If your financial aid package includes any loans—and most do—you will need to complete and sign a promissory note before getting the money. Here's a quick explanation of how the process works.
A promissory note spells out the terms and conditions for the loan, interest rate, loan fees, late charges, repayment options, your legal rights, and the consequences of defaulting on (not paying) the loan. By filling out and signing a promissory note, you promise to abide by these conditions and to pay back in full the loan amount, interest, and fees.
The Convenience of the Master Promissory Note
The promissory note used for a Direct Stafford loan (the most common federal education loan) is called the Master Promissory Note (MPN). The convenient feature of the MPN is that it may be the only one you'll need to complete for your entire college education, undergraduate and graduate. In fact, your original MPN can usually serve as your loan contract for up to ten years.
The MPN is easy to complete on paper or online, with less than half a page of borrower information to fill out. But don't forget to read its attached pages, which include definitions, directions, and a list of your repayment rights and responsibilities. If you're unsure of the meaning of anything, ask questions of the college's financial aid office before you sign. Once you sign the MPN, keep a copy for your records.
Other Promissory Notes
If you get any loans from sources not associated with the Stafford Loan Program, you will probably have to fill out another promissory note. For instance, the federal PLUS and Perkins loan programs have their own promissory notes. Some colleges have their own promissory notes for loans provided by the school or even for various campus services. Again, pay close attention to those notes and if you're unsure of the meaning of anything, ask questions of the college's financial aid office before you sign. Keep copies for your records.
Promissory notes make the student loan application process a lot easier than it used to be and are very clear and straightforward in their language. Once you have your promissory note in hand, you'll know that in the future, your loan will hold no surprises.
Note: Financial information provided on this site is of a general nature and may not apply to your situation. Contact a financial or tax advisor before acting on such information.