What is a Master Promissory Note?
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By Kat Tretina

January 7, 2021

When it comes to paying for college, most students have to turn to student loans and parent loans to foot the bill. However, many students and parents don’t fully understand what they’re getting into; they just sign their name on the bottom of the Master Promissory Note (MPN). The Master Promissory Note is a legal contract that specifies the terms and conditions and other details of your federal student loans.

It’s important to understand how a Master Promissory Note works and when you need to sign them to avoid any confusion when repaying your loans.

What is a Master Promissory Note?

When you borrow a federal student loan, you agree to pay it back with interest. But, unlike borrowing money from friends, which is often sealed by a verbal agreement or a text, borrowing from the federal government requires a more formal process.

You legally agree to repay the amount you borrowed, plus any accrued interest and fees, by signing a Master Promissory Note. The Master Promissory Note outlines what you owe, how interest is calculated, when interest is charged, available repayment plans, late fees, collection charges, and deferment and cancellation options.

Master promissory note

(Image Source)

There are two types of Master Promissory Notes:

  • For Subsidized and Unsubsidized Federal Direct Stafford Loans: Undergraduate and graduate level students will sign a Master Promissory Note to borrow Federal Direct Stafford Loans. Note that graduate and professional degree students are not eligible for subsidized loans.
  • For Federal PLUS Loans: If you’re a graduate or professional degree student, or a parent of an undergraduate student, you must complete a different Master Promissory Note for Federal PLUS Loans.

What does signing a Master Promissory Note mean?

When you sign a Master Promissory Note, you’re agreeing to repay the loans no matter what. You’ll still have to pay back the amount you borrowed even if you don’t complete your education, struggle to find a job after graduation, or feel that your education was inadequate.

Another very important thing to keep in mind is that student loan debt is rarely dischargeable during bankruptcy. Normally, if you find yourself in too much debt and with no way to pay it, bankruptcy can help you restructure your payments or get some of your debt discharged, meaning you no longer have to pay it.

If you sign a master promissory note, you’ve promised to repay your loan no matter what — even if you have to declare bankruptcy. 

Signing an MPN means that you’re accepting whatever terms are listed on the note. It’s essential that you understand what they mean, and how hard it is to get out of those responsibilities before you sign.

What details are included in a Master Promissory Note?

Your Master Promissory Note will include the details of your loans from the government, including how the interest will be calculated, loan limits, and more.

You’ll also learn what you can use your student loan for, such as tuition and room and board, as well as future repayment options.

This makes your MPN the best place to look if you have any questions about your student loans and repaying them. If you have any questions about the details listed in the document, your college should offer entrance counseling that can assist you. You can also ask your college’s financial aid office for more information or clarification.

Two important details included in the MPN are your interest rate and how interest is charged. This directly affects the cost of your loan. The lower the loan’s interest rate, the less you’ll have to pay each month and over the life of the loan. 

It’s also important that you keep annual borrowing limits in mind. If the amount you can borrow won’t cover the full cost of your education, you’ll need to come up with a plan to make up the difference. This can include paying for it with a job, working for a scholarship, or getting private student loans.

Because of all the important and useful information contained in your MPN, you should make sure you store it in a safe place. 

When must you sign a New Master Promissory Note?

In most situations, you’ll sign just one Master Promissory Note for multiple subsidized and unsubsidized loans, and it will last for up to 10 years of continuous education.

There are several occasions when you will have to fill out a new Master Promissory Note:

  • You never signed a Master Promissory Note.
  • Your college requires you to sign a new Master Promissory Note each academic year.
  • You are enrolled at a foreign college or university.
  • You signed a Master Promissory Note more than one year ago, but the loan was never disbursed.
  • You signed a Master Promissory Note more than 10 years ago.

In addition, there are additional rules for Master Promissory Notes for Federal PLUS loans.

  • When a Federal PLUS loan is borrowed with an endorser, a new Master Promissory Note must be signed for each year’s new loans. An endorser is someone who agrees to pay the loan if the borrower defaults. 
  • Borrowers of a Federal Parent PLUS loan must sign a separate Master Promissory Note for each child.

Even if a new Master Promissory Note is not required, the college will require confirmation for subsequent year’s loans before the loans can be disbursed. The confirmation process may be active or passive for Federal Direct Stafford Loans, but must be active for Federal Direct PLUS Loans.

  • With active confirmation, the borrower must take an action to indicate that they agree to borrow the loan and the amount.
  • With passive confirmation, the borrower must take an action only if they wish to reduce or decline the loans.

How does a Master Promissory Note differ from a Promissory Note?

