Publication Date: February 2003
Bulletin ID: DLB-03-07
Summary: Implementation of a Master Promissory Note for Direct PLUS Loans
February 2002
DLB-03-07
Subject: Implementation of a Master Promissory Note for Direct PLUS Loans
Dear Partner:
The Office of Management and Budget has approved Master Promissory Notes for use in making PLUS Loans in the William D. Ford Federal Direct Loan (Direct Loan) and Federal Family Education Loan (FFEL) programs. This bulletin describes the Federal Direct PLUS Loan Application and Master Promissory Note that will be used in the Direct Loan Program, and explains how it will be implemented. (For details on the implementation of the Master Promissory Note for PLUS Loans made under the FFEL Program, see Dear Colleague Letter GEN-03-03.)
Throughout this bulletin, the term "Direct PLUS MPN"refers to the Federal Direct PLUS Loan Application and Master Promissory Note, and the term "Direct Subsidized/Unsubsidized MPN" refers to the Federal Direct Stafford/Ford Loan - Federal Direct Unsubsidized Stafford/Ford Loan Master Promissory Note. The term "MPN" refers to both Master Promissory Notes (Direct PLUS and Direct Subsidized/Unsubsidized).
A copy of the Direct PLUS MPN is attached to this bulletin, along with the new Endorser Addendum, Direct PLUS Loans Borrower's Rights and Responsibilities Statement, and Direct PLUS Loans Plain Language Disclosure that are to be used in conjunction with the Direct PLUS MPN.
Federal Direct PLUS Loan Application and Master Promissory Note
The Direct PLUS MPN is a promissory note that can be used to make one or more Direct PLUS Loans to a parent borrower to help pay for the educational costs of one dependent student for one or more academic years. Generally, a parent borrower will be required to complete a Direct PLUS MPN only once, when the parent first borrows a Direct PLUS Loan for a dependent student. In most cases, the parent may then receive additional Direct PLUS Loans for that student for up to 10 years without completing a new Direct PLUS MPN, as long as the student continues to attend a Direct Loan school that is authorized and chooses to make multiple loans under the Direct PLUS MPN. As with the Direct Subsidized/Unsubsidized MPN, a school may require a parent borrower to complete a new Direct PLUS MPN each academic year. Likewise, a parent borrower may choose to complete a new Direct PLUS MPN for each Direct PLUS Loan.
The Direct PLUS MPN allows one parent to borrow one or more Direct PLUS Loans for one dependent student. This means that a parent who wants to borrow Direct PLUS Loans for more than one dependent student must complete a separate Direct PLUS MPN for each student. In addition, if different parents want to borrow Direct PLUS Loans for the same student, each parent must complete a separate Direct PLUS MPN.
To the extent possible, the language on the Direct PLUS MPN matches the language on the Direct Subsidized/Unsubsidized MPN, differing only where necessary to reflect terms and conditions that are specific to Direct PLUS Loans. As is the case with multiple loans made under a single Direct Subsidized/Unsubsidized MPN, each Direct PLUS Loan received under a Direct PLUS MPN is a separate and distinct loan. The terms that apply to each loan (for example, interest rates) are dependent on the terms that are in effect at the time each loan is made.
Effective date for use of the Direct PLUS MPN
The new Direct PLUS MPN and related documents (Endorser Addendum, Direct PLUS Loans Borrowe's Rights and Responsibilities Statement, Direct PLUS Loans Plain Language Disclosure) are to be used beginning with any Direct PLUS Loan made for the 2003-2004 year (that is, a loan with an identification number that includes "04").
The current "Federal Direct PLUS Loan Application and Promissory Note" (OMB No. 1840-0666 or 1845-0051), "Addendum to Federal Direct PLUS Loan Promissory Note - Endorser" (OMB No. 1840-0679 or 1845-0060), and "Federal Direct PLUS Loans (for Parent Borrowers) Borrower's Rights and Responsibilities" remain valid and must continue to be used for making Direct PLUS Loans for years prior to 2003-2004.
School eligibility for multi-year use of the Direct PLUS MPN
Under the expanded authority for multi-year use of the MPN that was announced in Dear Colleague Letter GEN-02-10, any Direct Loan school that is not specifically informed otherwise may allow a parent borrower to receive Direct PLUS Loans for subsequent academic years based on a previously completed Direct PLUS MPN. For more detailed information on the implementation of the expanded authority for multi-year use of the MPN in the Direct Loan Program, see Direct Loan Bulletin (DLB) 03-02.
