Summary: Introduction of the Master Promissory Note in the Direct Loan Program for Academic Year 1999-2000
Summary: Introduction of the Master Promissory Note in the Direct Loan Program for Academic Year 1999-2000
This letter discusses--
The new student loan promissory note,
How to use the note for the 1999-2000 academic year, and
An invitation for you to participate in the development of changes for the 2000-2001 academic
I am pleased to announce that the Office of Management and Budget has approved the 1999-2000 Direct Loan Program student loan promissory note. We will begin bulk distribution of the new note this month. Shortly, we will send you a Direct Loan Bulletin with information about how to order the new note.
The new promissory note for Direct Subsidized and Direct Unsubsidized Loans is a Master Promissory Note (MPN). The MPN is a promissory note that some students will use to accept one loan. Other students, at schools approved by the Department, will use the MPN to accept several loans. The informational document attached to this letter describes the MPN and the Direct Loan process for the 1999-2000 academic year. In it, we discuss when you can originate additional loans without asking the student to sign a second MPN. Weve also included a copy of the final MPN.
As a result of your comments and suggestions at the Electronic Access Conferences in Kansas City, Washington, D.C., and San Diego, we have made changes to the MPN. The loan amount you certify that the student is eligible to receive is not printed on the MPN. Because no loan amount is pre-printed, in many cases you will be able to increase the amount of the loans, or change the loan distribution between subsidized and unsubsidized loans, without a new note. To keep students in control of the borrowing process, the MPN has a place where the student can specify a maximum loan amount. For the 1999-2000 academic year, you may not exceed the loan amount written on the MPN by a student.
With the assistance of a number of Direct Loan Schools, we are taking the following steps to help you implement the MPN:
Writing a plain English pamphlet that will explain the MPN and the new loan process to students.
Writing a comprehensive Question and Answer document about the MPN for schools. We encourage you to direct any questions to your client account manager or you may e-mail Jim Newell, the Direct Loan Task Force, at firstname.lastname@example.org.
Holding a conference in Washington, D.C., on March 28-30, 1999. You may register for the conference at our Direct Loan WEB site, http://www.ed.gov/DirectLoan.
Presenting Direct Loan School Training for the 1999-2000 academic year. These training sessions, which will include the MPN process, will begin in April 1999. We will also be presenting information about the MPN in the Spring Training 99 sessions, which begin on April 8, 1999. Please watch the Information for Financial Aid Professional (IFAP) WEB site at http://www.ifap.ed.gov for training announcements and registration information.
I would like to thank the many schools who have made suggestions for improving the MPN process. I invite you to work closely with me during the coming year to continue to improve the Direct Loan Program. Shortly, we will hold meetings to discuss possible changes and improvements to the Direct Loan Program for the 2000-2001 academic year, including changes to the MPN process. I will send you information about how you can take part.
Chief Operating Officer
Office of Student Financial Assistance Programs
Implementation of the Master Promissory Note for 1999-2000
As you read this paper, you will learn about the Master Promissory Note (MPN) and how you can use it for academic year 1999-2000 only. The MPN simplifies the loan process for some students because they can receive loans without signing a new promissory note each academic year. This change reduces your paper-processing burden and expands options for you, and the Department, to use emerging technologies to improve the student loan process.
Reading the following definitions will help you understand this paper:
1999-2000 Academic Year:
The definition of your schools 1999-2000 academic year is the same as the definition used for other Title IV programs. For example, a school that uses semesters might define its 1999-2000 academic year as any two semesters of the three semesters that take place during the period September 1999 through August 2000. In this case, the fall, spring, and summer terms are combined. Another semester school may define its academic year as the two semesters that take place from September 1999 through May 2000. For students at this school, the term beginning in June would be the first term of a new academic year.
Statutory Annual Combined Maximum Loan Amount:
This is the maximum annual loan amount allowed by law for both subsidized and unsubsidized loans based on a students grade level, dependency status, and, if applicable, additional unsubsidized eligibility for HEAL or because a students parent is precluded from borrowing a PLUS loan. For example, the standard Statutory Annual Combined Maximum Loan Amount for a dependent freshman (who does not meet the requirements for additional unsubsidized loan eligibility) is $2,625.
