implementation guide · 1.2.1 simplified federal stafford loan note and process for all borrowers...

MASTER PROMISSORY NOTE

IMPLEMENTATION GUIDE

unity.

ed by participants.

A guide to assist Federal Family Education Loan Program institutions and providers implement the Master Promissory Note. The Implementation Guide was developed by the National Council of Higher Education Loan Programs (NCHELP) MPN Task Force through consultation with the financial aid and student loan comm

April 10, 2003

Note: A Dear Colleague Letter was issued in November of 1998 by the Department of Education announcing the Department’s approval of the MPN. This document reflects the form and guidance included in that DCL. If anything in this guide conflicts with the DCL or subsequent Department guidance, the Department’s guidance should be follow

IMPLEMENTATION GUIDE Table of Contents

Topic Section No. Overview of the Master Promissory Note . . . . . . . . . . . . . . . . . .

1

Process Flow Charts for the Master Promissory Note . . . . . . . . . . . .

2

Implementation Checklists . . . . . . . . . . . . . . . . . . . . . . . . . .

- For Schools - For Lenders - For Guarantors - For Secondary Markets

3

Sample Disclosure Statements . . . . . . . . . . . . . . . . . . . . . . . .

- Loan-specific Disclosure Statement - Annual Borrower Statement - Borrower Record Update Request

4

Master Promissory Note Edits . . . . . . . . . . . . . . . . . . . . . . . .

5

Sample Loan Sale Provisions . . . . . . . . . . . . . . . . . . . . . . . .

6

CommonLine Updates . . . . . . . . . . . . . . . . . . . . . . . . . . . .

7

April 10, 2003

Section 1

M A S T E R P R O M I S S O R Y N O T E

OVERVIEW DOCUMENT

April 10, 2003

Section 1 Table of Contents

Topic Subsection

Page Page

Purpose of the Implementation Guide 1-1 1.0 Document Purpose 1-1 Background of the MPN

1-2

1.1 General Background 1-2 1.1.1 Integration with Other Improvement Efforts 1-3 Description of the MPN 1-4 1.2 General Description 1-4 1.2.1 Simplified Federal Stafford Loan Note and Process for All

Borrowers 1-4

1.2.2 Simplified School Certification Process 1-5 1.2.3 Paperless Serial Loan Process 1-5 1.2.4 Elimination of Lender Section 1-6 Key MPN Design Features 1-7 1.3 Overview of Design Features 1-7 1.3.1 Adoption of a Single Form 1-7 1.3.2 Scope of Paperless Serial Loan Process 1-7 1.3.3 Use of the FAFSA or Other Process as the Loan Application 1-7 1.3.4 One Lender, One Holder, One Servicer, One Guarantor

Provisions 1-7

1.3.4.1 Change in School 1-8 1.3.4.2 Change in Guarantor 1-8 1.3.4.3 Change in Lender 1-8 1.3.5 Adjustments After Loan Certification 1-8 1.3.6 Borrower Control Points 1-9 1.3.7 Serial Loan Expiration Provisions 1-9 1.3.8 EFT, Deferment, & Capitalization 1-9 Benefits of the Paperless Serial Loan Process 1-11 1.4 Benefits of the Paperless Serial Loan Process 1-11 Overview of Origination Mechanics 1-12 1.5 Origination Mechanics 1-12 1.5.1 Common FFELP Processing Scenarios 1-12 1.5.1.1 Common School Processing Scenarios 1-12 1.5.1.2 Common Lender Processing Scenarios 1-13 1.5.1.3 Common Guarantor Electronic Processing Scenarios 1-14 1.5.2 Initiating a Loan 1-15

