Understanding a Master Promissory Note

By Joseph Boyle , last updated December 22, 2011

A Master Promissory Note is a written contract agreement between a lender and a borrower used in the context of student loan situations. In the event that a parent or student elects to take out federal loans as financial aid, the Master Promissory Note is the contract that documents the loan. Master Promissory Notes apply to numerous types of student loans, including Stafford, Perkins and PLUS/Grad PLUS loans. Different Master Promissory Notes are required for each loan type.

There are two separate types of Master Promissory Notes for use by universities. The first is an annual note, which lasts for one year only and thus only covers a single year and must subsequently be renewed. This means that a new form must be filled out for each year and each loan they receive. The alternative to an annual Master Promissory Note is a serial note. When using a serial note, borrowers must fill out an initial Master Promissory Note at the beginning of the term of their loan, and the same note can then be used for each loan taken out afterward for up to ten years. In general, this only applies if the borrower remains consistent regarding the source of the loan and the university attended. Oftentimes if a borrower changes lenders, or colleges, they will then be required to obtain a new Master Promissory Note.

There are a few different methods through which a student or parent may attempt to obtain a Master Promissory Note. The most convenient is through the MPN website. The website allows borrowers to complete and sign up for Master Promissory Notes online. It applies for both students and parents. Students are eligible for either Direct Subsidized Loans or Direct Unsubsidized Loans, while parents must apply for Direct PLUS Loans. Using the online system, users can sign their documents using their personal identification number (PIN) issued by the Department of Education. If you do not already have a PIN, you must visit the Department of Education’s PIN site in order to be issued one. It should be noted also, that parents and students should have different personal identification numbers. Thus a parent applying for a loan must get their own PIN, rather than use the student’s PIN. Most colleges and universities offer an online option, but it is a good idea to check and be sure that your particular university has an internet based system. The alternative to obtaining an MPN online is to do so via paper. In order to make use of this option, students should contact their school’s financial aid office to obtain the form, then simply fill it out and submit it.

Master Promissory Notes are used by schools and borrowers in order to streamline what might otherwise be an overly complex process of applying for and issuing school loans. MPNs are the same across the board, making it easy to navigate and use. Master Promissory Notes, in addition to simplifying the process make turnaround time for any alterations or changes much easier since they are sourced to a single place and reduced to a single form.

Receiving a Master Promissory Note for a loan is quite a simple process. Once a student or parent has accepted all or part of a loan, the university will generally send the relevant information and loan request to the processing organization, which will then contact the student or parent with further instructions, generally online, about completing the MPN process.

In terms of loan repayment, the specifics should be detailed by students on the borrower certification portion of the Master Promissory Note. For unsubsidized loans, students may indicate preferences for the deferment of loan principal and capitalization of interest. When dealing with a serial MPN, the provisions for repayment on all loans taken out will generally be aligned for the entire MPN. Regardless of dates and terms specified on a student’s Master Promissory Note, they may begin making payments toward the loan principal at any time they choose, even if it has been indicated that loan payments should be deferred until after the completion of their education.

Depending upon the individual institutions those students may be attending; there may be various other forms and documents that will be required according to the policies of those institutions. Whether or not such additional documents are required should be determined by contacting the financial aid department of the school.

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