Most college-bound students, whether in India or abroad, expect to secure an education loan to pay for their education. Most students and parents pay attention to interest rates, loan amount and repayment terms. Margin money as a factor of affordability of an education loan is directly involved with the thoughts of students and parents. It is defined as that portion of the education expense where the borrower will have to pay the related expense out-of-pocket while the bank/financing institution will pay the remaining cost.
For example, if your total education cost is ₹20 lakh and the bank has a margin money policy, where it requires 10% as margin, the borrower must provide ₹2 lakh and the bank/financing institution will pay the remaining ₹18 lakh. When considering costs of education, margin money is a vital element, as it determines how much of the upfront expense/family contribution the borrower will have to pay.
Different banks/financing institutions have a different policies regarding margin money. Public sector banks generally adhere to RBI guidelines such as SBI, while private banks such as Axis and ICICI offer a greater margin regarding a portion of it, while systemically their policies required margin. Not having margin, therefore, is more desirable. Subsequently, borrowers consider institutions like HDFC Credila where a borrower may get 100% funding with no margin.
In this blog, we will compare the education loan margin money policies of SBI, Axis Bank, ICICI Bank, and HDFC Credila to help you understand which lender may be the best fit for your education financing needs.
What is Margin Money in Education Loan?
When applying for an education loan, banks or financial institutions generally don’t provide coverage for 100% of the total education expense. Banks and financial institutions prefer the student or student’s family to pay a small portion of the expense. This amount the student or student’s family is responsible for is called margin money.
Margin money is your percentage of total education expenses while the bank is giving you the loan for the rest. For example: If the total cost of education is ₹10 lakhs and the bank sets a margin of 10%, you will need to pay ₹1 lakh yourself and the bank will pay the rest of ₹9 lakhs.
Why Do Banks Ask for Margin Money?
- Risk Sharing: Banks prefer that student/parents share some of the cost of education, as that will lower the risk of default.
- Financial Discipline: Families will borrow much more thoughtfully if they are required to contribute part of the expense.
- Regulatory Guidelines: Public sector banks are often required by the RBI to have margin money for certain categories of loans, especially for studying abroad.
Does Every Bank/NBFC Require Margin Money?
While most public sector banks (like SBI, Bank of Baroda, etc.) usually require margin money, many private banks and NBFCs (like HDFC Credila) often provide 100% funding with zero margin money, making them a popular choice for students who don’t want to bear upfront expenses.
In short, margin money plays a big role in determining how much you or your family needs to pay upfront before your education loan is disbursed.
Features of Margin Money in Education Loan
Margin money is an essential component of an education loan, and understanding its features can help students and parents plan their finances effectively. Here are the key features of margin money:
1. Portion of Total Education Cost
Margin money is the share of the total education expenses that the borrower must arrange from their own funds. The remaining amount is provided by the bank or financial institution as a loan. Its percentage can vary depending on the bank, loan type, and whether the study is in India or abroad.
2. Varies Between Banks and Loan Types
Each bank and NBFC may have different margin money requirements. For example, many public sector banks such as SBI would require a margin for loans that’s taken for education abroad, while coverage is typically complete through certain private banks or NBFCs such as HDFC Credila for other eligible courses.
3. Paid Upfront
Margin money must be paid before the disbursement of the loan. So, it is not part of the total loan amount, and the student or family has to bring that money to the table.
4. Percentage Depends on Loan Size
If it is a smaller education loan, the margin money may be lower or little to none. If it’s a larger ticket item loan, such as education abroad, a lot of the time the bank will require a margin money of 10–15% of the total. This typically allows the lender to moderate their risk.
5. Impacts Loan Eligibility
Another down side is that the amount of margin money you can secure will determine the amount of loan you qualify for. Banks typically will not allow the full loan disbursement if the margin is not covered by the borrower.
6. Encourages Financial Planning
There is no doubt that the requirement of margin money, helps banks know you as a borrower are financially committed to following through with your education. The requirement will help plan financially and limit only relying on borrowed money.
7. Can Be Adjusted with Scholarships or Grants
Some banks allow students to adjust scholarships, educational grants, or education-specific financial aid against the margin money requirement. This reduces the upfront amount the student or family needs to arrange.
Zero Margin Money in Education Loans
Zero margin money is a feature of education loans whereby the borrower does not have to contribute as a percentage of the total education amount with actual money contribution. In other words, the educational institution finances 100% of the tuition fees, living expenses, and any other costs related to the education costs, allowing students who do not have large savings or funds to attend the institution.
1. How Zero Margin Money Works
In an ordinary education loan, banks will ask students to pay a percentage of the total fees as margin money, and the rest will be covered by the loan. In a zero-margin money loan, this requirement is not met, allowing the loan to cover the complete education costs. This can potentially help students for higher education abroad when regulations around upfront funds may restrict funds raising as the costs can be high.
