What is a Student Loan Disclosure Statement? Example Included.
There are several steps to get a student loan. This article breaks down what a student loan disclosure is.
When you decide to take out a federal student loan, you’ll first sign what’s called a master promissory note, or MPN. This binding legal document that must be signed before you receive your first loan. Your MPN then can be used to take out more loans up to a certain amount of years (typically 10).
For every student loan you take out under your MPN, you’ll be sent a disclosure statement that outlines specific details about that particular loan. These include your loan amount, fees, and when you can expect to receive your loan disbursement.
It’s important to understand your disclosure documents so that you know what your responsibilities are for the loan in question. The following are sections you’ll find in a student loan disclosure statement.
Use of Loan Money
This section will describe how you are allowed to use your loan proceeds. In most cases, you’ll only be able to use it for educational expenses such as tuition and books at your college. The disclosure may also indicate borrowing this money may affect eligibility for other forms of financial aid.
Information the Borrower Needs to Disclose
The disclosure will outline details you need to provide your college and your loan service center while still enrolled. Information may include your name, contact details, and if you change your enrollment status.
If there are other relevant details that may affect your loan status, you’ll need to disclose them. Not doing so can get you in serious trouble.
Amount You Can Borrow
The disclosure indicates the maximum amount you can borrow each academic year as well as an aggregate limit. The amount will differ depending on the type of loan and you should see a table that outlines amounts per year and the total amount you can borrow overall.
Interest and Fees
You'll find out in this section how you'll be charged for the loan. For instance, it'll tell you whether you'll receive a fixed or variable rate, whether you qualify for rate reductions, and whether your loan is subsidized or unsubsidized.
The disclosure may outline in a separate section the fees you will need to pay. It’ll tell you that you’ll be charged a percentage that’s based on the Higher Education Act and when your loan is disbursed. The exact amount you’ll be charged will be sent a separate disclosure statement.
In this section of the disclosure, it’ll indicate that your school will be the one that disburses your loan in a few installments. Though it’s usually at the start of each term, your college may do so in two or more installments based on their periods of study.
You will also know when money is disbursed because the loan servicing center will notify you. Plus, it’s also up to the discretion of your school how it’ll disburse your loan, whether that’s giving it to you directly or crediting it to your student account.
Right to Cancel
You as the borrower have the right to return all or part of your student loan proceeds and cancel the loan. The disclosure indicates that you can notify the school at any time to do so before the money is disbursed. However, you may be limited in how you do so once you’ve already received the loan proceeds.
For instance, the disclosure may state that you have a certain time frame to notify the school in writing to guarantee you can cancel all or part of the loan. That, or you can return the loan directly to the loan servicer.
You may encounter this section where you may receive a lower interest rate in exchange for making a predetermined amount of on-time payments. Some of these include an upfront interest rebate or enrolling in autopay. You won’t find all the details in this general disclosure, but you’ll find them in your Borrower’s Rights and Responsibilities Statement.
Your responsibilities as a borrower when it comes to paying back your loan will vary based on the repayment schedule provided to you. The general disclosure will state that you need to start paying your loan after your grace period ends.
It’ll also indicate that your repayment time will depend on how much you borrowed and your chosen repayment — it can be anywhere from 10 to 25 years.
Some of these options include:
- Standard repayment plan
- Graduated repayment plan
- Extended repayment plan
- Income contingent repayment plan
Details for the above will be outlined in your Borrower’s Rights and Responsibilities
Late Payment and Default Options
It's important to make on-time payments, but in the event that you're late, your student loan disclosure will outline what happens. For instance, you may be liable for late fees — the disclosure will indicate a maximum amount you'll be charged.
There are certain terms in which you'll be required to pay back all your loan proceeds immediately, such as if your enrollment status changes. Plus, the disclosure states certain conditions when your loan will be considered in default, such as when you don't make payments for a certain amount of days or comply with other loan conditions.
In a longer section, you’ll find sections relating to loan deferment, forbearance and loan discharge. These sections will indicate how you can meet requirements for any of these repayment options.
Example of a Student Loan Disclosure Statement
The numerous documents you’ll receive when taking out federal student loans can feel confusing and overwhelming to wade through, especially student loan disclosure statements. Hopefully the overview above will help you understand what some parts of your loan means, and what you’ll need to anticipate as before and after your loan disbursement, as when you start paying it back.
It’s also helpful to read some example loan disclosure statements as you’re working through your financial aid options. Here are a few from various colleges and other sources to check out:
Sarah Li Cain
Sarah Li Cain is a finance writer and a candidate for the Accredited Financial Counselor designation whose work has appeared in places like Bankrate, Business Insider, Financial Planning Association, Investopedia, Kiplinger, and Redbook. She’s the host of Beyond The Dollar, where she and her guests have deep and honest conversations about money affects their well-being.
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