Even though student loans have become more popular as the cost of universities has risen, a lot of students don’t fully understand the terms and conditions of those loans when they sign the dotted line.
And it’s no wonder, considering all the confusing rules and industry jargon. But if there’s one thing student loan borrowers should understand, it’s their loans’ promissory notes and what they entail.
So let’s clear up some of the confusion around your promissory note, including the Master Promissory Note – AKA your student loan’s contract.
What is a promissory note?
When you apply for or receive student loans, you will be required to read and sign a promissory note, which is essentially the framework for your student loan. It is the agreement that you, the borrower, will repay your lender the amount specified on the loan along with any interest or other financial obligations outlined in the note.
Promissory notes also contain the terms of your loan (such as what it can be used for) and the repayment options agreed upon by the borrower and lender.
Signing a promissory note is the lending industry standard for both federal loans and private loans, so expect to sign one no matter where you are applying for aid.
The master promissory note
So, what about the master promissory note? How is it different and what does it do?
When you apply for federal student aid, you have the option of signing a master promissory note – essentially, one promissory note for all the federal aid you receive. This keeps you from having to review and sign multiple notes.
Seems convenient right? While it saves you time and worry, it is still important to read and review the terms of the loans. You should also make sure that your school will accept the MPN for multiple years or you’ll have to refile for assistance each year. You don’t want to forget a deadline and be caught scrambling to get your funds.
Why is a promissory note important?
Although signing a promissory note might just seem like a formality, it is important that you understand how it can (and will) affect your repayment. It’s not just a more formal IOU — it’s a legally binding contract for repayment.
Different lenders may have different repayment conditions, so you need to read and understand how these will influence your financial future before signing. Some details to look out for include:
- Do you have a standard six-month grace period before you must begin repayment?
- Can your loan be used towards housing and transportation or is it only for tuition and books?
- What is the interest rate you agreed to?
Since your promissory note is your loan’s terms and conditions, all the answers to these questions should be laid out in the note itself. Don’t just sign it because you’re being offered money – make sure that the loan matches your long-term financial objectives.
What are the costs?
Did you know that some lenders will charge you extra for paying off your loan early? Or that your interest rate could increase over time (it’s called a variable interest rate and some private loan options have them)?
These are the sort of things you should be looking out for when you read your promissory note. Other conditions to look out for are whether or not your repayment can be put on pause in the event of financial hardship, or if there are any conditions for debt forgiveness.
Student loan debt is a huge burden on graduates and can seriously set you back from other goals, such as buying a home later in life. If you have a question or concern about your promissory note’s terms, ask your lender for clarification.
…..And then get that clarification in writing! It’s better to be safe than sorry.
So what should you do?
Student loans can be much needed in order to finance your education, but it is important that you don’t borrow more than absolutely necessary. Lenders know that recent graduates need a cash flow, so you’ll likely get plenty of offers before you even bring your high school diploma home.
Be smart and weigh your options accordingly – and don’t forget about scholarships!
You should outline your financial goals before meeting with any lenders or accepting any offers. Also make note of any assistance you’ll be getting from family members or from another job. A common downfall for students is borrowing more than they need, or using student loans to subsidize a certain lifestyle while they’re in school, and then struggling with repayment after the fact.
When reviewing lenders, don’t feel pressured to sign anything right away. Shop around for different loans, competitive interest rates, and see which qualities of each that you like. Some private lenders will give you discounts based on other products, like having linked accounts or a student credit card.
Educating yourself on the different kinds of promissory notes and loan conditions will help get you off to a great financial start.
Need a student loan?Here are our top student loan lenders of 2018!
|1 Important Disclosures for CollegeAve.
College Ave Student Loans products are made available through either Firstrust Bank, member FDIC or M.Y. Safra Bank, FSB, member FDIC. All loans are subject to individual approval and adherence to underwriting guidelines. Program restrictions, other terms, and conditions apply.