Loan Amount Approved:
This is the maximum loan amount your school calculates the student can receive for both subsidized and unsubsidized loans. For example, a freshman has a Statutory Annual Combined Maximum Loan Amount of $2,625. However, due to the receipt of other aid, the student is eligible for a combined subsidized and unsubsidized loan total of only $1,500. The Loan Amount Approved for this student is $1,000 for the subsidized loan and $500 for the unsubsidized loan.
Loan Amount Requested:
This is the loan amount recorded at the Loan Origination Center for a specific loan based on the lower of the Loan Amount Approved by the school or the Loan Amount Requested by the student in item #8 of the MPN.
Accepted Promissory Note Amount:
This is the lower of the amount entered by the student on the MPN (if any) and the Statutory Annual Combined Maximum Loan Amount.
Master Promissory Note Identification Number (MPN ID):
The MPN ID is the only identification number that prints on the MPN. The Loan Origination Center uses this ID number to link one subsidized loan and one unsubsidized loan to the MPN. For more important information about the MPN ID, please refer to the 1999-2000 Technical Reference manual.
Beginning with the 2000-2001 academic year, some schools may use the MPN signed by the student during the 1999-2000 academic year to make new loans. For example, a student who enters school as a freshman and borrows under the Direct Loan Program at the same school during four years of undergraduate study may be able to borrow for all four years using the 1999-2000 MPN.
Master Promissory Note:
A promissory note that can be used to make one or more loans for one or more academic years, as authorized by the Department.
3. The Master Promissory Note
Beginning with the 1999-2000 academic year, you MUST use the MPN for Direct Subsidized and Direct Unsubsidized Loans. An MPN will not be used for PLUS loans at this time.
The MPN document is more streamlined than the current promissory note. Major improvements include:
Moving all student certification and authorizations to the front of the form.
Removing all loan information certified by the school, including the loan types and amounts
approved. The Loan Origination Center (LOC) or the school (if the school chooses) will
provide this information to the student on a separate new form called the Disclosure Statement.
Simplifying print specifications.
The MPN process offers the following operational benefits for schools:
In many cases, you will be able to increase the amount of subsidized and unsubsidized loans without having the student sign an additional MPN, unless the student chose to limit the amount of the loans on the MPN. For example, you could increase the loans when a students eligibility increases due to a change in grade level, or because a student who did not originally choose to borrow up to the full amount approved by the school now chooses to do so.
In many cases, you will be able to change the loan distribution between subsidized and unsubsidized loans without obtaining an additional signed promissory note. This is helpful in cases where a students eligibility for a subsidized loan changes.
4. The 1999-2000 MPN Process for Schools that Print Promissory Notes
Although the MPN form is different from previous promissory notes, the actual Direct Loan process remains substantially the same. The following information is an overview of the Direct Loan process.
Loan Origination and Acknowledgement
The school begins the loan origination process by creating a Loan Origination Record and submitting it to the LOC for acceptance. In response, the LOC returns a Loan Origination Acknowledgement to the school and simultaneously mails a separate Disclosure Statement to the student. Sending the Disclosure Statement to the student is a new step in the loan process. The LOC automatically sends the disclosure, unless the school chooses to print and give the disclosure to all of its students.
Note: A new field, called the Master Promissory Note Status, appears onthe Loan Origination Acknowledgement. For 1999-2000, you will use this field to see whether or not an accepted MPN is on file at the LOC, when a subsequent loan type is accepted.
New LOC Disclosure Statement
The Disclosure Statement gives students specific information about the loan types, amounts, and anticipated disbursement dates.Previously this information appeared on the promissory note. The LOC (or you, as explained below) uses the information on the Loan Origination Record to print a Disclosure Statement for each subsidized and unsubsidized loan. The LOC mails the Disclosure Statement(s) to the students permanent address at the same time the LOC acknowledges to the school that the Loan Origination Record has been accepted. (A copy of this new Disclosure Statement is attached to this document.)