As noted above and in DLB 03-02, an otherwise eligible Direct Loan school is not required to use the multi-year feature of the Direct PLUS MPN and may require a parent borrower to complete a new Direct PLUS MPN each academic year. Such a school may choose to be designated in the Common Origination and Disbursement (COD) System as using the single-year feature of the MPN. However, if a school opts to be designated as using the single-year feature of the MPN, that designation applies to all Direct Loans processed by the school (Direct Subsidized, Direct Unsubsidized, and Direct PLUS). This means that a school may not, for example, choose to be designated in the COD System as using the single-year feature of the MPN for Direct Subsidized Loans and Direct Unsubsidized Loans, and the multi-year feature of the MPN for Direct PLUS Loans.
As with the Direct Subsidized/Unsubsidized MPN, even if a school is not authorized to use or chooses not to use the multi-year feature of the Direct PLUS MPN, it may make multiple Direct PLUS Loans under a single Direct PLUS MPN within the same academic year.
Active confirmation process required with multi-year use of the Direct PLUS MPN
For loans made under the multi-year feature of the MPN, the regulations that govern the Direct Loan Program require a school that is authorized for multi-year use of the MPN to develop and document a confirmation process in accordance with guidelines established by the U.S. Department of Education (ED). The purpose of a confirmation process is to provide a means for a borrower to accept or decline a loan made for a subsequent academic year under the multi-year feature of an MPN. This helps to provide for greater borrower control and understanding of loan debt. For Direct Subsidized Loans and Direct Unsubsidized Loans, a school's confirmation process may be either active or passive. An active confirmation process is one that requires a borrower to take action to accept or confirm a loan before any loan funds may be disbursed. A passive confirmation process requires that a borrower be notified when a loan for a subsequent academic year is made, but the borrower must take action only if he or she does not want the loan, or wants to change the loan amount. With a passive process, loan funds may be disbursed after the borrower has been notified of the new loan.
Because Direct PLUS Loan funds generally are not paid directly to the parent borrower, but rather are applied to the student's account at the school, and because Direct PLUS Loan amounts are often significantly higher than Direct Subsidized Loan and Direct Unsubsidized Loan amounts, it is particularly important for parents to have control over the borrowing process and to be aware of the loan debt they are incurring. Therefore, a school must have an active confirmation process for Direct PLUS Loans made under the multi-year feature of the Direct PLUS MPN, even if the school uses a passive confirmation process for Direct Subsidized Loans and Direct Unsubsidized Loans. Regardless of the maximum Direct PLUS Loan amount that a parent is eligible to borrow, a school may not originate a loan for more than the amount the parent has confirmed that he or she wants to borrow.
The following are examples of active confirmation processes that a school might use:
� Requiring the parent borrower to sign and return an award letter that indicates the specific amount of the Direct PLUS Loan.
· Requiring the parent borrower to request a specific Direct PLUS Loan amount and documenting that request.
· Documenting the parent borrower's acceptance of a loan through an electronic process that requires a personal identification number (PIN).
As is the case with the confirmation process for Direct Subsidized Loans and Direct Unsubsidized Loans, a school must keep a description of its Direct PLUS Loan active confirmation process that is in effect for each academic year in which the school makes loans for subsequent academic years under previously completed Direct PLUS MPNs. Ideally, a school's confirmation process would be described in a student handbook or other financial aid publication that is issued each academic year. The description of the confirmation process may be kept in either paper or electronic format; it need not be included in borrower files. It must be kept indefinitely, and must be submitted to ED upon request if a borrower challenges the enforceability of a loan made under the multi-year feature of the MPN.
Use of an endorser with the Direct PLUS MPN
By completing a Direct PLUS MPN, a parent borrower authorizes ED to investigate the borrower's credit record for each loan received under the Direct PLUS MPN. If a parent is determined to have an adverse credit history and obtains an endorser for a Direct PLUS Loan, the Direct PLUS MPN that the parent completes becomes a "single-loan" promissory note. That is, no further Direct PLUS Loans may be made under that Direct PLUS MPN. If the parent later wants to receive another Direct PLUS Loan, he or she must complete a new Direct PLUS MPN. If a parent previously completed a Direct PLUS MPN that was used to make one or more earlier Direct PLUS Loans, but later obtains an endorser for a subsequent Direct PLUS Loan, the parent must complete a new Direct PLUS MPN for that subsequent loan. No further loans may be made under the previously completed Direct PLUS MPN.
