Your Rights & Responsibilities – Federal Student Loans

You’re not required to make payments on your loan until six months after your graduate, or leave school, but before you commit to taking out a loan you need to know your rights and responsibilities. This lesson will help you understand your rights and responsibilities as a direct loan borrower. Remember, your student loan responsibility begins as soon as you sign on the dotted line agreeing to the terms of your loan. From then on, your student loan payments are your obligation. Let’s begin with the contract, also called the promissory note. In most cases, you will sign a single promissory note for all your direct loans. This is called the “Master Promissory Note,” or MPN. The MPN contains the terms and conditions of the loan and explains how and when it should be repaid. While direct loans are under one MPN and Perkins loans under another, private loans are separate with a non-repeatable promissory note. When you sign the MPN, you’re confirming your understanding that the school can certify multiple loans for you for as long as you’re in school. Up to ten years maximum without having you sign another promissory note. You’re also agreeing to repay your servicer all loans made to you under the terms of the MPN. Even though you have a Master Promissory Note that makes you eligible for multiple loans, you still have to complete the FAFSA every year to receive new loan dispersements. In other words, you won’t automatically get the loan with each new school year, which is actually a good thing. Your needs may change, so this can help you control how much you’re borrowing. The Master Promissory Note also includes your rights and responsibilities as a borrower. Your rights, as related to your direct loans, include your ability to request a written statement of your loan, prepay your loan without any penalties, and request a deferment or forbearance should you go back to school or face financial hardship. In addition, you have responsibilities as a borrower. First, you’re required to participate in an entrance and exit session. These two sessions, one when you begin school and one when you’re ready to leave, are required by the government and designed to educate you about your loans. You’re also responsible for notifying your loan servicer of changes to your name, address, and enrollment status. In addition, you’re required to pay the loan and notify the loan servicer when your ability to repay changes. This means, of course, that you’re required to repay the loan in full. The full amount is yours to repay even if you don’t complete your education program, You’re not happy with the education you got from your school, You don’t find a job after leaving school, and even if you don’t receive a payment notice form your loan servicer. But, don’t let the idea of repayment scare you too much. The next lesson is all about what to expect when it’s time to start paying back your federal loans.

Paul Whisler

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