Summary: This letter announces the development of a Master Promissory Note process for use in the William D. Ford Direct Loan (Direct Loan) Program and the Federal Family Education Loan (FFEL) Program.
SUMMARY: This letter announces the development of a Master Promissory Note process for use in the William D. Ford Direct Loan (Direct Loan) Program and the Federal Family Education Loan (FFEL) Program.
We are pleased to announce the development of a new, streamlined approach to making student loans in both the Direct Loan and the FFEL programs -- the Master Promissory Note (MPN) process. Developed in cooperation with representatives of schools, students, lenders and guarantee agencies, the MPN approach will simplify the loan process by eliminating the need for many students to complete a promissory note every year they borrow. This joint Department and community initiative is consistent with the Project EASI vision.
The information in this letter represents preliminary guidance since the Congress is currently deliberating the issue of a multi-year promissory note as a part of the Reauthorization of the Higher Education Act. Although agreement has been reached on how the MPN process will work, we do not wish to presume the final outcome of the current Congressional deliberations. If final congressional action on this issue does not affect the approach outlined in this letter, it will proceed as planned. Should Congressional actions change this approach, we will, of course, incorporate those changes. However, because of the need for lenders, guaranty agencies, and schools to begin preparing for the MPN and its multi-year feature, we are providing this preliminary guidance at this time.
Separate notes have been developed for the Direct Loan and FFEL programs. Schools in each program will use the new MPN regardless of whether their borrowers will later be able to use the multi-year feature of the note, as discussed below. Draft copies of the new Master Promissory Notes have been submitted into the official clearance process. Descriptions of the notes can be found on the Department's Information for Financial Aid Professionals (IFAP) website (ifap.ed.gov) by accessing the Federal Registers published on August 10, 1998 for the Direct Loan MPN and August 14, 1998 for the FFEL MPN.
Related documents (Statements of Borrower's Rights and Responsibilities, Disclosure Statements, etc.) will be available in the near future, as will more detailed information about how the MPN process will work and what responsibilities students, schools, and lenders (including the Department for the Direct Loan program) will have.
Master Promissory Note
The MPN will accommodate both annual and multi-year borrowing and will be available for use in the 1999-2000 academic year for both the Direct Loan and FFEL programs. The multi-year feature of the note will go into effect for the 2000-2001 academic year. Initially, authorization to use the MPN as a multi-year instrument will be targeted to those student populations most likely to borrow on a multi-year basis. As such, authority to use the MPN as a multi-year note will first be extended to most four-year and graduate/professional schools. Of course, any school may choose not to use the multi-year feature for all or for some of its student borrowers. Borrowers attending schools not authorized to use the multi-year feature of the MPN, or attending schools that have chosen not to participate, will be required to sign a new MPN each year.
Under the MPN process, all borrowers will sign a Master Promissory Note the first year. The MPN signed in that first year will be used for making future loans unless the borrower transfers to a school not authorized to use the MPN on a multi-year basis, in which case the borrower will sign a new note. Schools that use the multi-year feature for a borrower who has previously completed an MPN will need to ensure that their internal procedures include a notification or confirmation step that will substitute for the completion of a new note for each subsequent loan. Details will be provided in upcoming materials.
Some schools will be asked to become members of a test group that will evaluate ways of obtaining electronic confirmation of loan acceptance from borrowers. Using new or existing technology and processes, these institutions will test various ways for student borrowers to request and obtain release of loan funds when a new note is not signed. Additional information on how schools can join the test group will be provided in the near future.
The Department is pleased to launch this new initiative that is expected to make the loan origination process more user friendly for students and schools. Many thanks go to the representatives of the FFEL community, schools, and student groups, all of whom helped advance this modernization initiative.
Diane E. Rogers
Acting Deputy Assistant Secretary
Student Financial Assistance Programs