The Higher Education Act requires the LOC, or the school, to give the Disclosure Statement to the student either before or at the time of the first disbursement. You can comply with this requirement by choosing one of the following three options:
Option 1: The LOC can print a Disclosure Statement and you must submit the Loan Origination Record to the LOC before, or on the same day that you make the first disbursement to the student.
Option 2: You can print the Disclosure Statement with specific loan information at your school and give or mail the disclosure to the student either before, or at the time that you make the first disbursement. You must be authorized by the Department to print the Disclosure Statement. (Information about authorization is provided below.)
Option 3: If you do not want to develop the software to print the disclosure, you can enter the specific loan information on a blank copy of the Disclosure Statement. You can give or mail the completed disclosure to the student either before, or at the time that you make the first disbursement. You must be authorized by the Department to prepare the completed Disclosure Statement. (See below.)
If you choose Option 1 and the LOC prints your disclosures, you may also decide to prepare the Disclosure Statements for some of your students. For example, you may want to prepare a disclosure when a student loses the copy sent by the LOC, or when a student doesnt receive the LOC copy. You may also want to prepare a disclosure during a counseling session with a student. It is important for you to inform students that another disclosure will be sent from the LOC.
The LOC prints and mails the Disclosure Statement to ALL students at a school, unless the Department authorizes the school to prepare Disclosure Statements for its students. For the 1999-2000 academic year, the Department encourages schools to allow the LOC to print these statements. However, if a school would like to provide ALL of the Disclosure Statements to ALL of its students, the school should contact Jim Newell of the Direct Loan Task Force at (202) 708-4631 to request the necessary authorization to assume this responsibility.
Schools that prepare Disclosure Statements for their students can either use the Departments preprinted Disclosure Statement form or provide their own form. Your schools form must have exactly the same text and data elements as the Departments Disclosure Statement. You must not make any additions or deletions to the form.
Note: The EDExpress software does not have the capability to print Disclosure Statements for the 1999-2000 academic year.
The LOC prints a new Disclosure Statement for loans when it receives Change Records that make adjustments to the Loan Amount Approved. This is the procedure until the loans are booked. Once a loan is booked, the LOC will not generate a new Disclosure Statement. For booked loans, the Direct Loan Servicing Center (in Utica) sends updated loan information to the student. (A loan is considered booked when the LOC has accepted the Loan Origination Record, MPN, and the first Disbursement Record for that loan.) Because subsidized and unsubsidized loans may be processed separately, it is possible for one loan to book while the other is still being processed. In this case, the Disclosure Statement for the second loan would show both loans. This happens because the disclosure provides cumulative student information.
Preparation and Completion of the MPN by the School and the Student
As in the past, you print the students MPN using information on the completed Loan Origination Record. (A copy of the final version of the MPN is attached to this document.) No
loan amount prints on the MPN and only one MPN is used for both subsidized and unsubsidized loans.
Once the student signs the MPN, you send it to the LOC. You must send a paper manifest with each batch of MPNs sent to the LOC. The LOC acknowledges all MPNs using the appropriate message class and batch type. Note: You do not need to prepare an electronic manifest for 1999-2000 processing.
Consistent with previous years, the MPN gives students the opportunity to request a loan amount that is less than the eligibility calculated by the school. Because there is no loan amount on the MPN, we have added a new item. Item #8 provides a line for students to enter a specific dollar amount, if they choose. The amount (if any) entered in item #8 is the total for both subsidized and unsubsidized loans for the 1999-2000 academic year. The amount in item #8 is the students maximum loan eligibility for the 1999-2000 Academic Year, even if you calculated the students eligibility to be higher.
