What to Know Before Signing a Student Loan Promissory Note

If you'd like to take out student loans to help you cover the costs of college, you'll have to sign a promissory note. A student loan promissory note is a student loan contract that details the terms and conditions of your loans and highlights the rights and responsibilities you have as a borrower.

A promissory note is legally binding and it's a requirement that borrowers sign one before they are able to receive a loan. Thus, it should be reviewed carefully before you sign it. Here are a few things you should know before signing a student loan promissory note.

Are You Signing a Master Promissory Note?

In some cases, you have to sign a promissory note every time you take out a student loan. But for federal loans, you can sign a single master promissory note which allows multiple loans to be disbursed to you while you are in college.

You'll still have to prove eligibility for certain loans each year, but signing one master promissory note can simplify the process so you don't have to review and sign multiple contracts. On the other hand, not all schools provide this option, so you must pay attention to the type of promissory note you receive since you may apply for financial assistance again the following year and you don't want to miss that deadline.

Which Type of Loans Are You Borrowing?

Your promissory note will clearly disclose which type of loans you are borrowing and who your lender is (federal or private) along with what their terms are. This is information you need to know and record as early as possible and not after you've graduated and have to start paying your loans back.

It's important to know things like whether you have a grace period and how long it lasts in case you have to take a break from college, whether the interest rate for your loans will be fixed or variable, and if there are any expenses your loans can't be used for.

How Much Will Your Loans Cost You?

While it's important to focus on your interest rates, you can also use your promissory note to confirm any other fees you might face when taking out your student loans.

For example, some private lenders charge a fee for paying off your loan early, which can have a negative effect on your finances when you graduate and start repaying your student loans.

Federal and private lenders also charge origination fees for student loans, which is a processing fee that is deducted from the loan amount that is getting dispersed. Depending on how much money you are borrowing, this fee will vary.

Can You Remove a Cosigner When You're Ready?

You may be required to have a co-signer if you are taking out private loans, which rely heavily on your creditworthiness. You and your co-signer will be equally responsible for your debt and he or she will have to agree to pay your student loans back if you can't. If something happens with your cosigner's financial situation, like if they file for bankruptcy in the future, it can have a negative effect on your student loan situation as well.

Most students use their parents or another loved one they trust to be a co-signer for their loans. However, once you graduate college and improve your credit, you might want to relieve your co-signer from their responsibilities for your student loans.

You can read the conditions listed in your promissory note to find out whether you can release your co-signer from their obligations if you meet some of their conditions, like successfully making a specific number of payments on-time. This information can also put your co-signer at ease by knowing that they won't be on the hook for your student loans long-term.

Take the Time to Carefully Read Through Your Promissory Note

If you have questions about anything that is mentioned in your promissory note, be sure to ask your lender for clarification. If you don't like a term or requirement that you see, don't feel pressured to sign the letter as you can always explore other loan options.

Reading through your promissory note ahead of time will ensure you can sign it with confidence and avoid any confusion or issues in the future.

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