April 10, 2003 i

Section 1

Table of Contents - continued Topic Subsection

Page Page

Origination Mechanics (continued) 1.5.3 Loan Amount 1-15 1.5.4 Loan Cancellation and Adjustments 1-19 1.5.5 Exchange of Certification Data 1-19 1.5.6 Choice of Lender 1-20 1.5.7 Signing the MPN 1-20 1.5.7.1 Securing References on the MPN 1-21 1.5.8 Loan Disbursement 1-21 1.5.9 Post-disbursement Provisions 1-21 1.5.10 Serial Loan Origination 1-22 1.5.10.1 Standard Serial Loan Origination 1-22 1.5.10.2 Paperless Serial Loan Process 1-23 Overview of the MPN Terms 1-25 1.6 Term of the MPN 1-25 Description of Loan Disclosures 1-27 1.7 Loan Disclosures 1-27 1.7.1 Loan-specific Disclosures 1-27 1.7.2 Serial Loan Disclosures 1-27 1.7.3 Annual Borrower Statement 1-28 Loan Servicing Overview 1-29 1.8 Loan Servicing 1-29 1.8.1 Treatment of Interest 1-29 1.8.2 Refunds and Cancellations 1-29 1.8.3 Credit Bureau Reporting 1-29 1.8.4 Conversion to Repayment 1-30 1.8.5 Deferment 1-30 1.8.6 Loan Collection 1-30 1.8.7 Payment in Full 1-30 Claim Filing Procedures 1-31 1.9 Claim Filing Under the MPN 1-31 Loan Sale Considerations 1-32 1.10 Loan Sales 1-32 1.10.1 Who Holds the MPN? 1-32 1.10.2 Who Will Originate Future Loans? 1-32

April 10, 2003 ii

Purpose of the Implementation Guide

Section 1.0 Document Purpose The purpose of Section 1 of the Implementation Guide is to provide a general overview of the Master Promissory Note (“MPN”). The document describes the MPN process from origination to paid in full status. This section of the guide identifies implementation requirements with the following symbol -- ✏ . The detailed checklists and other implementation tools and guidance provided elsewhere in this guide, highlight these implementation provisions. Together, the information included in this guide and the approval information issued by the Department of Education will aid Federal Family Education Loan Program (FFELP) participants in their transition to this new and innovative FFELP Promissory Note. The MPN was developed to complement other initiatives (existing and proposed) for customizing at the school level loan packaging, certification, disbursement, disclosure, and delivery. As such, the overview document identifies, when appropriate, scenarios where processes may vary. The periodic references to such options are not meant in any way to limit the processing scenarios to those listed, but rather are intended to describe today’s common processing flows.

April 10, 2003 1-1

Background of the MPN

Section 1.1 General Background Since the introduction of the Common Application/Promissory Note in 1993, the FFELP community has consistently explored options to improve further the loan application process. In 1994 and early 1995, NCHELP began to explore offering students a paperless serial loan process. Such a concept would eliminate the requirement for students to complete a new Promissory Note to receive subsequent loans. To support a paperless serial loan process, various NCHELP committees explored a line of credit under the FFELP and enhancements to the Stafford Loan Promissory Note to streamline the process. To advance these exploratory initiatives, in July of 1995, NCHELP created a Task Force to develop a framework for implementing a paperless serial loan process through a FFELP line of credit. The base document for the MPN was NCHELP’s 1995 revised Application/Note (not approved by ED). The Task Force initially referred to the paperless serial loan document as a “line of credit.” The Task Force, however, changed the document name to “Master Promissory Note”, since a traditional line of credit contemplates an extension of a fixed amount of credit against which a consumer draws advances as needed. The term “MPN” more appropriately describes a series of loans under a single note with potentially different terms and conditions requiring an eligibility determination before the approval of each loan. The MPN can be used for a single loan or for multiple loans covering one or multiple loan periods. The MPN was developed with the input and assistance of many individuals and organizations in the FFELP. During the development of the MPN, two draft proposals were widely distributed for comment within the FFELP community. In addition, Task Force and NCHELP members presented the proposal at many lender and school forums. Feedback from these efforts served as the basis for refining the MPN document. The Task Force undertook an extensive review and discussion of all comments submitted to the group. The final proposal was adopted by the Ad hoc Standardization Committee in August, 1996. In August of 1996, the MPN and supporting materials were sent to ED for its review and approval. At the request of the Ad hoc Standardization Committee, the Task Force worked with the Department during its review and approval process. The ED/Community efforts were completed in July, 1998. The MPN will be implemented during the 1999/2000 and 2000/2001 academic years.

