Understanding Federal Student Loans - How do they work?
How Federal Student Loans Work
- Federal student loans are available to help you pay for your education after high school. Here are a few things you should know:
1. Your school determines your eligibility for a federal student loan based on the information you submitted in your Free Application for Federal Student Aid (FAFSA®) form.
2. Federal student loan amounts are awarded by your school, but the U.S. Department of Education (ED) is the lender. ED uses servicers to manage your loans once they are disbursed. Federal loan servicers are your point of contact for billing questions, making payments, and selecting or changing repayment plans.
3.Federal student loans must be paid back with interest. The interest rates are determined annually and are fixed for the life of the loan. Although loans first disbursed during different 12-month periods may have different fixed interest rates, the rate will never exceed the statutory maximum rate.
4.You must sign a Master Promissory Note (MPN) before loan funds are disbursed.
5. Loan fees are charged and deducted from the loan amount before you receive your money.
What is the Master Promissory Note (MPN)?
- is a binding legal document that you must sign before you receive a federal student loan. There is one MPN for Direct Subsidized or Unsubsidized Loans and a different MPN for Direct PLUS Loans.
- can be used to make one or more loans for one or more academic years (for up to 10 years).
- contains a Borrower's Rights and Responsibilities Statement that explains the terms and conditions of the loan(s) you receive and your rights and responsibilities as a borrower.