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ATTACHMENT E: FEATURES OF THE FEDERAL STAFFORD LOAN MASTER PROMISSORY NOTE The Federal Stafford Loan Master Promissory Note is currently in the formal clearance process as required by the Paperwork Reduction Act of 1995, and is subject to the approval of the Office of Management and Budget (OMB). The Department will notify schools, lenders, and guarantors as soon as the clearance process is completed and OMB approval is obtained. Any modifications to the MPN required as a result of the enactment of the Higher Education Amendments of 1998 (reauthorization) will, of course, be included in the final approved note. The MPN may be used for single-year borrowing (as is the case with the current Stafford Loan Application and Promissory Note) or it can be used, under specific conditions, for multiple year borrowing. Implementation and Transition Period In order to allow sufficient time for FFEL lenders and guarantors to print the MPN forms and make systems changes necessary to implement the new form, a transition period will be allowed during which schools and students may complete, and guaranty agencies and lenders may accept, both the new MPN and the current single-loan application and promissory note form. The MPN and accompanying materials may be used for Federal Stafford Loans for loan periods beginning on or after July 1, 1999 and must be used for all Federal Stafford Loans for loan periods beginning on or after July 1, 2000 and for any loan certified on or after July 1, 2000, regardless of loan period. Forms Design The discussion that follows refers to the draft Federal Stafford Loan Master Promissory Note that was posted to our Information for Financial Aid Professionals (IFAP) website (http://www.ifap.gov) on October 2, 1998. The draft form can be accessed at the IFAP site by going to the listing for "Electronic Announcements" and opening the October 2, 1998 announcement on this subject. The form can be viewed with version 3.0 or greater of Adobe Acrobat Reader software. The MPN has been designed to make it both more streamlined and useable as a multi-year instrument. The features of the new MPN that make this possible include: Information contained in the Borrower Certifications and Authorizations section appears on the face of the form above the borrower’s signature. Because loan certification data is generally transferred electronically, the school certification section has been removed and a separate form has been developed to accommodate the paper process for those schools that rely on this method of transmitting eligibility information (See Attachment G). The lender section has been eliminated to further simplify the form. The identification of the lender is part of the Borrower Information section. The Requested Loan Amount on the MPN includes a request for a total amount of loans over an extended period and a separate request for the initial loan amount. For the initial loan, the student may either automatically receive the maximum loan amount that the institution determines the student is eligible to receive, or enter a specific loan amount. For the total loan amount available under the multi-year feature of the MPN, the student may receive up to the aggregate Federal Stafford Loan limits authorized by the HEA. For the initial loan, if the student enters a specific amount for subsidized and unsubsidized loans and later determines that additional funds are needed for the academic period, the student may contact the school or lender to request an increase to the loan amount. The school or lender must document the student’s request. Alternatively, the school or lender may treat the request for additional funds as a request for a new loan and follow the procedures for the multi-year feature of the note. The authorization to permit schools to transfer loan proceeds to the student's account by EFT is now Paragraph B in Item # 14 of the Borrower Certifications and Authorizations section. The EFT authorization also covers the transfer of funds to the school by a master check. The school is no longer required to secure a separate borrower authorization statement as described in 34 CFR 682.604(c)(3). The EFT authorization does not preclude students from declining or reducing loan proceeds as set forth in the MPN and in the Borrower’s Rights and Responsibilities form. The Borrower Certifications and Authorizations section (item 14, paragraph E) provides for the student to defer and align the repayment of principal of prior loans and authorize capitalization of interest on all outstanding FFEL program loans. The authorization to capitalize interest does not preclude the student from making payments of interest during in-school, grace, or deferment periods. The borrower can advise the lender that he or she wants to pay interest while in school by checking Item # 12. |