2. Benefits of Zero Margin Money
- Easing Financial Burden for Families: Students and parents do not need to arrange thousands or lakhs of rupees upfront, which is particularly helpful to families that have limited savings.
- Complete Funding to Study Any Place Abroad: Several NBFC’s, such as HDFC Credila, provide zero margin loans; therefore, students can cover tuition, hostel fees, travel costs, and study materials entirely through the loan.
- Simplifies Loan Process: With zero margin money, students can focus on loan approval and documentation without worrying about arranging upfront funds.
3. Banks and NBFCs Offering Zero Margin Money
While most public sector banks require margin money, several private banks and NBFCs provide full funding options. Institutions like HDFC Credila, Avanse, and InCred often finance 100% of eligible education expenses, making them attractive for students seeking loans for domestic and international education.
Comparison Table: SBI vs Axis vs ICICI vs Credila
When planning your education loan, margin money is a key factor to consider. The table below compares the margin money requirements of SBI, Axis Bank, ICICI Bank, and HDFC Credila for both domestic and international studies:
| Bank / NBFC | Margin Money Requirement | Notes |
|---|---|---|
| SBI | Up to ₹4 lakh – NilAbove ₹4 lakh – 5% (India), 15% (Abroad) | Standard public sector bank policy |
| Axis Bank | Up to ₹4 lakh – NilAbove ₹4 lakh – 5% (India), 15% (Abroad) | Applies to most courses in India and abroad |
| ICICI Bank | Up to ₹4 lakh – NilAbove ₹4 lakh – 5% (India), 15% (Abroad) | Typical for high-ticket loans |
| HDFC Credila | No margin money required | Offers full funding for domestic and international studies |
Disclaimer: The information provided above is indicative and may vary depending on the course, loan amount, branch, and changes in bank policies. Students are advised to check with the respective bank or NBFC for the most accurate and updated margin money requirements before applying for an education loan.
How Margin Money Affects Students and Parents
Upon taking an education loan, margin money essentially defines your initial financial obligation. For students, higher margin money means that if you can’t provide that money upfront, you may have to forgo expensive courses or studying abroad, depending on what money you have available. For parents, it can affect your ability to budget since you may need to create a specific savings account for that margin money or take out a personal loan or otherwise change your investments to accumulate that amount of cash.
While a margin requirement can promote disciplined borrowing and caution when investing in your future, loans with no margin requirement – like HDFC Credila – do not impose a cash requirement upfront, but require more careful planning for larger EMIs when you graduate, and thereby end up requiring stricter financial discipline.
Tips to Manage Margin Money Efficiently
The best way for students and parents to deal with margin money without tension is to plan accordingly. You can create an education fund and save early or separate a savings account. Use scholarships, grants, and sponsorships to fund a part of the margin. Families can also consider personal loans or flexible payment plans through a few banks. Alternatively, for high-value loans abroad, families could consider NBFCs (such as HDFC Credila), which provide you with a zero margin money product, which could limit financial outlay upfront. With proper planning in place, margin money will not become a barrier to proceeding with your higher education aspirations.
FAQs: Compare Education Loan Margin Money
Q. What is margin money in an education loan?
A. Margin money refers to the share of total education expenses that the student or family has to bear from their own sources while the bank provides financing for the rest of the amount.
Q. Do all banks require margin money for education loans?
A. Almost all public-sector banks, like SBI, Axis Bank, and ICICI Bank, would mandate margin money where high-ticket loans to fund for the study of the student, especially for education abroad, while a few Non-Bank Financial Companies, like HDFC Credila, would have a zero margin money requirement option.
Q. How much margin money is required by SBI, Axis, and ICICI?
A. Margin money is required if your loan is in excess of ₹4 lakh, i.e., for loans below 4 lakh, you do not need to provide any margin money. For loans exceeding ₹4 lakh banks usually would require you to provide margin money of 5% for studies in India and 15% for overseas studies.
Q. Does HDFC Credila require any margin money?
A. HDFC Credila provides the full funding equivalent to their eligible course in India, or abroad, thus has zero margin money.
Q. How does margin money affect loan eligibility?
A. The margin money you provide will impact your overall eligible loan amount. If you cannot provide the margin money required by the bank, there is a potential for them to restrict the loan funding by reducing the total eligible amount or simply not providing the full amount.
Q. Can scholarships or grants be used for margin money?
A. Many banks allow students to adjust scholarships, grants, or financial aid against the margin money requirement, reducing the upfront amount needed.
Q. Why do banks ask for margin money?
A. Banks require margin money to reduce their risk, ensure financial discipline, and encourage borrowers to be invested in their education.
Q. What is the best way to manage margin money efficiently?
A. Students can save in advance, use scholarships or grants, consider personal loans, or opt for NBFCs offering zero-margin loans to manage upfront costs effectively.