The Endorser Addendum for the Direct PLUS MPN shows the amount of the Direct PLUS Loan that the endorser has agreed to repay if the borrower does not repay the loan. The endorser is liable only for the specific loan that he or she has agreed to endorse. If a borrower obtains a Direct PLUS Loan with an endorser, the Direct PLUS Loan amount shown on the Endorser Addendum is the maximum amount that the school may disburse to the borrower for that loan. Any increase in the Direct PLUS Loan amount will require a new Direct PLUS MPN and Endorser Addendum.
Direct PLUS MPN expiration conditions
The rules governing the expiration of the Direct PLUS MPN are the same as those for Direct Subsidized/Unsubsidized MPNs beginning with Release 2.0 or later of the COD System. That is, no subsequent loans may be made under a Direct PLUS MPN after the earliest of the following dates:
· The date ED or the school receives the borrower' written notice that no further loans may be made;
· One year after the date the borrower signs the MPN or the date ED receives the MPN, if no disbursements are made under the MPN; or
· Ten years after the date the borrower signs the MPN or the date ED receives the MPN (except that a remaining portion of a loan may be disbursed after this date).
If a borrower does not want to have further loans made under the multi-year feature of the MPN, he or she must notify either the school or the Direct Loan Servicing Center in writing. If the borrower later wants to receive another loan, a new MPN must be completed. However, any remaining disbursements of a loan made under the MPN prior to receipt of the borrower's notification may still be made.
For the two expiration provisions that may be based on either the date the borrower signs the MPN or the date ED receives the MPN, ED determines the expiration date based on the date ED receives the MPN.
Direct PLUS Loans Borrower's Rights and Responsibilities Statement
The Direct PLUS Loans Borrower's Rights and Responsibilities Statement (BRR) provides additional and more detailed information about the terms and conditions of Direct PLUS Loans made under the Direct PLUS MPN. By completing a Direct PLUS MPN, the borrower agrees to the terms and conditions that are covered in the BRR. A copy of the BRR must be given to the borrower with the Direct PLUS MPN each time a Direct PLUS MPN is completed.
Direct PLUS Loans Plain Language Disclosure
The Direct PLUS Loans Plain Language Disclosure (PLD) is essentially an abbreviated version of the BRR that must be given to the borrower in lieu of the BRR when the borrower receives a subsequent loan under a previously completed Direct PLUS MPN. The PLD summarizes the most important information covered in the BRR, and refers the borrower to the Direct PLUS MPN and BRR for complete loan terms and conditions. The PLD also explains any changes or additions to the loan terms and conditions that are stated on the Direct PLUS MPN and in the BRR.
Direct PLUS Loans Disclosure Statement
We are developing a Disclosure Statement for Direct PLUS Loans made under the Direct PLUS MPN that will provide the borrower with the same type of information as the existing Disclosure Statement for Direct Subsidized Loans and Direct Unsubsidized Loans. The Direct PLUS Loans Disclosure Statement will include information on the loan amount and anticipated disbursement dates, and must be provided to the parent borrower at or before the first disbursement of each Direct PLUS Loan made under the Direct PLUS MPN. When a Disclosure Statement is sent for a subsequent Direct PLUS Loan made under the Direct PLUS MPN, it must be accompanied by a copy of the PLD. We will provide more information on the Direct PLUS Loans Disclosure Statement in a future Direct Loan Bulletin.
Ordering and printing the Direct PLUS MPN and related documents
We will provide information on ordering and printing the Direct PLUS MPN and related documents in a separate Direct Loan Bulletin that will be issued shortly.
For more information about the operational business rules related to Direct Loan Master Promissory Notes, please refer to the 2003-2004 COD Technical Reference Volume II, Section 1 (Full Participants) or Volume IV, Section 1 (Phase-In Participants). Both references can be found on IFAP at www.ifap.ed.gov and the technical reference is available for download at www.sfadownload.ed.gov. If you have any questions about this bulletin, please contact COD School Relations by phone at 800/848-0978 or by e-mail at CODSupport@acs-inc.com.
Thank you for your continued partnership in the Direct Loan Program.
Sincerely,
Jane Holman
Acting Director, Title IV Delivery
Schools Channel
Attachments:
Application and Master Promissory Note: Federal Direct PLUS Loan (with data labels)
Application and Master Promissory Note: Federal Direct PLUS Loan (without data labels)
Endorser Addendum to Application and Master Promissory Note: Federal Direct PLUS Loan
Direct PLUS Loans Borrower's Rights and Responsibilities Statement
Direct PLUS Loans Plain Language Disclosure
Attachments/Enclosures:
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