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.
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.
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.
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 for the type of loan you are borrowing.
- 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.
- 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 year’s new loans require 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 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 your Federal Student Aid ID (FSA ID) and provide personal information about yourself and identifying information about your selected college. Your FSA ID functions as an electronic signature.
The document 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.
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.
Borrowing for college
Signing your Master Promissory Note is an important step in receiving federal student loans. However, it’s important to not rely 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.