TERMS AND CONDITIONS OF DIRECT LOANS
The terms of this Application and the Master Promissory Note (MPN) will be interpreted in accordance with the Higher Education Act of 1965, as amended (20. U.S.C. 1070 et seq.), the U.S. Department of Education’s (ED’s) regulations, as they may be amended in accordance with their effective date, and other applicable federal laws and regulations (collectively referred to as the “Act” ). Applicable state law, except as preempted by federal law, may provide for certain borrower rights, remedies, and defenses in addition to those stated in this MPN.
Disclosure of Loan Terms
This MPN applies to Federal Direct Stafford/Ford (Direct Subsidized) Loans and Federal Direct Unsubsidized Stafford/Ford (Direct Unsubsidized) Loans. Under this MPN, the principal amount that I owe, and am required to repay, will be the sum of all disbursements that are made (unless I reduce or cancel any disbursements as explained below under Loan Cancellation), plus any unpaid interest that is capitalized and added to the principal amount. At or before the time of the first disbursement of each loan, a disclosure statement will be sent to me identifying the amount of the loan and additional terms of the loan. Important additional information is also contained in the Borrower’s Rights and Responsibilities Statement accompanying this MPN. The Borrower’s Rights and Responsibilities Statement and any disclosure statement I receive in connection with any loan under this MPN are hereby incorporated into this MPN. Loans disbursed under this MPN are subject to the annual and aggregate loan limits specified under the Act. I may request additional loan funds to pay for my educational costs up to the annual and aggregate loan limits by contacting my school’s financial aid office. My school will determine if I am eligible for any additional loan funds. I will be notified of any increase or other change in the amount of my loan. My eligibility for Direct Subsidized Loans and Direct Unsubsidized Loans may increase or decrease based on changes in my financial circumstances. My school will notify me of any changes in my eligibility. I will be notified of any increase or decrease in the amount of my loan. I understand that each loan made under this MPN is separately enforceable based on a true and exact copy of this MPN.
I may pay back all or part of a disbursement within the timeframes set by the Act, as explained in the Borrower’s Rights and Responsibilities Statement and in a disclosure statement that I will receive. If I return the full loan amount within those timeframes, I will not incur any loan fee or interest charges. If I return part of a disbursement within those timeframes, the loan fee and interest charges will be reduced in proportion to the amount returned.
Unless the Department of Education (ED) notifies me in writing of a lower rate, the interest rate for any loan I receive under this MPN is determined using a formula specified in the Act. As explained in the Borrower’s Rights and Responsibilities Statement, I will be notified of the actual interest rate for each loan that I receive. ED does not charge interest on a Direct Subsidized Loan during an in school grace, or deferment period, and during certain periods of repayment under the Income-Based Repayment Plan. ED charges interest on a Direct Subsidized Loan during all other periods (including forbearance periods), starting on the day after my grace period ends. ED charges interest on a Direct Unsubsidized Loan during all periods (including in-school, grace, deferment, and forbearance periods), starting on the date of the first disbursement. I agree to pay all interest that is charged to me. I will be given the opportunity to pay the interest that accrues during grace, in school, deferment, forbearance, or other periods as provided under the Act. If I do not pay the interest, I understand that ED may capitalize the interest at the end of the grace, deferment, forbearance, or other period.
A loan fee is charged for each Direct Subsidized Loan and Direct Unsubsidized Loan as provided by the Act, and will be deducted proportionately from each disbursement of each of my loans. The loan fee will be shown on disclosure statements that will be issued to me. I understand the loan fee may be refundable only as permitted by the Act.
Late Charges and Collection Costs
ED may collect from me: (1) a late charge of not more than six cents for each dollar of each late payment if I fail to make any part of a required installment payment within 30 days after it becomes due, and (2) any other charges and fees that are permitted by the Act related to the collection of my loans. If I default on my loans, I will pay reasonable collection costs, plus court costs and attorney fees.
I will receive a six-month grace period on repayment of each loan made under this MPN. The grace period begins the day after I cease to be enrolled at least half-time at an eligible school. I am not required to make any payments on my loan during the grace period. However, interest will accrue on my Direct Unsubsidized Loan during the grace period and will be capitalized if I do not repay it.
I must repay the full amount of the loans made under this MPN, plus accrued interest. I will repay each loan in monthly installments during a repayment period that begins on the day immediately following my 6-month grace period on that loan. Payments made by me or on my behalf will be applied first to late charges and collection costs that are due, then to interest that has not been paid, and finally to the principal amount of the loan, except during periods of repayment under an Income-Based Repayment Plan, when payments will be applied first to interest that is due, then to fees that are due, and then to the principal amount. ED will provide me with a choice of repayment plans. Information on these repayment plans is included in the Borrower’s Rights and Responsibilities Statement. ED will provide me with a repayment schedule that identifies my payment amounts and due dates. If I am unable to make my scheduled loan payments, ED may allow me to temporarily stop making payments, reduce my payment amount, or extend the time for making payments, as long as I intend to repay my loan. Allowing me to temporarily delay or reduce loan payments is called forbearance. ED may adjust payment dates on my loans or may grant me forbearance to eliminate a delinquency that remains even though I am making scheduled installment payments. I may prepay all or any part of the unpaid balance on my loans at any time without penalty. If I do not specify which loans I am prepaying, ED will determine how to apply the prepayment in accordance with the Act. After I have repaid in full a loan made under this MPN, ED will send me a notice telling me that I have paid off my loan.
