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What is a Master Promissory Note?
A master promissory note (MPN) is a legal document that defines the details of a student loan and how a borrower will repay the money to the US Department of Education. An MPN also gives college students valuable information about the terms of the loan, including any interest on payments and other terms and conditions.
How Master Promissory Notes Work
Master promissory notes (MPN) are legal documents that outline the terms and conditions of student loans. They are required for federal student loans and are good for up to ten years in some cases. College students or their parents can take out student loans under an MPN.
There are many facets to a master promissory note, and understanding each part of a MPN is essential to making a sound financial decision when it comes to student loans.
Here is an overview of what you can expect to find in your master promissory note:
When a borrower signs a master promissory note for a student loan, they agree to repay the loan indefinitely. This means that the money borrowed must be paid regardless of whether a college student finishes school and applies even if their education was not satisfactory. MPNs must be repaid even in the event of filing for bankruptcy.
Master promissory notes also contain information about future repayment options, such as:
- Cost of payments
- Frequency of payments
- When payments should begin
Master promissory notes include information about what expenses student loans can be used on. These usually include:
- Room and board
- Transportation costs
- Books and supplies
Every MPN includes details about federal student loan interest rates. This section of the document is important because the higher the interest rate, the higher the total cost of the loan. When signing a master promissory note, it is essential to take into account the interest rate on the loan when determining how equitable it is.
Annual Borrowing Limits
Since a master promissory note is good for up to ten years, multiple loans can be taken out under the same original agreement. However, the federal government limits how much can be borrowed over the course of a year. The MPN sets out the annual borrowing limit for a college student upfront.
Charges and Fees
Additional fees and charges beyond interest rates are detailed in a master promissory note. Some examples include:
- Late fees
- Collection charges
Each master promissory note must include two personal references who are close to the borrower and have been for at least three years. This information is required in the application in case a borrower defaults, or stops making payments, on a loan. These references will be used to try to contact the borrower, or in some cases, to locate them through a process called skip-tracing.
Check out this article to learn more how master promissory notes work.
What Happens After I Sign a Master Promissory Note?
When master promissory note is signed and approved, the federal government sends your loan details to the financial aid department at your school. Once that department receives it, you will be required to complete entrance counseling before your funds can be disbursed.
Entrance counseling is required of all college students borrowing their first student loans and is designed to answer any questions about the student loan process. Since the loan is not finalized until the funds are disbursed, this also allows students a chance to back out of the loan before becoming financially responsible for it.
Disbursement of Funds
After entrance counseling is completed, your funds will be disbursed to you. Most colleges opt to disburse funds in a single payment, but that is not always the case. Be sure to check with your financial aid department directly to confirm how payments will be made.
Once funds are disbursed, the terms of the master promissory note go into effect immediately. If you have a change in address, phone number, stop going to school less than half the time, or decide to switch colleges, you must notify your financial aid office.
To find out more about what happens after you sign your promissory note, check out this article .
Master Promissory Notes and Student Loans
Master promissory notes dispense all of the vital information about student loan terms and conditions to borrowers. These legal documents were designed to include all the needed information about loans, loan limits, interest rates, repayment options, and much more.
There are two main types of student loans that require master promissory notes: federal direct Stafford loans and federal PLUS loans.
Federal Direct Stafford Loans
Federal direct Stafford loans are student loans that are known for their low interest rates. These loans also come with insurance that guarantees loan cancellation in the event that the borrower becomes disabled or dies.
Stafford loans are granted to students who fill out the FAFSA form and almost all students who apply qualify for the loan. Students qualify as long as they meet these requirements:
- Attending college full-time
- Have U.S. citizenship
- Have never defaulted on other student loans
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Federal PLUS Loans
Federal PLUS loans can be taken out by college students or their parents to pay for their college education. Federal PLUS loans are characterized by the following:
- Fixed interest rates
- Interest accrues while student is in school
Within federal direct PLUS loans, there are two categories: Grad PLUS loans and Parent PLUS loans. Grad PLUS loans are taken out by the college student and Parent PLUS loans are taken out by the parent(s) of the student. Grad PLUS loans have a borrowing limit, while Parent PLUS loans do not.
