Anatomy of a promissory note (part 3)

Barbara

Editor's note: Today we're wrapping up our walk through of the Federal Stafford Loan Master Promissory Note. Make sure to read the first and second posts of the series as well.

Are you ready to dive back in to the Federal Stafford Loan Master Promissory Note? I can just hear the exuberant "Yay!" resounding throughout the blogosphere! So here we go...

The last piece of the loan agreement to discuss is the Borrower Rights and Responsibilities Statement. (Remember to see the full document and follow along just click on the photo on this post.)

Now this is the meat and potatoes of the privileges you have as a borrower, as well as what you're accountable for when it comes to borrowing. This section gives you thorough details on your loan's terms and conditions, which we went through in the first and second posts of this series. Let's go by the numbers so we don't miss a thing.

1. Governing Law. Another mention of the governing Higher Education Act. 
2. Use of This MPN. The agreement works for multiple years and multiple loans — just note that if you choose a different lender you need a new MPN.
3. Subsidized and Unsubsidized Loans. Remember there are two types of Federal Stafford Loans. Subsidized loans have interest that's paid by the government during in school, grace, and deferment periods. You're responsible for all the interest on unsubsidized loans.
4. Loan Limits. The amount of money you can borrow is capped at a certain amount depending on your grade level and dependent status. But as the agreement notes, you may receive less depending on your program, cost of attendance, expected family contribution, other aid, and eligibility.
5. Use of Loan Money. Here's a detailed list of what you can pay for with your Federal Stafford Loan money.
6. Loan Fees. Remember the cost of borrowing is interest, plus a federal default fee and origination fee.
7. Disbursement of Loan Money. Want to know how you'll get the money? Find the details here. Note the special circumstances for study-abroad programs and foreign schools. For first-time borrowers, this section also mentions taking entrance counseling. 
8. Change of Status. It's important to keep your lender updated on certain changes like your attendance status and personal information. See this section for the details.
9. Effect of Federal Loans on Other Student Aid. Here's a note to make sure you check to see how your Federal Stafford Loan may affect any other aid you could receive.
10. Grace Period. A Stafford loan includes a six-month grace period. Note that it starts as soon as you drop below half-time enrollment.
11. Interest Rates. Your interest rate will depend on when your loan is disbursed, whether it's subsidized or unsubsidized, and whether you're an undergrad or graduate student.
12. Payment of Interest. This and the following section are key sections that deal with the cost of borrowing — interest. Here's where the interest payment is detailed. You can find the details of subsidized interest and the language that details you will pay the interest that accrues. Also check out the note about the tax deduction.
13. Interest Capitalization. Here's the definition of capitalization: adding unpaid interest to the principal balance of the loan, which then is charged its own interest. Remember that capitalized interest means paying more over the life of the loan.
14. Loan Cancellation. Want to cancel your loan? Find the details of how and when you can do it in this section.
15. Repayment. Your repayment options are detailed here. As well as the general length of repayment and the fact that you must repay all the loans you accept under the MPN. If you need to, you can ask for a different repayment plan to help make your payments more affordable.
16. Sale or Transfer of Loan(s). Sometimes the lender that originates your loan may decide to sell it. If that's the case this section details your responsibilities and rights with a different lender.
17. Loan Discharge. The cases where your loan may be discharged and those when it won't are found here.
18. Consequences of Default. Curious about the seriousness of default? Check out laundry list of what could happen if you don't repay your loan here.
19. Consumer Reporting Agency Notification. The activity on your loan will be reported to consumer reporting agencies on a regular basis. You'll be able to see it when checking on your credit.
20. Special Repayment Arrangements. Different situations may allow for unique repayment of your Federal Stafford Loan. Here you can find information about federal student loan consolidation as well as other special repayment options.
21. Deferments. If you need to postpone your payments, this section lists the situations where you may qualify for a deferment.
22. Forbearance. If you don't qualify for a deferment, this section tells you about your other option to temporarily delay repayment — forbearance.

Well, that wraps up our walk through of the Federal Stafford Loan Master Promissory Note! It's a lot of information to digest, but when you're taking on any type of debt you want to know all the borrowing details.

Have any questions about what we discussed? Have you taken a closer look at your other loan agreements?