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Background of the MPN - continued

Section 1.1.1 Integration with Other Improvement Efforts The MPN process complements other financial aid delivery processes being considered and developed. Task Force members coordinated efforts with the CommonLineSM and ELM initiatives. In addition, the MPN serves as a logical stepping stone to the EASI system being developed by the Department. The EASI system involves, among many features, the student signing a single Promissory Note covering his or her educational borrowing needs. A key component of the MPN implementation is a series of consumer research efforts and experiments. Schools and their lender and guarantor partners will be invited by the Department to develop and implement a series of experiments. The experiments will examine the various approaches for using the MPN and will secure institutional, student, lender, and guarantor feedback on the process and on various methods used to accept, reject, or alter serial loans made under the MPN. This guide does not provide any additional information on the experiment as it is expected that the Department will issue information on this topic during the 1999/2000 academic year. SM The Service Mark CommonLine is owned by the National Council of Higher Education Loan Programs, Inc.

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Description of the MPN

Section 1.2 General Description Simplification of the student aid delivery process has been and continues to be a major focus for Congress, the Department of Education, and organizations involved in student financial assistance. Successful initiatives to reduce paperwork in the loan delivery process include:

➱ During the 1980’s, the introduction of a combined loan Application and Promissory Note;

➱ In 1992, the development of a single Application and Promissory Note for Stafford, unsubsidized Stafford, and SLS loans; and

➱ In 1994, the introduction of CommonLine, an application data exchange process. The MPN is an extension of these improvement efforts. The MPN is three initiatives rolled into one:

➱ A simplified Federal Stafford Loan Note and process for all borrowers (section 1.2.1)

➱ A simplified School Certification process (section 1.2.2)

➱ A paperless serial loan process (section 1.2.3) 1.2.1 Simplified Federal Stafford Loan Note and Process for All Borrowers

The MPN replaces the existing Federal Stafford Loan Application and Promissory Note. Several exciting new features have been incorporated into the MPN to make the loan process simpler and more straightforward for student borrowers. These features include:

➱ Using the Free Application for Federal Student Aid or other process established by the school as a vehicle for the student to request a loan. This eliminates the need for a separate loan application.

➱ Eliminating many of the check-off boxes on the face of the loan Note. Such boxes often result in processing delays.

➱ Providing more conspicuous explanations of loan terms and conditions. Several important borrower certification and authorization statements, previously on the reverse of the Application/Promissory Note, have been moved to the front of the Promissory Note, just above the student’s signature.

➱ Improving the quality of information provided to students on the loan-specific and optional annual disclosures. In addition, the Dear Colleague Letter permits use of color

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Description of the MPN - continued

1.2.1 Simplified Federal Stafford Loan Note and Process for All Borrowers - continued

on certain forms to assist with readability and to highlight key information. The forms may be printed by either the lender or guarantor thus customization of information can be facilitated.

➱ Providing students with multiple options throughout the loan delivery process to make

adjustments in loan type and amount. Students will usually make these decisions after there has been a determination of eligibility for all types of financial aid.

1.2.2 Simplified School Certification Process Since many schools provide borrower certification information electronically, the school certification section (currently on the front of the Common Application/Promissory Note) has been moved to a separate form. Schools have the option to complete the separate certification form or provide the data electronically. The school certification itself no longer includes estimated cost of attendance, estimated financial aid, and expected family contribution since such information no longer needs to be reviewed by the lender. Of course, the school continues to compute and retain this information. To support the note distribution and collection process and the multi-year feature, address information has been added to the certification form.

1.2.3 Paperless Serial Loan Process For borrowers enrolled in four-year and graduate schools, the MPN offers the borrower a paperless serial loan process. If the school transmits data electronically, the process can be paper-free from the school’s perspective. This process is initially being introduced at four-year and graduate schools, as students attending these schools secure serial loans at significantly higher frequencies than students attending schools that offer shorter term programs. The Department of Education may also approve the initial implementation of the paperless serial loan process at other institutions. Under the paperless serial loan process, the student signs a single Promissory Note for multiple loans covering multiple academic years. For borrowers enrolled in an institution not designated as a four-year or graduate institution nor otherwise authorized by the Department to use the multi-year feature, the student uses the same process as in place today (yet with a significantly enhanced form).

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Description of the MPN - continued

1.2.4 Elimination of Lender Section The lender section of the existing common Stafford application/note is not included on the MPN. In many cases today, this section is not completed. The making of the loan demonstrates the lender’s approval of the loan. In some cases today, the lender approves each loan prior to the guarantor issuing the guarantee or prior to loan disbursement by a disbursing agent. For example, a credit union may need to approve the loan as the applicant may need to be a member of the credit union. In cases where lender approval is necessary, it is suggested that the lender note the approval on the margins of the MPN or on the bottom of the school certification form. Other procedures may be established by the lender and guarantor.

