Common Manual Updates

To assure that your Common Manual remains current, please record this document on your LPM/LPB index and retain it in Appendix E of your manual.

Common Manual Revised to Include Master Promissory Note

Dear Colleague Letters GEN 98-25 and GEN 99-9 introduced the Master Promissory Note (MPN) for Stafford Loans. The MPN may be used for any loan certified by a school for a loan period that begins on or after July 1, 1999. The MPN will be the only approved Stafford loan promissory note for any period of enrollment beginning on or after July 1, 2000, or for any Stafford loan certified on or after July 1, 2000, regardless of the loan period begin date.

Current Common Manual policy only includes information regarding the loan processing requirements for lenders and schools using the common Stafford or PLUS application and promissory note. The Common Manual has been revised to include loan processing requirements and to make necessary terminology updates to incorporate the MPN.

All MPN changes are effective for Stafford loans certified by the school for loan periods beginning on or after July 1, 1999, using a Master Promissory Note. Other effective dates related to common Stafford and PLUS application and promissory note changes are noted in the common bulletin language that follows:

Origination Process

Current Common Manual policy reflects the processing requirements for lenders and guarantors using the common applications and promissory notes. Subsection 2.2.A. has been expanded to clarify current application and promissory note processes, and to incorporate Master Promissory Note (MPN) provisions.

The common Stafford application and promissory note is a single form used concurrently as a student borrower’s application for the loan, the student borrower’s promise to repay the funds, and the school’s certification of the student borrower’s eligibility, unless an electronic process is used for the school certification. The student applies for a Stafford loan by completing the borrower section of the form and signing the promissory note. The student must complete a new Stafford application and promissory note for each new loan requested. Information regarding a student’s request to increase his or her loan amount is found in subsection 6.1.H. Schools may use the common Stafford application and promissory note for any loan application certified prior to July 1, 2000, for any period of enrollment beginning prior to July 1, 2000.

The common PLUS application and promissory note is a single form used concurrently as a parent borrower’s application for the loan, the parent borrower’s promise to repay the funds, and the school’s certification of both the parent borrower’s and dependent student’s eligibility, unless an electronic process is used for the school certification.

Stafford and PLUS loan provisions for loans made on a common Stafford and PLUS loan application and promissory note are effective retroactively to the implementation date of the Common Manual.

The MPN is a Stafford promissory note that is the student borrower’s promise to repay the funds, and may be used as a multi-year note.

Initially, only four-year, graduate, and professional schools are authorized to offer students the multi-year feature of the MPN. However, the Department may exclude certain four-year, graduate, and professional schools from participation in the multi-year feature of the MPN. Other schools must use a separate MPN for each new loan (as with the common Stafford application and promissory note), unless specifically authorized by the Department to offer the multi-year feature. The Department will provide program participants with information regarding schools approved to participate in the multi-year feature of the MPN. Lenders may rely upon information provided by the Department to determine schools authorized to use the multi-year feature.

The MPN includes the borrower’s promise to repay his or her Stafford loan and provides important language about the student borrower’s rights and responsibilities with respect to obtaining and repaying the loan. Because the MPN is only a promissory note, the borrower application and school certification processes are separate. Using an MPN, the student applies for a Stafford loan either by using the FAFSA or an alternative school application process. The school certifies the student’s eligibility and submits the loan information to either the lender or the guarantor via a paper certification form or an electronic format.

Students attending schools not using or not authorized to use the multi-year feature must complete a new MPN for each new loan, as with loans made under the common Stafford application and promissory note. Students attending schools authorized by the Department to participate in the multi-year feature of the MPN must complete an MPN only for the first loan using the MPN, unless the lender’s ability to make additional loans under the student’s MPN has expired, or the student, school, lender or guarantor requires the completion of a new MPN. A guarantor may require a new MPN in the event of an invalid lender code or if the prior MPN has expired or been revoked for purposes of making additional loans.

Flowchart Revised to Reflect MPN

The flowchart depicting the life of a Stafford loan in section 2.2 has been revised to incorporate the Master Promissory Note (MPN) process.

Entrance Counseling Using the Master Promissory Note

Subsection 4.9.B. has been revised to include the Master Promissory Note (MPN) for Stafford loans in the list of items a school should discuss with a borrower as part of entrance counseling. Schools using the MPN should provide the borrower with an explanation of the MPN process including the multi-year feature and the borrower loan control points (e.g., notification or confirmation, cancellation or reduction of the loan amount, or revocation of the MPN).

