money: The more money you contribute to your education loan, the lesser will be the loan amount, thus, reducing the interest and making EMIs more affordable. Borrowers can often opt for shorter tenures, saving further on interest.

• 
  Lower Margin Money: A higher loan amount results in increased total interest costs. You may need longer tenures to manage higher EMIs, increasing the overall repayment burden and stress.

Repayment Tenure and EMI:

• 
  Higher Margin Contribution: Smaller loans mean shorter loan repayment tenures and reduced financial strain during repayment.

• 
  Lower Margin Contribution: A lower margin contribution means paying less initially, which increases the loan amount. This results in a longer repayment period and higher EMIs.

Important Considerations:

• 
  Higher Margin Money: Reduces dependency on loans, lowers overall costs, and less financial strain.

• 
  Lower Margin Money: Provides flexibility for those with limited savings but results in higher long-term financial obligations.

The Indian government offers several schemes to help students manage the financial burden of education loans, including margin money. These schemes and subsidies aim to make higher education more accessible, especially for students from economically weaker sections.

Vidya Lakshmi Portal:

• 
  The Vidya Lakshmi Portal is a one-stop platform for students to apply for education loans and scholarships.
• 
  It connects students with multiple banks and government schemes, helping them find loans with minimal or no margin money requirements.
• 
  The portal simplifies the process, making it easier to explore options like subsidies or low-interest loans.

Interest Subsidy Schemes:

• 
  The Central Sector Interest Subsidy Scheme (CSIS) is designed for students from families with an annual income of up to INR 4.5 Lakh.
• 
  Under this scheme, the government pays the loan interest during the moratorium period (course duration + 1 year).
• 
  This reduces the financial burden significantly, even if margin money is required.

State-Level Subsidies:

• 
  Many states offer additional education loan subsidies or scholarships for students pursuing higher education within India or abroad.
• 
  These subsidies can help reduce the amount students need to arrange as margin money.

Let us understand some of the main features of margin money in education loans:

Student contribution:

Margin money in education loans is the amount you have to pay for your education expenses of studying abroad. It represents a part of the total education loan that you need to fund from your pocket.

Stepwise division:

The education loan amount gets divided into different steps. The margin money is paid according to the requirements of the bank and the loan amount sanctioned. This division ensures that the student has a structured payment plan.

Variable percentage:

The percentage given by the bank for margin money is quite variable. It can decrease or increase based on the loan amount you request and your capacity to pay the margin money. Banks assess each loan application individually to determine the appropriate margin percentage. Please note that your placement chances and expected salary after your education also play an important role in deciding the margin money amount.

Zero margin money:

Private banks provide education loans to students with 0% margin money. This means the bank covers 100% of the educational expenses, making it easier for students who may not have funds available upfront.

Margin money requirements vary depending on whether the loan is for studying in India or abroad. Let us understand from the table below:

There are many misconceptions and myths about margin money. Let us first understand why margin money exists and then we will clear up some popular myths and misconceptions about margin money.

Why Margin Money Exists:

Margin money is a clear indicator that you are serious about you are serious about your higher education and financially prepared. Banks ask for margin money as it shares the financial responsibility with the borrower. Let us clear some of the myths about margin money:

Myth 1: Margin Money is the Bank’s Fee

Truth: Margin money is not a fee charged by the bank. It is your contribution to the total cost of the education loan. Banks use it to ensure you have a financial responsibility with your loan.

Myth 2: Margin Money Must Be Paid All At Once

Truth: You don’t have to pay margin money upfront or in one go. Most banks allow you to deposit it in installments, usually semester-wise or as per your loan disbursement.

Myth 3: Private Banks and NBFCs Always Require Margin Money

Truth: Many private banks and NBFCs offer loans with 0% margin money. They cover 100% of education costs but may charge higher interest rates.

Myth 4: A Higher Margin Money Means a Better Loan

Truth: A higher margin reduces your loan amount, but it does not always mean a better deal. It depends on your financial capacity and long-term repayment goals.

Myth 5: Margin Money is Fixed for All Banks

Truth: Margin money percentages vary across banks and depend on factors like the loan amount, type of lender (public or private), your choice of university or course and country.

When it comes to education loans abroad, margin money is a concept that you must be very thorough with. It directly affects the loan amount and of course, the interest which you have to pay after the moratorium period. Public banks like SBI generally ask you to deposit some margin money but private banks and NBFCs (Non-Banking Financial Companies) do not ask for any margin money, although their rate of interest is considerably higher than the public banks.

 

You can choose any lender as per your requirements and financial conditions, but please understand that the concept of margin money and other related terms and conditions must be crystal clear to you so that you can plan your short and long-term finances accordingly.

 

At GyanDhan, we understand these complexities and are dedicated to you by simplifying the education loan process, so that you can realize your dream of abroad education. As India’s first education financing marketplace, we compare different education loans and help students secure the best education loan option. Whether you need assistance with securing a loan, understanding margin money, or planning your financial journey, GyanDhan is here to support you every step of the way. After all, your dream is our mission.