A student who enters an amount on the MPN that is lower than the amount you determine the student is eligible for, and then later chooses to borrow the additional loan eligibility during the 1999-2000 academic year, must complete a second MPN. Also, you must update the Loan Amount Approved by sending a Change Record to the LOC. To assist you in this process, the LOC sends you the students Loan Amount Requested and the Accepted Promissory Note Amount in the Promissory Note Acknowledgement.
Note: You may not refuse to process an MPN because the student enters an amount on item #8. You may, however, counsel the student about the effect of entering a loan amount in item #8. You may also want to give students a copy of the plain English pamphlet, which will inform them about their options for completing item #8.
Once the LOC processes an MPN, it sends you a Promissory Note Acknowledgement. The following scenarios may occur at this point in the process:
If the LOC has accepted both the subsidized and unsubsidized Loan Origination Records for the student, both loan types are acknowledged on the Promissory Note Acknowledgement.
If the LOC has accepted a Loan Origination Record for only one type of loan, only the accepted loan is acknowledged on the Promissory Note Acknowledgement.
If the LOC subsequently accepts a second loan type, the subsequent Loan Origination Acknowledgement informs the school that an accepted MPN is on file and a Promissory Note Acknowledgement is sent.
There are several new fields on the Promissory Note Acknowledgement: Accepted Promissory Note Amount, Master Promissory Note Identification Number, and Loan Amount Requested. These fields are defined at the beginning of this document.
5. The 1999-2000 MPN Process for Schools that Do Not Print Promissory Notes
The administrative procedures for schools that do not print promissory notes have not changed. As in the past, the LOC prints an MPN. Once the student signs the MPN, the student or the school sends it to the LOC. Upon receipt of the MPN, the LOC sends an electronic Promissory Note Acknowledgement to the school indicating whether the note has been accepted or rejected. Standard Origination Schools (and Option 1 and Option 2 schools that have the LOC print MPNs) follow basically the same process as described in the overview provided for Schools that Print Promissory Notes. There is one difference:
A student that enters an amount on the MPN that is lower than the amount you determine the student is eligible to receive and who later chooses to borrow the additional loan eligibility, must complete a second MPN. You must send a Change Record to the LOC to update the Loan Amount Approved and to request that an additional MPN be printed by the LOC for the student.
6. Additional Guidance for ALL Schools
There is no change to the actual disbursement process. You send Actual Disbursement Records to the LOC. However, a new edit at the LOC verifies that the sum of the actual disbursements (for both the subsidized and unsubsidized loans linked to the MPN) does not exceed the Accepted Promissory Note Amount. If the total exceeds the Accepted Promissory Note Amount, the Actual Disbursement Record will reject. A new Disbursement Reject Code informs you that, based on the information in the students Loan Origination Record at the LOC, the actual disbursement exceeds the Accepted Promissory Note Amount for these loans.
Loan Amount Increases
A students loan eligibility may increase for a number of reasons. For example, the students financial need, grade level, loan period, or dependency status changes or the student transitions from undergraduate to graduate status. If the student wishes to borrow the additional new loan eligibility, you must submit a Change Record to the LOC and you must document the reason for the loan increase. The Change Record you submit must include the change to the Loan Amount Approved and, if appropriate, the change to the eligibility criterion that triggered the increased loan eligibility.
Note: If the student enters an amount in item #8 on the MPN that is less than the increased Statutory Annual Combined Maximum Loan Amount, you must have the student sign a second MPN. A Change Record will not override the students Loan Amount Requested, which is the lower of the Loan Amount Approved by the school or the Loan Amount Requested by the student in item #8 of the MPN.
When an Additional MPN is Required
For the 1999-2000 academic year, an additional MPN is required in the following situations:
1. The student transfers to, or enrolls in, another school.
2. You will make more than four separate disbursements for a single loan type (subsidized or unsubsidized).
3. The student becomes eligible for a second annual loan because the student has completed one full academic year and is beginning a second academic year. (This situation is generally referred to as borrower-based academic year progression.) For example, a freshman attends a semester school that originates loans for a borrower-based academic year that consists of two semesters. During the fall and spring semesters (September 1999 through May 2000) the dependent student receives the full annual loan limit of $2,625. In January of 2000, the school originates a grade level two loan of $3,500 for the summer and fall semesters. This borrower-based academic year begins in June of 2000.