Borrower Application Using the Master Promissory Note

Section 5.1 has been expanded to include separate subheadings and overviews for the common Stafford application and promissory note, the Master Promissory Note (MPN) for Stafford loans, and the common PLUS application and promissory note. The changes for the common Stafford and PLUS application and promissory note overviews have not added any substantive policy changes that are not already covered within the context of the manual. The MPN overview provides a brief description of the process of applying for a Stafford loan using an MPN. Cross-references have also been added to section 5.1 to refer readers to subsection 2.2.A. for a more comprehensive overview of the process of applying for a Stafford loan using an MPN.

Revisions to the text of the Manual for loans made on a common Stafford or PLUS application and promissory note are effective retroactively to the implementation date of the Common Manual.

School Processing Changes Using the Master Promissory Note

Current Common Manual policy requires the completion of a new common application and promissory note when a borrower is requesting additional loan funds based on additional loan eligibility that may be available. Under the provisions of the Master Promissory Note (MPN), the school may certify the increased loan amount for an eligible borrower without requiring the student borrower to complete a new MPN. Section 5.7 has been revised accordingly. A cross-reference has been added to refer the reader to subsection 6.1.H. for more information on increased loan amounts.

Subsection 5.8.E. has also been revised to accommodate both common applications and promissory notes and the MPN. These revisions include changing the term "application data" to "loan information" and altering references to the processing of electronic information to more accurately reflect processes under the MPN. The revisions include the provision that a school is no longer required to certify the student’s cost of attendance (COA), expected family contribution (EFC), or estimated financial assistance (EFA). However, a school will be required to maintain the COA, EFC, and EFA data used to compute the borrower’s loan eligibility and make such data available upon request of the lender, the guarantor, or the Department. A school will be required to retain a copy of the MPN school certification or record of the supporting data if the loan information was transmitted to the guarantor or lender electronically.

Effective for loans certified on or after October 1, 1998, a school is required to provide COA, EFC, and EFA figures only when requested by the lender, the guarantor, or the Department.

Lender and Guarantor Processing for the Master Promissory Note

Section 6.1 has been expanded to incorporate the Master Promissory Note (MPN) provisions for lender and guarantor processing of the MPN.

In addition to current processing responsibilities, lenders have the additional responsibility of establishing the date from which to track the expiration of the MPN. This is the date the borrower signs the MPN, unless the borrower fails to date the MPN or provides an erroneous date. In that case, the date on which the lender received the MPN may be used.

The lender has the following additional responsibilities when making subsequent loans using the multi-year feature of the MPN:

• Determining the school’s authorization to certify Stafford loans using the multi-year feature of the MPN, based on information provided by the Department.
• Providing the borrower with the Plain English Disclosure.
• Ensuring that either a confirmation or notification process is in place (see subsection 6.3.C. of the Common Manual).
• Determining that the lender retains the right to originate loans using the MPN, if a previous loan made using the MPN has been sold or transferred to another holder.
• Verifying that the loan is supported by a signed MPN and that the ability to make subsequent loans using that MPN has not expired.

Under the terms of the MPN, a lender’s ability to make subsequent loans to a borrower expires upon the earliest of:

• 12 months after the original MPN is signed if no disbursements were ever made using that MPN.
• 10 years from the date the borrower signs the MPN. However if a portion of the loan is disbursed on or before the date that is 10 years from the signature date, all remaining disbursements for that loan can be made.
• The date the lender receives written notification from the borrower that the MPN may no longer be used as the basis for making additional loans.

For schools using an MPN, changes in the loan amount may be made without obtaining a new MPN, provided the borrower is eligible and the school or lender documents the borrower’s request. The school or lender also has the option of requiring the borrower to sign a new MPN.

If the borrower’s loan is made using an MPN, the Borrower’s Rights and Responsibilities form will be provided to the borrower with the MPN. At or before the first disbursement of the loan, the lender will provide the borrower with the initial disclosure that includes specific information related to the loan.

For any subsequent loans made using the multi-year feature of the MPN, the lender is only required to provide the Plain English Disclosure form and the initial disclosure of specific information related to the loan. Both disclosures will be provided at or before the first disbursement of each subsequent loan made under the borrower’s MPN. The statements may be provided together or separately.

