Summary: This letter provides information regarding the approved Plain Language Disclosure text for Federal Stafford Loans made under a Master Promissory Note in the Federal Family Education Loan Program.
August 9, 1999
SUMMARY: This letter provides information regarding the approved Plain Language Disclosure text for Federal Stafford Loans made under a Master Promissory Note in the Federal Family Education Loan Program.
Dear Guaranty Agency Director:
This letter provides information regarding the approved Plain Language Disclosure (PLD) text for Federal Stafford Loans made under a Master Promissory Note (MPN) in the Federal Family Education Loan (FFEL) Program. The information in this letter supplements information concerning the PLD text (referred to as Plain English Disclosure) contained in GEN-98-25, dated November 1998.
The PLD minimum standard text must be provided to borrowers in connection with second or subsequent loans made under an MPN. The PLD provides the borrower with a plain summary of key disclosure items from the original MPN form and the Borrower's Rights and Responsibilities statement. The summary will help students understand and manage their subsequent borrowing under the MPN. The PLD does not have to be provided when the borrower receives the first Stafford Subsidized Loan and Unsubsidized Stafford Loan made during the initial enrollment period under an MPN. The Department is not mandating the form in which the PLD information is provided but the text attached to this letter must be provided to the borrower as described below.
Lenders must provide the PLD to the borrower at or before the disbursement of any loan made under an MPN after the initial loan. To meet this requirement, the PLD can be sent to the student as part of, or along with, the initial disclosure, or it may be sent separately. Guaranty Agencies may choose to provide the PLD in connection with a Notice of Guarantee provided to students. The PLD may be enhanced with additional information, graphics, or color. Lenders and Guaranty Agencies are encouraged to provide the PLD to students at other times as well.
Subsequent loans may be made under an MPN only to borrowers attending schools authorized by the Secretary to participate in the multi-year MPN process. Effective July 1, 1999, the Department authorized all four-year, degree-granting institutions and graduate institutions to participate in the MPN multi-year process.
The approved PLD text is attached to this letter. As indicated in GEN-98-25, no changes to, deletions from or additions to the prescribed PLD text are permitted. The Department appreciates the efforts of the NCHELP MPN Task Force in developing this information. In addition, we acknowledge the support of the higher education community representatives who assisted in reviewing this information.
Jeffrey Baker, Director
Program Development Division
Office of Student Financial Assistance
Plain Language Disclosure
You are receiving a student loan to help you cover the costs of your education. This notice summarizes information concerning your loan. Please read this notice carefully. If you have questions about your loan, contact your lender.
1. General - You must repay this loan. You are responsible for repaying this loan even if you are unhappy with your education, do not complete it, or cannot find work in your area of study. Borrow only the amount you need.
2. Loan Cancellation - You may cancel or reduce the amount of your loan by writing to your school or lender before your lender sends your loan money to your school. There are two ways to cancel all or part of your loan after your loan money is sent to your school. You may contact the school within 14 days of the date the school informs you they have applied your loan to your account or you can pay back all or a part of your loan within 120 days of the date your lender sends your loan money to your school.
3. Master Promissory Note (MPN) - If you signed an MPN and continue to attend school, you may receive multiple loans under the same MPN for up to 10 years. During this period, you may receive loans under the same MPN if the school you attend is eligible to participate in the multi-year loan process. You can write to your lender to stop loans from being made under your current MPN. You will need to sign a new MPN if you want to change your lender.
4. Loan Amount - There are annual and total limits on the amounts you may borrow, as explained in the Rights and Responsibilities Statement you previously received. The total amount you borrow cannot be more than these limits.
5. Use of Loan Money - You may only use your loan money to pay educational expenses at the school that certified your loan eligibility (e.g., tuition, room, board, books). If you accept this loan, your eligibility for other student assistance may be affected.
6. Origination Fee and Guarantee Fee - The federal government charges an origination fee on your loan. The lender who makes your loan will collect this fee. The origination fee may be up to 3 percent of the principal amount of the loan. The guaranty agency that guarantees your loan may charge a guarantee fee of up to 1 percent of the principal amount of the loan. Both fees come out of your loan amount. If you cancel or repay all or part of your loan within 120 days of the day your lender sends your loan money to your school, your origination and guarantee fees will be canceled or reduced.
7. Change of Status or Address - You must tell your school and/or lender if you stop attending school or no longer attend school on at least a half-time basis. You must also tell your lender while you are repaying your loan if you change your address, name (e.g., maiden name to married name) or employer, or if the address of your employer changes at any time.
