Understanding the Margin Money in Education Loan

The margin money in terms of Education loan is the amount that is paid by the borrower while the rest of the amount is paid by the bank. RBI has agreed to consider the Model scheme prepared by IBA in the year 2001 which had a significant modification about the margin money to be paid.

“No margin may be insisted upon for loans up to Rs.4 lakh. However, for loans of higher amounts, the margin requirement may be 5% for inland studies and 15% for studies abroad.”

The margin requirement on Education loan in India is not very rigid. The formula for calculation of margin amount in percentage is: {1-(sanctioned loan amount/overall expenses)*100}. For example, if overall expenses equal 40 lakhs, the sanctioned loan amount is 33 lakhs. The margin percentage is 17.5%, i.e the borrower will pay the rest 7 lakhs all by himself.

Any scholarship/assistantship that is availed by the borrower is to be included in the margin money amount. The margin amount may be brought in on a year-to-year basis as and when disbursements are made on a pro-rata basis. The margin amount is valid only while a loan is availed by the private and public sector banks while the NBFCs process 100% of the loan amount with zero margin money.