4. The student enters an amount in item #8 on the MPN and subsequently requests (and is eligible for) additional funds in excess of this amount.
For those situations outlined in items 1 through 3 above, you must create a new loan and print a new MPN with unique identifiers. The student must sign the new MPN.
You may handle the situation described in item 4 in one of two ways. You may create a new loan and a new MPN with unique identifiers, or you may create a Change Record. The change record increases the loan amount using the original loan identifier. For this second option, you would then print a replacement MPN using the original MPN ID, and you would counsel the student to leave item #8 blank, or to write in the higher loan amount.
For circumstances other than those listed above (which require a new or replacement MPN),
you may increase a student's loan amount without creating an additional loan or
7. Other Information
Master Promissory Note Document
The OMB-approved MPN document (OMB NO. 1840-0732) is attached to this bulletin. This MPN document is also posted on our Information for Financial Aid Professionals (IFAP) at http://www.ifap.ed.gov and the Direct Loan web site at http://www.ed.gov/DirectLoan. The MPN is available to you in the form of a camera-ready paper copy and electronically. We will begin distributing printed copies (bulk orders) of the MPN this month. We are preparing a Direct Loan Bulletin that will give you information about ordering the MPN and will include an order form.
Direct Loan Technical Reference Manual
The Department provides additional MPN guidance in the 1999-2000 Direct Loan Technical Reference manual. The manual is available through the IFAP at http://www.ifap.ed.gov and the Direct Loan web site at http://www.ed.gov/DirectLoan. We are writing new pages for the Direct Loan Technical Reference manual that will reflect the recent modifications to the MPN that we made in response to requests from Direct Loan schools. For additional guidance on technical and programming issues, call CPS Customer Service at 1-800-330-5947. For additional guidance on processing issues, call the LOC at 1-800-848-0978.
In our Direct Loan training this spring, we will cover how to use and process the MPN. Please read the training announcements, posted as Direct Loan Bulletins to the IFAP website (http://www.ifap.ed.gov), to determine the training sessions that best meet your needs and your schedule.
When the multi-year functionality of the MPN becomes operational in 2000-2001, some schools will be asked to be members of a test group. This test group will evaluate possible ways to secure a students affirmation of loan types and amounts. The tests could include obtaining the students input either before or during the loan origination stage, before the initial disbursement of each subsequent loan, or before each of the disbursements of a loan.
Note: We have added a new field, called the Affirmation Flag, to the Disbursement Record for schools participating in this pilot. Schools not participating in the pilot will not use this field.
The Master Promissory Note can be viewed by clicking on the following pdf files:
[[This file contains the "Mpn_vera.pdf -- Federal Direct Stafford Loan and Federal Direct Unsubsidized Stafford/Ford Loan Master Promissory Note in which the borrower must complete as instructed" in Portable Document Format (PDF). It can be viewed with version 3.0 or greater of the free Adobe Acrobat Reader software.]]
[[This file contains the "Mpn_verb.pdf -- Federal Direct Stafford/Ford Loan
and Federal Direct Unsubsidized Stafford/Ford Loan Master Promissory Note in which Schools or
EDExpress will preprint borrower information" in Portable Document Format (PDF). It can be
viewed with version 3.0 or greater of the free Adobe Acrobat Reader software.]]
[[This file contains the "Mpn_ins.pdf -- Instructions and Notices " in Portable
Document Format (PDF). It can be viewed with version 3.0 or greater of the free Adobe Acrobat
The Disclosure Statement can be viewed by clicking on the following pdf file:
[[This file contains the "discl_st.pdf -- Disclosure Statement" in Portable Document Format (PDF). It can be viewed with version 3.0 or greater of the free Adobe Acrobat Reader software.]]
NOTE: Do not print your promissory notes using the MPN provided in the pdf file. This will result in printing errors.