8. Repayment - You must repay the full loan amount, and all interest on your loan, generally within 10 years. You will receive a 6-month grace period that starts the day after you leave school. You do not have to make payments during your grace period. You must make payments after your grace period ends according to the schedule provided by your lender. Your lender will give you the choice of a Standard Repayment Plan, Graduated Repayment Plan, Income-Sensitive Repayment Plan or Extended Repayment Plan. You may request a change to your repayment plan once a year. These plans are designed to give you flexibility in meeting your repayment obligation. You may make loan payments before they are required, or in amounts greater than required, at any time without penalty. When you pay back your loan in full, you agree that the current holder does not have to send you the original Note but may instead send you a letter telling you that you have paid-off your loan. You should keep this letter telling you that you have paid-off your loan in a safe place.
9. Interest - The interest rate on your loan is a variable rate, which can change each year on July 1. The rate will never be more than 8.25%. Interest is charged on the unpaid loan amount. Interest charges begin on the date the loan is disbursed and end when the loan is paid in full. For subsidized loans, the federal government pays your interest charges while you attend school, for 6 months after you leave school, and while your loan is deferred. You must pay all other interest charges on your subsidized loan. For unsubsidized loans, you must pay all interest charges. You agree that the lender may add interest charges to your loan amount, as provided by law, if you do not make payments of interest. Since the federal government does not make any interest payments for you on unsubsidized loans, you will repay more interest on unsubsidized loans than on subsidized loans. The interest rate on loans you receive under an MPN may differ from loan to loan depending on when the loan is made.
10. Late Charges and Collection Costs - The lender may collect from you a late charge if you do not make any part of a payment within 15 days after it becomes due. The lender may only collect one late charge for each payment, no matter how many days the payment is late. The lender may also collect from you any other charges and fees involved in collecting your loan.
11. Loan Consolidation - After you leave school, you may consolidate all of your loans into one loan. Consolidating your loans gives you up to 30 years to pay them back and can lower your monthly payments. That may make it easier to repay your loans. Because you make payments for a longer period of time, consolidation means you will pay more interest charges. Contact your lender for more information about consolidating your loans.
12. Deferments - You do not have to make payments in certain circumstances. For example, you will not have to make payments while you are attending school at least halftime or for up to 3 years while you are unemployed. For a complete list of deferments, and all documentation and eligibility requirements, please refer to your Rights and Responsibilities Statement. The federal government pays the interest on subsidized loans during periods of deferment. You must pay the interest on unsubsidized loans during deferment periods, or it will be added to the principal amount of the loan. If interest is added, you will then pay interest on the larger amount.
13. Forbearance - If you cannot make scheduled payments and do not qualify for a deferment, your lender may allow you to temporarily make smaller payments or temporarily stop making payments. Interest continues to be charged on your loan during a forbearance. The lender must grant you a forbearance in certain cases, as described in your Rights and Responsibilities Statement.
14. Loan Discharge - Your loan will be discharged (forgiven) when (i) acceptable documentation of your death or permanent and total disability is given to your lender, (ii) you cannot complete a course of study because your school closes, or (iii) your school falsely certifies your loan eligibility. Your loan will not automatically be discharged in bankruptcy. Your loan may also be discharged up to the amount of any refund that your school should have made, but did not send to your lender.
15. Credit Bureau Notification - Information about your loan will be reported to one or more national credit bureaus. Information will include the disbursement date, amount, and repayment status of your loan (for example, whether you are current or behind schedule in making payments).
16. Default and Acceleration - If you default on your loan, that fact will be reported to all national credit bureaus. All unpaid amounts and collection fees on your loan will become immediately due and payable. You may be sued, your wages may be garnished, and/or your tax refund may be withheld. You agree to pay reasonable collection fees and costs, plus court costs and attorney fees. You may face other serious consequences.
17. Sale or Transfer of your Loan - Your lender may sell or assign this loan without your consent and without selling or assigning any of your other loans. The sale or transfer of your loan does not affect your rights and responsibilities with respect to the loan. You will be given the name, address, and telephone number of any new owner of your loan, if the change in ownership means you must send payments to a new address.
18. Controlling Terms and Conditions - This Disclosure summarizes information concerning your loan. Please refer to your Promissory Note and Rights and Responsibilities Statement for the complete terms and conditions of your loan. Except as specifically stated in this Disclosure, your Note and Statement
govern the terms and conditions of your loan.