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Promissory Note (MPN). 周e MPN is a legal document in which the borrower promises to
repay the loan and any accrued interest and fees to the U.S. Department of Education. 周e
MPN can cover multiple academic years. Contact the financial aid administrator at your
school if you need more information or have any questions about your award letter.
When you obtain a federal student loan, you have certain responsibilities. Consider the
following important responsibilities regarding your loan:
周ink about how much you’re borrowing
•
Accept scholarships and grants you’re eligible for and understand the
conditions you must meet.
•
Accept the loans with the most favorable terms; that is, federal student loans and
state aid offered to you (see page 9). If you see private or commercial loans in your
award letter, ask why this type of loan was included, find out the terms, and reject the
private loan if the terms aren’t favorable.
•
Borrow only what you need. If you don’t repay your student loan on time or according
to the terms in your promissory note, you could default on this legal obligation, which
has serious consequences and will adversely affect your credit rating, and make any
future lending much more difficult if not impossible.
Signing a promissory note means you agree to repay the loan
•
When you sign a promissory note, you’re agreeing to repay the loan according
to the terms of the note. Be sure to read your promissory note.
•
The note states that you must repay the loan unless you meet the requirements
for loan discharge (cancellation), even if you don’t complete your education.
•
Also, you must repay your loan even if you can’t get a job after you complete the
program or you didn’t like the education you received. The U.S. Department of
Education does not guarantee the quality of education you receive or that you will
find a job in your field of study.
Make payments regardless of receiving billing notices
•
You must make payments on your loan even if you don’t receive a bill
or repayment notice.
•
Billing statements (or coupon books) are sent to you as a convenience.
You’re obligated to make payments even if you don’t receive any reminders.
•
You also must make monthly payments in the full amount required by your
repayment plan, in order to keep your account in good standing. Partial payments
do not fulfill your obligation to repay your student loan on time.
Receive entrance and exit counseling
•
If you are a first-time borrower you must complete an entrance counseling session
before you’re given your first loan disbursement. This session provides you with
useful tips and tools to help you develop a budget for managing your education
expenses and helps you to understand your loan responsibilities. Parent PLUS Loan
borrowers do not participate in entrance counseling.
Receive
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59
Receive
Your Federal Student Loans
•
You must receive exit counseling before you leave school to make sure you
understand your rights and responsibilities as a borrower. You will receive information
about repayment and your loan servicer will notify you of the date loan repayment
begins (usually six months after you graduate, leave school, or drop below half-time
enrollment). Parent PLUS Loan borrowers do not participate in exit counseling.
When to notify your loan servicer
Notify your loan servicer of your enrollment status when you
•
graduate;
•
withdraw from school;
•
drop below half-time status;
•
change your name, address, or Social Security number (new Social Security
numbers are issued only in very rare circumstances; seewww.ssa.gov/ssnumber
for rules on changing them), or
•
transfer to another school.
How and when do I receive the money from my federal
student loans?
周ere are a few things to remember:
•
Funds will be sent directly to the school in two disbursements (installments).
No disbursement will be greater than half the amount of your loan.
•
If you’re a first-year undergraduate student and a first-time borrower, you must
complete entrance counseling and your first disbursement can’t be made until
30days after the first day of your enrollment period.
•
Your school usually credits your loan payment to school charges on your account
(tuition and fees, room and board, and other authorized charges).
•
If the loan money exceeds your school charges, the school will pay you the credit
balance by check or other means.
What can I use my federal student loan money for?
You may use the money you receive only to pay for education expenses at the school
that awarded your loan. Education expenses include such school charges as tuition,
room and board, fees, books, supplies, equipment, dependent child care expenses,
transportation, and rental or purchase of a personal computer. Talk to someone
at the financial aid office at your school if you need more details.
What is interest?
Interest is a loan expense charged by the lender and paid by the borrower for the use of
borrowed money. 周e expense is calculated as a percentage of the unpaid principal amount
(loan amount), which includes the original amount borrowed and any capitalized interest.
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What is the interest rate on my federal student loan?
Fixed interest rates for Direct Subsidized Loans for undergraduate borrowers are
•
4.5% for loans first disbursed on or after July1,2010 and before July1,2011.
•
3.4% for loans first disbursed on or after July1,2011 and before July1,2012.
•
6.8% for loans first disbursed on or after July1,2012.
周e interest rates for Direct Subsidized Loans for graduate students and Direct
Unsubsidized Loans for undergraduate and graduate students is 6.8%. For Direct
PLUS Loans, the interest rate is 7.9%.
For detailed information on interest rates, go to www.studentaid.ed.gov/interestrates.
Interest rate cap for military members
If you qualify under the Service Members Civil Relief Act, the interest rate on loans
you obtained before entering military service may be capped at 6% during your military
service. You must contact your loan servicer to request this benefit.
In addition, the U.S. Department of Education does not charge interest (for a period of no
more than 60 months) on Direct Loans first disbursed on or a晴er Oct.1,2008, while you are
serving on active duty or performing qualifying National Guard duty during a war or other
military operation or other emergency, and serving in an area of hostilities qualifying for
special pay.
Isn’t my interest subsidized (paid) by the government?
Depending on the type of federal student loan you have, the interest is either
paid by you (unsubsidized loan) or by the federal government (subsidized loan).
See page 7 for more information on unsubsidized and subsidized loans.
Who sets interest rates for federal student loans?
Interest rates on federal student loans are set by Congress.
How is interest calculated?
周e amount of interest that accrues on your loan from month to month is determined by a
Simple Daily Interest formula. 周is formula consists of multiplying your loan balance by the
number of days since the last payment times the Interest Rate Factor (see more on interest
rate factor on next page).