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Key MPN Design Features

1.3 Overview of Design Features During the development of any new form or process, decisions concerning key policy issues impact the implementation of that new process. The MPN, particularly the multi-year component of the MPN, could have been structured in many ways. This section describes the key policy decisions that shaped the MPN. Each of these decisions impacts (in a minor or significant way) how schools and FFELP providers will implement the MPN. By having this information up front, readers can begin to evaluate the scope of changes needed to implement the MPN within their own environment.

1.3.1 Adoption of a Single Form The MPN can serve as documentation for a single loan made for one award year or as documentation for several loans made during several award years. The MPN will replace the existing annual Application/Promissory Note. The MPN may be used for loans made for periods of enrollment beginning on or after July 1, 1999 and must be used for loans certified on or after July 1, 2000 or any loan for periods of enrollment beginning on or after July 1, 2000.

1.3.2 Scope of Paperless Serial Loan Process The MPN will be available to all students attending all schools participating in the FFELP. For students attending four-year and graduate schools or other schools designated by the Department of Education, the student can also use the MPN to secure loans under the paperless serial loan process. The paperless serial loan process will not be available to students enrolled at other schools. Language on the second page of the form identifies those circumstances under which a borrower is able to receive serial loans under the MPN.

1.3.3 Use of the FAFSA or Financial Aid Application or Other Process as the Loan Application

Within the MPN structure, the FAFSA or another process adopted by the school serves as the loan application. Use of the FAFSA or other school process as the application reflects the current practices in the FFELP as effectively in many flows, the campus awarding process serves as the “application.”

1.3.4 One Lender, One Holder, One Servicer, One Guarantor Provisions

The MPN process strengthens the one lender, holder, servicer, guarantor concept by providing a convenient method to borrow from the same lender with the same guarantor. The MPN

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Key MPN Design Features – continued

1.3.4 One Lender, One Holder, One Servicer, One Guarantor Provisions - continued encourages and facilitates the one party concept rather than mandating such a policy -- the MPN accommodates student choice, change in school, and lender and guarantor mergers and consolidations. 1.3.4.1 Change in School In an effort to advance the one holder concept, the MPN process is designed to limit the circumstances under which a new MPN is secured. A new MPN is not required when a student changes schools. A school may, however, elect to require a new MPN for all first-time students at the school as a matter of processing preference (or other variation). The Department has stated that it will change the entrance counseling provisions to require schools to communicate to the student how the MPN is being rolled out at the institution and that the use of the MPN may differ at another institution. ✏ Schools should review their entrance counseling materials and make changes as necessary. 1.3.4.2 Change in Guarantor The MPN process permits a single Promissory Note to be used even if there are multiple guarantors. 1.3.4.3 Change in Lender The MPN requires that the student sign a new MPN if the student elects to change to a new lender. Under this scenario, the student could have an MPN with one lender and enter into a new agreement with a new lender. A new MPN may also be needed if the lender sells its portfolio. See Loan Sale Considerations, Section 1.10 below. 1.3.5 Adjustments After Loan Certification Numerous efforts have been made to support loan adjustments following loan certification. The best approach for schools to be in control over the process and manage debt limits is for the school to certify the student’s “request”, rather than the maximum eligibility, for a loan. The “request” amount can be secured from the loan application or other process. Coupled with this

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Key MPN Design Features - continued

1.3.5 Adjustments After Loan Certification - continued approach, the school and its loan providers (as is the case today) need to be able to accommodate adjustments during the period from loan certification through loan delivery. Many factors can cause the loan eligibility (amount and subsidized/unsubsidized mix) to shift during this period. The MPN affords the borrower the option to make choices on loan amount and mix anytime during the process. The MPN provides for adjustments throughout the loan process and requires that the borrower be advised of these changes.

