The Master Promissory Note (MPN) is a binding legal document that lists the terms and conditions of your loan repayment, like interest rates. It also explains your rights and responsibilities as a borrower. The same MPN can be used for up to 10 years. This makes the loan process easier and eliminates the need to sign a new MPN for each new loan (students usually take on a new loan for each year they’re in school).
The MPN also helps protect students. It includes rules against predatory lending practices and access to financial protections including repayment and forgiveness options, forbearance, and deferment.
Student loan repayment options and loan forgiveness programs are designed to help borrowers afford and repay their student loans. Repayment options allow borrowers to choose a payment plan that best fits their financial situation. Loan forgiveness programs forgive the remaining balance of a borrower’s student loans after meeting certain requirements.
Forbearance is the period during which monthly loan payments are suspended. You could qualify for forbearance if you are unable to pay your loans, despite wanting to, because of financial difficulties. Only the principal payments are suspended, but the interest continues to accrue during forbearance. You can pay just the interest or your loan servicer can add it to your principal amount at the end of the forbearance period.
Deferment is when you postpone paying your loan for a certain amount of time. This is allowed under certain conditions. Deferment will be without accrued interest for a subsidized loan. Interest will accrue for an unsubsidized loan during the deferment period. The unpaid interest will be added to the principal of the loan at the end of the deferment period.
The main difference between forbearance and deferment is interest accrual. Interest accrues on federal student loans during a forbearance. Interest accrues only on some types of federal student loans in a deferment.
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