Monthly interest can be calculated using this Simple Daily Interest formula:
Number of days
Principal balance
x
x
Interest rate factor
=
Interest amount
since last payment
outstanding (PBO)
Receive
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Receive
Your Federal Student Loans
Interest rate factor
周e interest rate factor is used to calculate the amount of interest that accrues on your
loan. It is determined by dividing your loan's interest rate by 365.25 (the number of
days in a year). See table 7 for some examples of interest rate factors.
Table 7.
Calculation of interest rate factor, by select interest rates
Interest rate
Converted to decimals
Divided by 365.25
Interest rate factor
8.99%
.0899
.0899/
365.25
.00024613
8.25%
.0825
.0825/
365.25
.00022587
7.59%
.0759
.0759/
365.25
.00020780
Note: 365.25 is the number of days in a year.
Practice Example: Let's say the remaining balance on your loan is $9,500 and your
interest rate is 8.25% (interest rate factor is .00022587). You sent in a payment of $160
32 days a晴er your previous month's payment, and you're wondering how much of that
payment went toward the principal balance of your loan.
32 (days) x $9,500.00 (PBO) x .00022587 (interest rate factor) = $68.66 of your payment applied to interest
$160.00 (payment) – $68.66 (interest) = $91.34 applied to your principal loan balance
In this scenario, you paid $68.66 toward interest and $91.34 toward the principal balance.
周is would leave you with a principal loan balance of $9,408.66 a晴er the $160.00 payment
was applied ($9,500.00 PBO – $91.34 paid toward PBO = new PBO of $9,408.66).
Go to www.studentaid.ed.gov/repaying or contact your loan servicer for more information.
Are there any other fees?
All loans have loan fees (also called origination fees) that are deducted proportionately
from each loan disbursement you receive. 周is means the money you receive will be less
than the amount you actually borrow. You’re responsible for repaying the entire amount
you borrowed and not just the amount you received in loan disbursements. 周e loan fee
for Direct Stafford Loans first disbursed on or a晴er July1,2010, is 1%. 周e Direct PLUS
Loan fee is 4%.
NOTE:
Interest is charged on PLUS Loans during ALL periods, beginning on the date
of the first loan disbursement. A PLUS borrower may pay the interest as it accrues
during a deferment, or allow it to accrue and be capitalized at the end of the
deferment period.
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I don’t need to borrow all this money. What should I do?
You can notify your school before your loan is disbursed that you don’t need to
borrow all or part of your loan and within certain time frames a晴er your loan has been
disbursed. 周e time frames and the procedures for canceling a loan, also are explained
in notices that the school is required to send you. Contact your financial aid office for
more details.
Loans add up! Watch your finances carefully!
Loans accumulate over the two, four, five years or more that you will attend school.
Estimating the full cost of attendance for the total number of years you plan to attend
school will help you understand how much you may have to borrow. Once you have
an idea of the total amount of federal student loans you may be taking out, you can see
how much your monthly payments could be. See estimated monthly payment amounts
for different repayment plans, see pages 27–28.
Keep track of how much you’re borrowing
To keep track of all your U.S.Department of Education loans, access the National Student
Loan Data System
SM
(NSLDS
SM
) at www.nslds.ed.gov, the central database for federal
student aid. You’ll need to use your PIN to access your information.
Keep good records. Repaying your student loan(s) is a very serious matter, and it’s
important to keep accurate, accessible records. You should set up a file folder for each
loan and file all paperwork. Your file should include:
•
Financial aid award letters;
•
Loan counseling materials (entrance and exit counseling);
•
Promissory note(s);
•
Amount of your student loans, including the amount that is disbursed each
semester or year (you may access this information at www.nslds.ed.gov);
•
Account numbers for each of your loans;
•
Name, address, phone number, and website of your loan servicer
(the entity to whom you send your monthly payments);
•
Loan disclosure and payment schedule sent to you by your servicer
before you start to repay your loan;
•
Monthly payment stubs (if you pay by check) or printouts of proof
of payment (if you pay electronically);
•
Notes about any questions you ask about your loans, the answers,
and the name of the person to whom you spoke;
•
Any deferment or forbearance paperwork and notes of any
phone calls to the servicer; and
•
Documentation proving that you paid your loans in full.
Receive
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Your Federal Student Loans
What if I need to take a break from school
or I just can’t go full-time?
If you’re preparing to leave school, withdraw early, or transfer to another school, you
must remember to notify your loan servicer and the school you’re currently attending
of the change in your enrollment status.
When your enrollment status changes, there are a few steps that you must take
to ensure your loans are processed correctly.
Table 8.
Change in enrollment status: Steps to ensure correct loan processing, by status change
Status change
Contact
financial
aid office
Complete
exit
counseling
Notify
loan
servicer
Steps to take
Begin loan
repayment
after your
grace period
Apply for
financial aid by
completing the
FAFSA
Request an
in-school
deferment
Withdraw
from school
X
X
X
X
Drop your
enrollment
to less than
half-time
X
X
X
X
Return to school
at least half-time
after a period
of less than
half-time
X
X
X
Transfer to
another school
X
X
X
X
X
Graduate
X
X
Go to
graduate school
X
X
X
NOTE:
Before July1,2010, Stafford, PLUS, and Consolidation Loans were also made by
private lenders under the Federal Family Education Loan (FFEL
SM
) Program. As a
result of recent legislation, no further loans will be made under the FFEL Program.
All new Stafford, PLUS, and Consolidation Loans will come directly from
the U.S.Department of Education under the Direct Loan Program.
22
Documents you may be interested
Documents you may be interested