1.3.6 Borrower Control Points Borrower control points are points during the loan process when the student makes decisions on loan eligibility, type, and amount. The origination section of this guide describes a menu of borrower control points. For the initial loan made under the MPN, the student is able to enter a requested loan amount on the face of the note. For serial loans, when the student does not need to complete a new MPN, other mechanisms are offered by schools and lenders to secure this important loan information. Schools and lenders will include one or more control points in their processes to provide students with information about loan eligibility and with an option to decline all or portion of the loan. The menu approach is intended to support school efforts to customize the MPN process based on internal capabilities, packaging philosophies, and processing flows.

1.3.7 Serial Loan Expiration Provisions The MPN language lists those circumstances under which a new Note may be needed before additional loans can be made. These provisions are contained in section 1.6, “Term of the MPN.” Under the MPN process, the lender is responsible for determining whether a new MPN is necessary and, if so, for securing that document.

1.3.8 EFT, Deferment and Capitalization The current common loan application includes questions for the student to indicate his or her preferences regarding EFT, deferment and capitalization. The MPN eliminates these questions and instead includes authorizations which reflect the preferences historically indicated by loan applicants. The certification statements authorize the loan to be disbursed by electronic funds transfer (EFT). A separate authorization statement is not required. The certifications also authorize the lender to defer and align the repayment periods on the loans and to capitalize any interest that is due but not paid by the borrower.

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Key MPN Design Features - continued

1.3.8 EFT, Deferment and Capitalization - continued The MPN (question 12) allows the student to advise the lender if he or she wishes to make interest payments on unsubsidized loans during the in-school period. If the student checks yes to this box, the lender must facilitate the interest payment process. Options for facilitating this process include (but are not limited to) providing a summary of monthly interest charges on the loan disclosure or separate notice, providing a coupon book, or sending the borrower interest bills on a periodic basis. If the student does not pay the interest, the lender may capitalize the interest in accordance with its capitalization policy.

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Benefits of the Paperless Serial Loan Process

1.4 Benefits of the Paperless Serial Loan Process As stated in section 1.2, the general description of the MPN, the MPN advances many loan delivery improvements. For all borrowers, whether or not the same Note is used for serial loans, the MPN offers a smoother and simpler process. Providing a clearer explanation of loan terms and conditions and delivering disclosure documentation that focuses on critical information the student needs to understand as he/she enters into the loan agreement clearly improves consumer counseling and will ultimately reduce delinquency and default. In addition to the consumer information enhancements, the MPN paperless serial loan feature is a significant FFELP improvement effort. For students attending four-year and graduate schools or other schools designated by the Department, the MPN facilitates additional loans to the student without the student signing a new Promissory Note. The paperless serial loan process offers a number of benefits for students and schools. Primary benefits include:

➱ Providing student borrowers with a simplified serial loan request process.

➱ Reducing paper requirements for student borrowers and schools securing loans under this process (supporting the Paperwork Reduction Act).

➱ Increasing student and school control over the process. ➱ Providing faster turnaround time for delivery of funds by eliminating the primary cause

of delay in the students' receipt of loan funds -- distribution and collection of Promissory Notes. It also eliminates delay in the serial loan process caused by missing application data.

➱ For student borrowers attending schools with electronic capabilities, the MPN process for

serial loans -- from certification to disbursement -- can be entirely electronic and paper-free for the students and the schools.

➱ By requesting the borrower to select his or her choice of lender as part of the initial loan

process rather than during an annual loan application process, there is the added benefit of single source borrowing, servicing, and communication.

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Overview of Origination Mechanics

1.5 Origination Mechanics The MPN has been designed to support a variety of Stafford Loan processes on campuses. Some campuses are fully electronic and others are not. Some schools prefer to include loan Notes as part of the award process and others prefer to advise the students of their loan eligibility and request that they seek a loan from their preferred lender. The MPN can work within all of the existing scenarios. 1.5.1 Common FFELP Processing Scenarios Understanding how the MPN process will fit into a processing scenario requires consideration of the key loan processing approaches used by schools, guarantors and lenders. As is the case today, under the MPN process, any number of these combinations can be used depending on the packaging processes adopted by the school and the flows initiated by the school. 1.5.1.1 Common School Processing Scenarios There are two key school processing issues that impact the MPN flow -- loan packaging and data certification flow . The packaging approach adopted by a school will determine where and when the student has control in the loan process and the scope and nature of the lender’s and guarantor’s efforts to support the school’s process. The two most common approaches are:

The school awards the loan in the award package - The school does not include the MPN in the award package. The student is advised

either to contact the aid office for a loan or to contact a lender (or guarantor) to initiate a loan. Once the student initiates the loan, the MPN is provided.