Acceleration and Default
At ED’s option, the entire unpaid balance of a loan made under this MPN will become immediately due and payable (this is called “acceleration”;) if any one of the following events occurs:
- I do not enroll as at least a half-time student at the school that certified my loan eligibility
- I do not use the proceeds of the loan solely for my educational expenses
- I make a false representation that results in my receiving a loan for which I am not eligible
- I default on the loan.
The following events will constitute a default on my loan:
- I do not pay the entire unpaid balance of the loan after ED has exercised its option under items 1, 2, and 3 in the preceding paragraph
- I do not make installment payments when due, provided my failure has persisted for at least 270 days
- I do not comply with other terms of the loan, and ED reasonably concludes that I no longer intend to honor my repayment obligation. If I default, ED may capitalize all the outstanding interest into a new principal balance, and collection costs will become immediately due and payable. If I default, the default will be reported to national consumer reporting agencies and will significantly and adversely affect my credit history. I understand that a default will have additional adverse consequences to me as disclosed in the Borrower’s Rights and Responsibilities Statement.
Any notice required to be given to me will be effective if mailed by first class mail to the most recent address ED has for me. I will immediately notify ED of a change of address or status as specified in the Borrower’s Rights and Responsibilities Statement. If ED fails to enforce or insist on compliance with any term of this MPN, this does not waive any right of ED. No provision of this MPN may be modified or waived except in writing by ED. If any provision of this MPN is determined to be unenforceable, the remaining provisions will remain in force. Information about my loans will be submitted to the National Student Loan Data System (NSLDS). Information in NSLDS is accessible to schools, lenders, and guarantors for specific purposes as authorized by ED.
LOAN REPAYMENT OPTIONS
The repayment period for each Direct Subsidized Loan and Direct Unsubsidized Loan that you receive begins on the day after your grace period ends. The Direct Loan Servicing Center will notify you of the date your first payment is due. You must make payments on your loan even if you do not receive a bill or repayment notice. Billing information is sent to you as a convenience, and you are obligated to make payments even if you do not receive a notice or bill. You may choose one of the following repayment plans to repay your loan:
Standard Repayment Plan
With the standard plan, you’ll pay a fixed amount each month until your loans are paid in full. Your monthly payments will be at least $50, and you’ll have up to 10 years to repay your loans. The standard plan is good for you if you can handle higher monthly payments because you’ll repay your loans more quickly. Your monthly payment under the standard plan may be higher than it would be under the other plans because your loans will be repaid in the shortest time. For the same reason—the 10-year limit on repayment—you may pay the least interest.
Graduated Repayment Plan
With this plan your payments start out low and increase every two years. The length of your repayment period will be up to ten years. If you expect your income to increase steadily over time, this plan may be right for you. Your monthly payment will never be less than the amount of interest that accrues between payments. Although your monthly payment will gradually increase, no single payment under this plan will be more than three times greater than any other payment.
Extended Repayment Plan
With this plan you must have more than $30,000 in Direct Loan debt and you must not have an outstanding balance on a Direct Loan as of October 7, 1998. Under the extended plan you have 25 years for repayment and two payment options: fixed or graduated. Fixed payments are the same amount each month, as with the standard plan, while graduated payments start low and increase every two years, as with the graduated plan below. This is a good plan if you will need to make smaller monthly payments. Because the repayment period will be 25 years, your monthly payments will be less than with the standard plan. However, you may pay more in interest because you’re taking longer to repay the loans. Remember that the longer your loans are in repayment, the more interest you will pay.
Income Contingent Repayment Plan – (not available for parent PLUS Loans)
With this plan you have the flexibility to meet your Direct Loan obligations without causing undue financial hardship. Each year, your monthly payments will be calculated on the basis of your adjusted gross income (AGI, plus your spouse’s income if you’re married), family size, and the total amount of your Direct Loans. Under the ICR plan you will pay each month the lesser of: 1. the amount you would pay if you repaid your loan in 12 years multiplied by an income percentage factor that varies with your annual income, or 2. 20% of your monthly discretionary income*. If your payments are not large enough to cover the interest that has accumulated on your loans, the unpaid amount will be capitalized once each year. However, capitalization will not exceed 10 percent of the original amount you owed when you entered repayment. Interest will continue to accumulate but will no longer be capitalized. The maximum repayment period is 25 years. If you haven’t fully repaid your loans after 25 years (time spent in deferment or forbearance does not count) under this plan, the unpaid portion will be discharged. You may, however, have to pay taxes on the amount that is discharged.
Income-Based Repayment Plan (effective July 1, 2009)
Under this plan, your required monthly payment amount will be based on your income during any period when you have a partial financial hardship. Your monthly payment amount may be adjusted annually. The maximum repayment period under this plan may exceed 10 years. If you meet certain requirements over a 25-year period, you may qualify for cancellation of any outstanding balance on your loans.
