Although the majority of students borrow loans these days to pay for college, many of them don’t understand the terms and conditions of their debt when they sign on the dotted line.
Given all the rules and industry jargon, it’s easy to get confused. But if there’s one document you should pay attention to: your Master Promissory Note.
So, what is a Master Promissory Note? It’s basically the contract that outlines all the details of your student loan.
Let’s take a closer look at promissory notes and how they can clear up any questions you have about your student loans.
What is a Master Promissory Note?
When you borrow a student loan from the federal government, you promise to pay that loan back — with interest. But that promise isn’t made over the phone or with a hearty handshake.
Rather, you make a legal promise to repay your debt by signing the Master Promissory Note. This document outlines your agreement to pay back a specific amount in student loans.
As your promissory note will explain, you’re obligated to pay back your loan even if you leave school early or can’t find a job after graduation.
The only exception would be if your school closed, violated state law or met another condition that would qualify you for student loan discharge, which, though rare, does happen from time to time.
In most cases, however, you’re on the hook for repaying your debt, and your promissory note is the contract that contains that agreement.
Read over the details of your promissory note
Your promissory note will also go over the details of your loan, including how much you owe and what your interest rate is. It will explain how interest is calculated, along with your options for student loan repayment plans.
Pay attention to these details so you understand exactly what’s expected of you when paying back your loan. Some questions to ask yourself include:
- Do you have a standard six-month grace period before you must begin repayment?
- Can your loan be used toward housing and transportation, or is it only for tuition and books?
- What is the interest rate you agreed to?
The answers to all of these questions should be explained in your note. Don’t just sign it because you’re being offered money — make sure that the loan matches your long-term financial objectives.
When do you sign your Master Promissory Note?
You’ll need to sign your Master Promissory Note before you or your school receives any disbursement of your student loans. If you discover you’ve borrowed too much, you do have a window of time during which you can return your loan, even if you’ve already signed the promissory note.
You can typically sign one promissory note for multiple subsidized or unsubsidized loans, and it will last up to 10 years. The only exception is if you borrow a PLUS loan with an endorser to boost your creditworthiness. In this situation, you can only receive one loan for each promissory note. If you choose to borrow another PLUS loan in the future, you’ll need to sign a new one.
Your parent doesn’t have to sign it unless they are taking out a parent PLUS loan on your behalf. In that case, your parent would sign their own promissory note.
If you’re not sure whether you need a new promissory note when borrowing a student loan, contact your school’s financial aid office for guidance. Even if you don’t reach out, the office should get in touch with you about completing any outstanding paperwork for your loans.
How to sign the Master Promissory Note and get your student loan
You can sign your Master Promissory Note online at StudentLoans.gov. Expect the process to take about 30 minutes.
First, you’ll sign in with your Federal Student Aid ID and provide personal information about yourself and your school.
Next, you’ll provide information for two references. Your references must have known you for at least three years and have different addresses, both of which must be in the U.S.
Basically, Federal Student Aid asks for these references in case they can’t get a hold of you. If you stop paying your student loan and answering calls, collectors can contact your references to track you down.
Finally, you can read over the contract to familiarize yourself with what it is you’re signing. After reviewing this language, you’ll electronically sign and submit your Master Promissory Note.
Student loans can be useful, but avoid borrowing too much
Even if your promissory note offers a large amount of loans, you want to be careful not to borrow too much. One way to reduce the amount you borrow in student loans is to apply far and wide to scholarships.
You might also work a part-time job during college to bring in extra income. While you don’t want to take time and energy away from your studies, earning some spending money could mean you don’t have to take on as much debt.
Once you’ve determined how much you should borrow, make sure you understand the details of your student loans. Use our student loan calculator to estimate your future monthly payments and how much you’ll spend on interest.
And pay close attention to your Master Promissory Note before signing it. It’s a legal contract, so you must read the details before entering into this binding agreement.
By keeping borrowing to a minimum and educating yourself on your debt, you’ll be off to a strong start managing your finances.
Lauren Bowling contributed to this report.
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 Nationwide Bank, member FDIC. All loans are subject to individual approval and adherence to underwriting guidelines. Program restrictions, other terms, and conditions apply.
Information advertised valid as of 11/1/2018. Variable interest rates may increase after consummation.
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). 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. Loan products may not be available in certain jurisdictions, and certain restrictions, limitations; and terms and conditions may apply. Ascent is a federally registered trademark of Turnstile Capital Management (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
|3.94% – 12.78%1||Undergraduate, Graduate, and Parents|
|4.06% – 13.06%3||Undergraduate and Graduate|
|4.34% – 12.99%2||Undergraduate and Graduate|
|4.25% – 11.10%*,4||Undergraduate and Graduate|
|5.03% – 11.23%5||Undergraduate and Graduate|
|4.12% – 13.13%6||Undergraduate and Graduate|
|5.62% – 10.01%7||Undergraduate and Graduate|
|3.93% – 9.81%8||Undergraduate, Graduate, and Parents|
|4.26% – 12.13%9||Undergraduate, Graduate, and Parents|