A promissory note is a legal contract in which a borrower agrees to repay a loan according to the terms and conditions of the loan. Each new loan requires the borrower and cosigner, if any, to sign a new promissory note.

A Master Promissory Note is different in that it allows the same promissory note to be used to borrow multiple student loans over several years. For federal education loans, the Master Promissory Note will cover borrowing for up to 10 years of continuous enrollment.

How to complete a Master Promissory Note

When it comes time to take out a federal student loan, your school financial aid office will help you navigate through the process. You can sign a paper version of the Master Promissory Note — your financial aid office will provide it — or you can fill out a Master Promissory Note online. According to Federal Student Aid, you must complete the process in one session and it takes about 30 minutes to complete.

To complete the Master Promissory Note, you’ll need to provide your Federal Student Aid ID (FSA ID) and personal information as well as identifying information about your selected college. Your FSA ID functions as an electronic signature.

Finally, read the contract to make sure you understand all of the terms and conditions. Once you’re comfortable with it and have completed the necessary fields, you can electronically sign and submit your Master Promissory Note.

Master Promissory Note references

When you submit the MPN, it will ask you to provide the names and contact information for two references — people who have known you for at least three years. If you move without telling the U.S. Department of Education, the U.S. Department of Education will contact these references to locate you as part of the skip-tracing process.

Put simply, skip-tracing means finding someone. In the context of a Master Promissory Note, it means that if you move and forget to tell the government, the government will try to track you down so it can continue sending your student loan bills.

It’s important to know that the references you provide for an MPN aren’t cosigning on your loan or providing a character reference. With other kinds of loans, lenders might ask the people you list as a reference if you’re trustworthy or if they’ll be willing to assume your debt if you fail to pay. MPN references are only to keep tabs on you.

Generally, the first person that you list as a reference on your MPN should be your parent or guardian. The second reference should be someone that you have a close relationship with and who can help the government learn your new address. The two references that you list cannot both live at the same address.

Do parents have to sign a Master Promissory Note? 

Just like students getting loans from the government, parents who get federal loans to help their children pay for college will have to sign a Master Promissory Note. 

Parent MPNs are very similar to MPNs for students. They outline the details of the loans that the parent is eligible to get, including how much they can borrow each year, the interest rate they’ll pay, and repayment terms. Like student MPNs, parents only need to sign a single MPN once per 10 years. The government can originate multiple loans based on one parent MPN.

Parents cannot get joint Parent PLUS loans, so in cases where more than one parent wants to borrow, each must complete a separate loan application and sign an MPN individually.

The Department of Education may deny parents’ applications for PLUS loans based on a number of factors, including recent bankruptcies. If this happens, the DoE will inform the parent of the denial, as well as the reason for the denial of the loan. If you’ve been denied a Parent PLUS loan because of an adverse credit history, you can qualify for the loan if you obtain an endorser. An endorser is like a cosigner who agrees to repay the PLUS loan if the parent defaults or is otherwise unable to repay the debt.

The endorser can’t have an adverse credit history and cannot be the student.

Like federal student loans borrowed by the student, Parent PLUS loans typically cannot be discharged during bankruptcy proceedings. To discharge a Parent PLUS loan, the borrower has to show a good faith effort to repay the loan and file adversary proceedings along with their bankruptcy proceedings. During the process, they also must prove that repaying the loans would cause undue financial hardship.

How long does it take for the Government to inform your College of signing the MPN?

After you submit your Master Promissory Note to the government, the government has to inform your school’s financial aid office.

Once you’ve finished your MPN, you’ll have to complete entrance counseling before your school disperses your funds. This is mandatory for all first-time federal student loan borrowers. This also applies to graduate students and professionals seeking Direct PLUS Loans for the first time. But it doesn’t apply to parents taking out Direct PLUS Loans to help their children pay for college. 

Entrance counseling is meant to answer any questions you might have about the student loan process. It’s also intended to make sure that you fully understand the responsibilities you’re taking on by accepting a student loan.

Entrance counseling takes approximately 30 minutes to complete and must be completed in a single session. 

Usually a college will disburse your loan money in one installment. There may be exceptions, so check with your school to figure out the precise timeline for when you’ll receive the money.

After you receive your loan, you should notify your financial aid office if you have a change in address, name, stop attending school greater than half time, or transfer from one school to another.

Borrowing for college

Signing your Master Promissory Note is an important step in receiving federal student loans. However, it’s important to avoid relying entirely on student loans to pay for school. You can greatly reduce your education costs — and limit how much you need to borrow — by pursuing scholarships and grants.

A good place to start:

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