- The school does not include the MPN in the award package. The school advises the student a specified loan amount will be certified unless the student requests a lesser amount from the school or lender. The lender or guarantor secures the MPN from the student.

- The school includes the MPN in the award package.

The school certifies a loan only upon request from the student - The student secures an MPN from the lender, guarantor, or school to initiate the loan.

The school’s receipt of the paper application or request for certification from the lender or guarantor causes the school to initiate the loan certification process.

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Overview of Origination Mechanics - continued

1.5.1.1 Common School Processing Scenarios - continued

- The student advises the school or lender that he or she wants a loan. The school generates and transmits the loan certification information. The lender or guarantor secures the MPN.

The flow of school certification data also impacts the loan process. There are three general flows:

The school provides the student with a blank MPN and advises the student to contact a lender. Upon receipt of the MPN, the lender contacts the school for certification information.

The school transmits the certification record to the guarantor.

The school transmits the certification record to the lender. Again, the approach adopted by the school drives the response and next steps taken by the lender and guarantor. ✏ Schools should examine their loan packaging and data certification flow approaches to assess whether changes should be made to maximize the benefits of the MPN. 1.5.1.2 Common Lender Processing Scenarios There are multiple scenarios a lender may follow to obtain loan certification information and collect the MPN. As stated earlier, these steps vary based on the processing approach adopted by the school. The most common approaches are as follows:

The lender receives the loan certification from the school via mail, e-mail, ELM, CommonLine, or proprietary school-based software. The lender then pre-prints the MPN and sends the document to the borrower. The borrower returns the MPN to the lender.

The lender receives the guarantee information from the guarantor, which already includes school certification information. The MPN is either provided to the lender by the guarantor or the lender secures this document from the borrower.

The lender sends pre-printed MPNs to the school for the school to transmit to the borrower.

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1.5.1.2 Common Lender Processing Scenarios - continued

The lender provides blank MPNs to the school for the school to deliver to borrowers.

The lender sends the MPN to borrowers who request them. This scenario is often initiated by the school advising the student to contact his or her lender.

✏ Lenders should examine their own processes as well as the approaches used by their school clients (especially since schools may change their approach due to the MPN).

1.5.1.3 Common Guarantor Electronic Processing Scenarios

The current FFELP guarantor flows are generically described below. It is important to note that with each process, there are situations today when the actual loan origination process can either begin and end with the school providing the forms, as well as the electronic transmissions directly to the guarantor and subsequent disbursing agent, to situations where a third party can perform some or all of these functions on behalf of a school. This is not intended to be an exhaustive listing, but covers the most common processing flows of FFELP loans.

➱ Paper or Manual Guarantee - This scenario requires the borrower and school manually to

complete the applicable sections of the Note and school certification. Once the Note and certification are complete, a guarantee is secured and the loan is disbursed.

➱ Electronic Guarantee - The loan records are transmitted to a lender or guarantor electronically via a proprietary software interface or via a vehicle such as CommonLine or ELM. The guarantor thereafter manually or electronically transmits a notice of guaranty to the lender who then disburses the loan.

➱ Electronic Guarantee and Print - An electronic record is sent to the guarantor by the school via various media. Upon receipt of the record and following guarantee of the loan, the MPN is printed and mailed to the borrower by the lender or guarantor. The completed Note is then returned by the borrower to the lender before the disbursement of the loan.

➱ Lender Initiated - Under this scenario, the student applies to the lender by submitting a request or a completed Note. The lender (via paper or electronic interface) secures certification and guarantee information. The lender then disburses the loan.

➱ Electronic Print and Certification - Selected borrower demographic data and school and lender certification data are electronically transmitted to the guarantor. Upon receipt of the information, an MPN is printed and sent to the borrower for completion and return to

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1.5.1.3 Common Guarantor Electronic Processing Scenarios - continued

the guarantor. Once the Note is completed, a guarantee is issued and the Note is forwarded to the lender before disbursement. A variation of this scenario includes situations where the application is forwarded directly to the borrower by the school, lender, or guarantor in a separate mailing. Upon receipt of the completed borrower section, the guarantor electronically matches such information with the previously received electronic school and lender certifications and the loan is then guaranteed. The completed Note is then forwarded to the lender before disbursement.