These revisions to section 6.1 are effective for Stafford loans certified by the school for loan periods beginning on or after July 1, 1999, using a Master Promissory Note.

Required Notices for the Master Promissory Note

Current Common Manual policy describes required notices and authorizations for loans made using a common Stafford or PLUS application and promissory note. Subsection 6.3.C. has been expanded to incorporate the Stafford Master Promissory Note (MPN) provisions.

For Stafford loans made using an MPN, notification and confirmation requirements apply.

The school and lender must ensure and document that a process is in place for providing either confirmation or notification for subsequent loans made using the multi-year feature. A notification or confirmation process informs the student of the proposed loan types and amounts being awarded for the loan period and should increase the borrower’s understanding of his or her loan obligations. The notification or confirmation process may be part of, or may supplement, the existing required notices and disclosures described in subsection 6.3.C. Although the initial disclosure constitutes a notification action, it must be supplemented by another notification or confirmation process by the parties described below.

Notification is a process by which the school, lender, or guarantor notifies the borrower of the proposed loan types and amounts. The borrower is required to act only if he or she wants to reject or adjust the types or amounts of the loan. Confirmation is a process by which the school, lender, or guarantor (on behalf of the school or lender) advises the borrower of the proposed loan types and amounts. The borrower is required to act to confirm the loan type or request a specific loan amount. A school, lender, or guarantor (on behalf of the school or lender) may establish confirmation for the entire loan or may request that the student confirm each disbursement of the loan.

For Stafford loans made using an MPN, the school is not required to obtain a separate borrower authorization statement to permit the transfer of loan proceeds received by EFT or master check to the student’s account. The authorization is included on the MPN and the 30-day restriction for collection of the authorization does not apply.

Transfer Students

Section 6.5, including subsections 6.5.A. and 6.5.B., has been revised to address how transfer students are affected under the Master Promissory Note (MPN) process.

If the borrower has signed an MPN that remains valid and the student transfers to a different school that is authorized to use the multi-year feature of the MPN, any new Stafford loan funds that are guaranteed may be made under the terms of that MPN, unless the new school or the borrower's lender requires the borrower to complete a new MPN or the borrower chooses to obtain the new loan from a lender other than the lender that made the prior loan.

In addition, subsection 6.5.B. has been updated to clarify that regulations permit a student who transfers after a loan has been fully disbursed to receive a second loan during the same enrollment period, if that student advances to a higher grade level and, as a result of the grade level advancement, becomes eligible for additional Stafford loan funds. This clarification is effective retroactively to the implementation date of the Common Manual.

MPN Changes Affecting Program Reviews

Current Common Manual policy only includes information on program review requirements for loan processes for Stafford and PLUS loans made using a common application and promissory note. Program reviews performed by guarantors will incorporate new procedures to confirm lender and school compliance with federal laws and regulations as they pertain to the MPN. Subsection 11.3.B. has been revised to inform FFELP participants that guarantor program reviews will include a review of loan information and supporting documentation, and MPN notification or confirmation procedures.

Stafford and PLUS loan provisions for loans made on a common Stafford or PLUS application and promissory note are effective retroactively to the implementation date of the Common Manual.

MPN Terms Added to Glossary

Definitions of confirmation, notification, and Master Promissory Note (MPN) have been added to Appendix G of the Common Manual. Also, changes have been made to the definitions of application and certification to incorporate the MPN process as follows:

Application: The form the borrower uses to apply for a Stafford, PLUS, or Consolidation loan.

Certification: The act of attesting that something is true or meets a certain standard. For example, the school certifies the borrower’s eligibility for a loan and, if applicable, interest benefits. The borrower completes an application, promissory note, or deferment form, thereby certifying that certain eligibility criteria have been met.

Confirmation (as it relates to the MPN): A process by which the school, lender, or guarantor (on behalf of the school or lender) advises the borrower of the proposed loan types and amounts. The borrower must take action to confirm the loan type or request a specific loan amount. A school, lender, or guarantor (on behalf of the school or lender) may establish confirmation for the entire loan or may request that the borrower confirm each disbursement of the loan.

Notification (as it relates to the MPN): A process by which the school, lender, or guarantor notifies the borrower of the proposed loan types and amounts. The borrower is required to take action only if he or she wants to reject or adjust the type or amount of the loan.

These changes to Appendix G are effective for loans made for loan periods beginning on or after July 1, 1999, using a Master Promissory Note.