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 something is unclear on the promissory note, contact your lender before signing it.
A promissory note for a student loan is also an agreement between the borrower and lender. It covers items such as delivery of funds, credit bureau information, and use of a Social Security number.
Master Promissory Note
Master Promissory Note (MPN) is used for federal loans to make one or more student loans for up to 10 years.
The difference between the MPN and other promissory notes 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 year, you will sign only 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 years.
Students and parents have the option to complete and electronically sign an MPN online. Private loans do not generally use an MPN, and require borrowers to sign a promissory note each year they borrow.
Your MPN will expire if:
- You tell your lender in writing to terminate the use of the note for future loans.
- It has been 10 years since the signature date of your note.
- 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 after 10 years from the date you signed your note.
- Your school is not eligible to participate in the multiple-loan process.
- 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.