2 Important Disclosures for Discover.
3 Important Disclosures for Ascent.
Before taking out private student loans, you should explore and compare all financial aid alternatives, including grants, scholarships, and federal student loans and consider your future monthly payments and income. Applying with a cosigner may improve your chance of getting approved and could help you qualify for a lower interest rate. Ascent Student Loans may be funded by Richland State Bank (RSB) or Turnstile Capital Management, LLC (TCM), which are not affiliated entities. Certain restrictions and limitations may apply. Ascent Student Loan products are subject to credit qualification, completion of a loan application, verification of application information and certification of loan amount by a participating school. All loan products may not be available in certain jurisdictions. Other terms and conditions apply. Ascent is a federally registered trademark of TCM and may be used by RSB under limited license. Richland State Bank is a federally registered service mark of Richland State Bank.
* Application times vary depending on the applicants ability to supply the necessary information for submission.
* The Sallie Mae partner referenced is not the creditor for these loans and is compensated by Sallie Mae for the referral of Smart Option Student Loan customers.
4 = Sallie Mae Disclaimer: Click here for important information. Terms, conditions and limitations apply.
5 Important Disclosures for PNC.
PNC Bank is one of the nation’s largest education loan providers. For over 40 years, PNC has been committed to helping students and their families make possible the adventure of college.
6 Important Disclosures for SunTrust.
Before applying for a private student loan, SunTrust recommends comparing all financial aid alternatives including grants, scholarships, and both federal and private student loans. To view and compare the available features of SunTrust private student loans, visit https://www.suntrust.com/loans/student-loans/private.
Certain restrictions and limitations may apply. SunTrust Bank reserves the right to change or discontinue this loan program without notice. Availability of all loan programs is subject to approval under the SunTrust credit policy and other criteria and may not be available in certain jurisdictions.
SunTrust Bank, Member FDIC. ©2018 SunTrust Banks, Inc. SUNTRUST, the SunTrust logo and Custom Choice Loan are trademarks of SunTrust Banks, Inc. All rights reserved.
7 Important Disclosures for LendKey.
Additional terms and conditions apply. For more details see LendKey
8 Important Disclosures for CommonBond.
A government loan is made according to rules set by the U.S. Department of Education. Government loans have fixed interest rates, meaning that the interest rate on a government loan will never go up or down.
Government loans also permit borrowers in financial trouble to use certain options, such as income-based repayment, which may help some borrowers. Depending on the type of loan that you have, the government may discharge your loan if you die or become permanently disabled.
Depending on what type of government loan that you have, you may be eligible for loan forgiveness in exchange for performing certain types of public service. If you are an active-duty service member and you obtained your government loan before you were called to active duty, you are entitled to interest rate and repayment benefits for your loan.
A private student loan is not a government loan and is not regulated by the Department of Education. A private student loan is instead regulated like other consumer loans under both state and federal law and by the terms of the promissory note with your lender.
If your private student loan has a fixed interest rate, then that rate will never go up or down. If your private student loan has a variable interest rate, then that rate will vary depending on an index rate disclosed in your application. If the interest rate on the new private student loan is less than the interest rate on your government loans, your payments will be less if you refinance.
If you don’t pay a private student loan as agreed, the lender can refer your loan to a collection agency or sue you for the unpaid amount.
Remember also that like government loans, most private loans cannot be discharged if you file bankruptcy unless you can demonstrate that repayment of the loan would cause you an undue hardship. In most bankruptcy courts, proving undue hardship is very difficult for most borrowers.
9 Important Disclosures for Citizens Bank.
Citizens Bank Disclosures
|3.69% – 10.94%1||Undergraduate, Graduate, and Parents||Visit CollegeAve|
|3.97% – 12.97%3||Undergraduate and Graduate||Visit Ascent|
|4.34% – 12.99%2||Undergraduate and Graduate||Visit Discover|
|4.12% – 10.98%*,4||Undergraduate and Graduate||Visit SallieMae|
|5.03% – 11.23%5||Undergraduate and Graduate||Visit PNC|
|4.00% – 13.00%6||Undergraduate and Graduate||Visit SunTrust|
|4.72% – 9.81%7||Undergraduate and Graduate||Visit LendKey|
|3.72% – 9.68%8||Undergraduate, Graduate, and Parents||Visit CommonBond|
|4.19% – 12.06%9||Undergraduate, Graduate, and Parents||Visit Citizens|