When you take out a loan, you must sign a contract with the lender confirming an understanding of the loan and how it is to be repaid. This contract is called a "promissory note" and is used for most loan types, including student loans, car loans, and home mortgages.
Your Promise to Repay
Simply put, a promissory note is your promise to repay the loan under the terms detailed within it. Because the promissory note is a legal document, you should read it very carefully and make sure you understand all the information before you sign.
The details will include the terms and conditions under which the loan is made as well as your rights and responsibilities as the borrower. If there are errors on the promissory note, contact your lender before signing it.
A promissory note for a student loan is also an agreement between the borrower, the lender, and the school that authorizes the school to credit the funds to the student's account, to use the borrower's Social Security number, to report to credit bureaus, and to share information about the loan.
Master Promissory Note (MPN)
The MPN is mainly used for federal loans, to make one or more loans for one or more academic years (up to 10 years).
The difference between the MPN and any other promissory note is that you may have to sign only one "master" note.
For example, if you are a student borrower of Direct Subsidized and Direct Unsubsidized Loans, attending a school that is authorized and chooses to make multiple loans under the same MPN for more than one academic year, you will only sign one MPN for your Direct Subsidized and Direct Unsubsidized Loans. That MPN will then be used for all of your Direct Subsidized and Direct Unsubsidized Loans over multiple academic years. For example, if you are a college freshman and borrow under the Direct Loan Program for all years of study, you may be able to borrow all Direct Subsidized and Direct Unsubsidized Loans under this one MPN for all years.
Students and parents have the option to complete and sign an electronic MPN. Private loans do not generally use a MPN, and require borrowers to sign a promissory note each year they borrow.
Expiration Date
Your MPN will expire if:
- You tell your lender in writing to terminate the note's use for future loans.
- Your MPN note is 10 years old (it's 10 years after the date you signed the MPN).
- The first loan disbursement is not made within 12 months after you signed your note.
Signing a new MPN
Here are some of the reasons you might sign a new MPN.
- You do not complete your studies within 10 years. After 10 years, borrowers must sign a new MPN.
- Your school is not eligible to participate in the multiple-loan process, so you must sign a new MPN for each new loan you receive.
- You wish to opt out of the multiple-loan feature of the MPN and sign a new note for each new loan that you secure.