If you can show to our satisfaction that the terms and conditions of the above repayment plans are not adequate to meet your exceptional circumstances, we may provide you with an alternative repayment plan. If you do not choose a repayment plan, we will place you on the Standard Repayment Plan. The chart at the end of this Borrower’s Rights and Responsibilities Statement (“Repaying Your Loans”;) allows you to estimate the monthly and total amounts you would repay under the Standard, Graduated, Extended, and Income Contingent repayment plans based on various initial loan amounts. You may change repayment plans at any time after you have begun repaying your loan. There is no penalty if you make loan payments before they are due, or pay more than the amount due each month. Except as provided by the Act for payments made under the Income-Based Repayment Plan, we apply your payments and prepayments in the following order: (1) late charges and collection costs first, (2) outstanding interest second, and (3) outstanding principal last. When you have repaid a loan in full, the Direct Loan Servicing Center will send you a notice telling you that you have paid off your loan. You should keep this notice in a safe place.
Pay as You Earn Repayment Plan (effective December 21, 2012)
To qualify for Pay As You Earn, you must have a partial financial hardship. You have a partial financial hardship if the monthly amount you would be required to pay on your eligible federal student loans under a 10-year Standard Repayment Plan is higher than the monthly amount you would be required to repay under Pay As You Earn. For this purpose, your eligible student loans include all of your William D. Ford Federal Direct Loan (Direct Loan) Program loans that are eligible for Pay As You Earn, as well as certain types of Federal Family Education Loan (FFEL) Program loans. Although your FFEL Program loans cannot be repaid under Pay As You Earn, the following types of FFEL Program loans are counted in determining whether you have a partial financial hardship:
- Subsidized and Unsubsidized Federal Stafford Loans
- Federal PLUS Loans made to graduate or professional students
- Federal Consolidation Loans that did not repay any PLUS loans for parents You also must be a new borrower as of Oct. 1, 2007, and must have received a disbursement of a Direct Loan on or after Oct. 1, 2011. You are a new borrower if you had no outstanding balance on a Direct Loan or FFEL Program loan as of Oct. 1, 2007, or had no outstanding balance on a Direct Loan or FFEL Program loan when you received a new loan on or after Oct. 1, 2007. Your payment amount may increase or decrease each year based on your income and family size. Once you’ve initially qualified for Pay As You Earn, you may continue to make payments under the plan even if you no longer have a partial financial hardship.
Addendum to the Direct Subsidized Loan/Direct Unsubsidized Loan Master Promissory Note William D. Ford Federal Direct Loan Program
The Consolidated Appropriations Act, 2012 (Public Law 112-74), signed into law on December 23, 2011, changed one of the terms of Federal Direct Stafford/Ford Loans (Direct Subsidized Loans). Specifically, the new law temporarily eliminated the interest subsidy provided on Direct Subsidized Loans during the six month grace period provided to students when they are no longer enrolled on at least a half-time basis. This change is effective for new Direct Subsidized Loans for which the first disbursement is made on or after July 1, 2012, and before July 1, 2014.
As a result of this law, the terms of Direct Subsidized Loans that you receive under a Direct Subsidized Loan/Direct Unsubsidized Loan Master Promissory Note (MPN) may differ from the terms described in the MPN and the Borrower’s Rights and Responsibilities Statement. This Addendum modifies the MPN to reflect the change to the terms of Direct Subsidized Loans made by Public Law 112-74. The changes made by this Addendum are incorporated into and made part of the MPN and the Borrower’s Rights and Responsibilities Statement.You should keep a copy of this Addendum with your MPN and Borrower’s Rights and Responsibilities Statement.
1. MPN, Section E: MPN Terms and Conditions, Interest.
The first sentence of the second paragraph under the heading “Interest” is revised to read as follows: “Except as provided in the Note below, interest does not accrue on a Direct Subsidized Loan during an in-school, grace, or deferment period, and during certain periods of repayment under the Income-Based Repayment Plan.” The following Note is added immediately after the paragraph that begins “If I do not pay the interest…”: “Note: Interest accrues during the grace period on any Direct Subsidized Loan for which the first disbursement is made on or after July 1, 2012, and before July 1, 2014.”
2. MPN, Section E, Grace Period.
The last sentence of the paragraph under the heading “Grace Period” is revised to read as follows: “However, interest will accrue during the grace period on all of my Direct Unsubsidized Loans, and on my Direct Subsidized Loans for which the first disbursement is made on or after July 1, 2012, and before July 1, 2014. Interest that accrues during the grace period on these loans will be capitalized if I do not repay it.”
3. Borrower’s Rights and Responsibilities Statement, Item 9, Payment of Interest. The first sentence of the first paragraph is revised to read as follows:
“Except as provided in the Note below, interest does not accrue on a Direct Subsidized Loan while you are enrolled in school at least half time, during your grace period, during deferment periods, and during certain periods of repayment under the Income-Based Repayment Plan.”