When you fill out a Free Application for Federal Student Aid, or FAFSA, you’re required to submit an MPN every time you borrow new funds or change schools. While few students consider what an MPN consists of, it’s vital to understand exactly what it is that you’re signing when you fill out this document.
An MPN is a Master Promissory Note. To summarize very briefly, the MPN is a legally binding document where your signature guarantees, or promises, to repay finds lent to you under the FAFSA or the Federal Direct Student Loan Program. In the event that a student defaults or refuses to pay back student loans when they are due, the MPN will be used against the student in a court of law.
When you fail to make timely payments on your student loans, your account will begin to show on credit bureaus as past due. Each stage of delinquency hurts your credit more. By the time your bill is 90, 120, or 150 days past due, chances are high that your account will be sold to outside collection agencies.
Collection agencies are not held to the strict collections practices standards set forth by the Fair Debt Collections Practices Act. They have much more leeway when collecting, and can call you repeatedly every day for years. They may aggressively attempt to collect the debt by contacting you via email, letters, and phone calls, and they may contact your employer, your neighbors, and other people that you associate with. This can become extremely embarrassing, especially considering that information you provided on your FAFSA may be used to make these contacts.
Unlike most other types of debt, student loans cannot usually be included in a bankruptcy. This means that regardless of your financial situation, you’re going to be forced to pay these loans back eventually. Letting them go delinquent will only result in severe damage to your credit standing and the accumulations of fees and interest. It’s much cheaper to pay student loans when they are due- not when they are past due.
Additionally, if you have student loans that are past due, you will not be able to use the FAFSA at any other school in the country to obtain student aid until you have made suitable arrangements to pay your debts back. This can prevent you from finishing your education, and can have serious long term credit ramifications; including the inability to purchase a vehicle or a home.
Nearly all student loans are offered at very low rates of interest, and with low payment amounts. If you find yourself struggling, contact your school’s financial aid office and advise them that you need help. Forbearances or reprieves in payment may be available until you are able to get back on track.
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