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What is a Master Promissory Note?

Jim B.
Jim B.

A master promissory note is a written contract used as evidence to the loan of money from one party to another. It is used in the United States for federal student loans, which are given to potential students who need money to pay for their college education. One of the benefits of the master promissory note, or MPN, is that it streamlines the student loan process for those who sign it. Some forms of the MPN allow for students to sign for multiple loans over several years while keeping the same original note, thus allowing one note to cover their entire academic life.

Loans are taken out for many reasons when one party doesn't have the funds available to finance some sort of investment. College education is one such investment, requiring students to pay thousands of dollars to get a college degree that will help them obtain employment in the field of their choice in the future. As the cost of college is so prohibitive, many students and their parents take out loans designed to pay for it. Many of these loans are completed by the signing of a master promissory note.

The terms of a loan are spelled out in a master promissory note.
The terms of a loan are spelled out in a master promissory note.

In most cases, a master promissory note will spell out the terms of the loan, such as the amount to be repaid, the time frame for payments, and any other significant details. The note is also considered to be the evidence that such a loan exists, and it can be used by the lender to instigate proceedings to collect payment should the borrower default. With an MPN, the borrower is afforded some valuable flexibility with regard to his student loans.

For example, a master promissory note can generally be used for a loan that is used over multiple years. In addition, should the borrower require further loans, the original MPN can be used, and the borrower does not have to sign a new one. This affords the borrower the opportunity to adjust his loan needs as time passes without being burdened by extraneous promissory notes.

One aspect of the master promissory note that must be considered is that the original note cannot be used if the borrower decides to take up another loan with a different lender. In this case, a new MPN must be signed to account for the new lender. Colleges also must periodically contact students to see if they wish to change any aspect of their loan. This means that, even though the original MPN may still be in effect, students must be reminded of the original terms to see if they want them to continue.

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    • The terms of a loan are spelled out in a master promissory note.
      By: alexskopje
      The terms of a loan are spelled out in a master promissory note.