To qualify for a Grad PLUS loan, a student must:
- Be enrolled in college at least half-time
- Qualify per a credit check
- Meet all requirements for federal student aid
To qualify for a Parent PLUS loan, a parent must:
- Be the biological or adoptive parent of a student attending school at least half-time
- Qualify per a credit check
The student who parents apply on behalf of must:
- Meet all requirements for federal student aid
To find out more about master promissory notes and student loans, check out this webpage .
Do I Need to Sign a Master Promissory Note Every Year?
Master promissory notes are generally good for up to ten years, which means that you can take out as many loans (up to your borrowing limit) each year as you would like without having to sign a new promissory note . However, some colleges do have exceptions to this rule, so you should always check with your school’s financial aid office to be sure.
Check out this webpage for more information about master promissory notes.
Get Help with a Master Promissory Note
Do you need money for college but you’re unsure of where to start? Getting help with your master promissory note is a great first step to scoring the funding you need to get you through college. Post a project on ContractsCounsel today to connect with financial lawyers who specialize in college debt and student loans.
Meet some of our Master Promissory Note Lawyers
Robert Jay H.
My Legal career hasfocused on representing businesses (corporations and limited liability companies) as general outside counsel. In this capacity, I have drafted a broad range of legal documents as well as analyzed proposed agreements drafted by the other party's attorney to the agreement for the pupose of determining the risks to which my client would be exposed. I maintained the client's minute book if no one in-house was available for that task. Additionally, if rquested, I served as a general advisor to the client's executive offers and to its Board of Directors.
Corporate counsel with years of in-house experience working with and reporting to board / executive-level and upper management, along with extensive regional / national law firm background in commercial transactions and contracts, complex commercial litigation, and employment matters. Skilled at executing corporate priorities, driving profitability by implementing goal-oriented processes to achieve revenue and productivity targets, and managing company litigation and outside counsel. Recognized for creating policies and practices to address ethical dilemmas and resolving misconduct.
T. Phillip B.
Attorney creating plans and strategies to help individuals create, build, protect and pass on wealth.
Keidi S. Carrington brings a wealth of legal knowledge and business experience in the financial services area with a particular focus on investment management. She is a former securities examiner at the United States Securities & Exchange Commission (SEC) and Associate Counsel at State Street Bank & Trust and has consulted for various investment houses and private investment entities. Her work has included developing a mutual fund that invested in equity securities of listed real estate investment trusts (REITs) and other listed real estate companies; establishing private equity and hedge funds that help clients raise capital by preparing offering materials, negotiating with prospective investors, preparing partnership and LLC agreements and advising on and documenting management arrangements; advising on the establishment of Initial Coin Offerings (ICOs/Token Offerings) and counseling SEC registered and state investment advisers regarding organizational structure and compliance. Ms. Carrington is a graduate of Johns Hopkins University with a B.A. in International Relations. She earned her Juris Doctorate from New England Law | Boston and her LL.M. in Banking and Financial Law from Boston University School of Law. She is admitted to practice in Massachusetts and New York. Currently, her practice focuses on assisting start ups, small and mid size businesses with their legal needs in the areas of corporate and securities law.
Jim Slattery most recently served as General Counsel at Regional News Network, a large owner of broadcast television stations. Jim is an experienced attorney with broad-based expertise. He is a seasoned negotiator who has been involved in negotiations as complex as the Olympic Games. Jim spent 18 years as Vice President for Business and Legal Affairs at NBCUniversal. Previously, Jim worked in the media industry in various roles at All American Television. Jim’s success can be attributed to his ability to properly analyze data, manage projects, lead teams, develop creative solutions for complex problems, focus on strategically optimizing assets, manage/allocate risk and collaborate with divergent constituent groups to achieve objectives. Jim received a J.D. and a B.B.A. from the University of Notre Dame.
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I’m an attorney focusing my practice on concierge corporate and intellectual property law for startups and high-growth companies. I also serve as outside General Counsel to several businesses in various sectors. Since founding my practice I've worked with hundreds of clients across a variety of industries. My experience as a former General Counsel of a premier edtech company gives me unique insight into the challenges my clients face and how to resolve them efficiently and cost-effectively.