May 18, 2019
To finance higher education overseas, students and their parents often resort to borrowing money from banks or Non-Banking Financial Companies (NBFCs). This is due to the fact that the cost of higher education in most developed countries like the US, UK, Canada or Ireland is much higher than the same in India. The low value of Indian currency compared to the US or Canadian Dollar, British Pound or Euro also makes pursuing higher education abroad unaffordable for many.
To meet this need, banks and NBFCs provide two types of education loans to students i.e. secured loans and unsecured loans. While secured loans are given against collateral which could either be non-agricultural land or residential/commercial property. Unsecured loans on the other hand do not require any collateral. They are given based on the creditworthiness of the borrower. High value unsecured loans require third party guarantee.
However, certain banks, and for certain courses, do not provide 100 percent finance for higher education. For example, a student may seek Rs. 1 crore secured education loan from the bank and may have property worth Rs. 1 crore to keep as collateral. However, the bank may, in return for the collateral, provide education loan equal to 90% of the value of that property. i.e. Rs 90 Lakhs instead of Rs. 1 Crore. The remaining 10% of margin money has to be borne by the student himself or herself.
For the lending institution to release the amount of Rs. 90 lakhs, the student has to show that he has Rs. 10 lakh in his or her account at the time of disbursement of Rs 90 lakhs. This amount of Rs. 10 lakh is considered as margin money. The margin money need not necessarily be the amount that the student puts in the account from his or her pocket. Students can also use the education grants or scholarship that they have received to meet the margin money requirement.
If, say the student, in the above case, wants the bank to disburse Rs. 9 lakhs in two installments of Rs 4.5 Lakhs each, then, during each disbursement, the student will have to show that he has the requisite 10% of the disbursement amount (remember, the lending institution finances on 90% of education cost). So, during each disbursement, the student should show Rs. 45,000 (10% of Rs. 4.5 Lakhs), in his respective education loan account at that time.
It must be noted that margin money requirement gets lesser and lesser as the total expenses increase. That is the reason why we, at Student Cover, advise students going to the US, to get the loan sanctioned for a value that is more than 1.5 times the amount required as per I-20 form. This has twin benefits for the students.
Firstly, it helps convince the US College or University as well as the officials issuing F-1 visa that the student has sufficient funds available to finance his or her higher education. It not only helps in faster and hassle-free processing of F-1 visa, but also minimizes any likelihood of F-1 visa application getting rejected due to lack of finances. Click here for Student Cover’s step-by-step guide to F-1 Visa application process for Indian students. Secondly, it helps bringing down the margin money requirement which could have been higher if the expenses shown were less.
However, readers should note that, unlike others no margin money is required on unsecured education loans taken from Student Cover’s partner NBFCs for study in the US. All lending institutions associated with us, finance 100% of the higher education cost for study in the US.
In addition to education loans for studying in the US, Student Cover also helps provide secured and unsecured education loans to study in UK, Canada, Ireland and Australia. Students interested to know more about our education loan services for study overseas can visit or education loans page or on the following link: Student Cover’s education loans for higher studies.
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