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.
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|* 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.
1 Important Disclosures for College Ave.
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.
(1)All rates shown include the auto-pay discount. The 0.25% auto-pay interest rate reduction applies as long as a valid bank account is designated for required monthly payments. Variable rates may increase after consummation.
(2)This informational repayment example uses typical loan terms for a freshman borrower who selects the Deferred Repayment Option with a 10-year repayment term, has a $10,000 loan that is disbursed in one disbursement and a 8.35% fixed Annual Percentage Rate (“APR”): 120 monthly payments of $179.18 while in the repayment period, for a total amount of payments of $21,501.54. Loans will never have a full principal and interest monthly payment of less than $50. Your actual rates and repayment terms may vary.
(3)As certified by your school and less any other financial aid you might receive. Minimum $1,000.
Information advertised valid as of 11/4/2019. Variable interest rates may increase after consummation.
2 Sallie Mae Disclaimer: Click here for important information. Terms, conditions and limitations apply.
3 Important Disclosures for Discover.
Discover's lowest rates shown are for the undergraduate loan and include an interest-only repayment discount and a 0.25% interest rate reduction while enrolled in automatic payments.
4 Important Disclosures for CommonBond.
Offered terms are subject to change and state law restrictions. Loans are offered through CommonBond Lending, LLC (NMLS #1175900).
5 Important Disclosures for Citizens.
Undergraduate Rate Disclosure: Variable rate, based on the one-month London Interbank Offered Rate (“LIBOR”) published in The Wall Street Journal on the twenty-fifth day, or the next business day, of the preceding calendar month. As of December 1, 2019, the one-month LIBOR rate is 1.70%. Variable interest rates range from 2.80% – 11.06% (2.80% – 10.91% APR) and will fluctuate over the term of the loan with changes in the LIBOR rate, and will vary based on applicable terms, level of degree earned and presence of a co-signer. Fixed interest rates range from 4.72% – 12.19% (4.72% – 12.04% APR) based on applicable terms, level of degree earned and presence of a co-signer. Lowest rates shown requires application with a co-signer, are for eligible applicants, require a 5-year repayment term, borrower making scheduled payments while in school and include our Loyalty and Automatic Payment discounts of 0.25 percentage points each, as outlined in the Loyalty Discount and Automatic Payment Discount disclosures. Subject to additional terms and conditions, and rates are subject to change at any time without notice. Such changes will only apply to applications taken after the effective date of change. Please note: Due to federal regulations, Citizens Bank is required to provide every potential borrower with disclosure information before they apply for a private student loan. The borrower will be presented with an Application Disclosure and an Approval Disclosure within the application process before they accept the terms and conditions of the loan.
Please Note: International Students are not eligible for the multi-year approval feature.
|2.84% – 10.97%1||Undergraduate, Graduate, and Parents|
|2.87% – 10.75%*,2||Undergraduate and Graduate|
|2.80% – 11.37%3||Undergraduate and Graduate|
|3.52% – 9.50%4||Undergraduate and Graduate|
|2.80% – 11.06%5||Undergraduate and Graduate|