(✏ Guarantors should examine their current process and consider moving toward a more streamlined flow.) 1.5.2 Initiating a Loan The loan application is currently integrated into the Promissory Note. Under the MPN, there are four different options for the student to initiate the loan process. These four options drive the control points that schools and lenders provide to borrowers:

1. The student may indicate his or her desire to receive a loan via the FAFSA. 2. The student may initiate a loan through an acceptance of aid offered by the school as part

of the award package or other process. 3. The student may initiate a loan by completing an MPN. 4. The student may initiate a loan by providing the school, lender, or guarantor with a

request. (✏ Schools should determine which loan initiation process or processes they will use within their environment. The initiation process may mirror the procedures that are in place today.) 1.5.3 Loan Amount Under the MPN, the maximum loan that can be made for a given loan period is the maximum loan amount provided for under the Higher Education Act. For the initial loan, the student uses the MPN to provide information on the requested loan amount. The student has two choices for indicating a loan amount for the initial loan. The student may request the maximum eligibility determined by the school, in which case the requested loan amount in item 11 is left blank. Alternatively, the student may request a specific loan amount in item 11. If the student enters a

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1.5.3 Loan Amount - continued specific loan amount and later determines additional funds are needed, the student may contact the lender or school in writing, by phone, or electronically (such as e-mail) to request an increase in the loan amount. The lender or school should document this request. For loans made under the paperless serial loan process, the student must be given opportunities throughout the loan process to accept an identified loan amount, reject the loan, request a lesser loan amount, or change the subsidized/unsubsidized loan mix. The opportunities are referred to as “Borrower Control Points.” There are four threshold questions for selecting borrower control points:

1. Does the school “package” loans in the award process? 2. Does the school want the role of communicating the final amount, or does the school

want the borrower to contact the lender or guarantor to establish the final loan amount? 3. Does the school send the borrower a pre-printed application letter directly or through

initiating a lender or guarantor mailing? 4. Is the school using an EFT or check process to fulfill its delivery role?

The responses to these questions will determine which control points are adopted during the process. Consistent with the philosophy that a school’s financial aid packaging process is school driven, requiring local customization which should not be subject to federal regulatory mandates, the MPN process provides the following menu of Borrower Control Points. Some of the Borrower Control Points are required by regulation and therefore apply in all cases. These are the Constant Control Points. Other Borrower Control Points are offered under a menu approach. Schools, lenders, and guarantors should incorporate one or more of these options into their respective processes. Again, the control points made available should correspond to the answers to the threshold questions above. With respect to all Borrower Control Points, the borrower is making the decision about his or her loan amount based on loan eligibility and, in many cases, based on adjustments made after the original determination of eligibility. The timing of this process places the student in a position to make an informed decision regarding loan need. There are two general categories of control points -- notification and confirmation. Notification is a control option whereby the student is provided with information on the proposed loan amounts and types and the student is asked to respond only if he or she wishes to

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1.5.3 Loan Amount - continued reject the loan, reduce the loan, or adjust the loan mix (amount of subsidized and unsubsidized loans). Confirmation is a control option whereby the student takes action to confirm the loan offer or takes action to request a specific loan amount (similar to the request on the face of the MPN). Which option is provided and when is determined by the school and lender. The constant control points as well as menu of control points can be facilitated through a notification or confirmation approach. Any adjustments in the loan amount and types after the confirmation or notification process are disclosed to the student. Some of the examples below are notification options, whereas others are examples of confirmation options.

➱ Constant Borrower Control Points

- If a loan is disbursed by individual check, the student is required to sign the check. As part of this process, the student can reject the loan or request that a lesser amount be disbursed.

- In the case of an EFT, the school must notify the student that funds were applied to his or her account. This notification can be electronic. As part of this process, the student can reject the loan or request that a lesser amount be disbursed.

- The lender or guarantor must issue a disclosure notice at or before disbursement and can advise the borrower how to decline or make adjustments in the loan amount.

- The student can repay in full within 120 days and receive reimbursement of all fees previously paid.

➱ Menu of Control Points (These are examples and not an exhaustive list)

During the School’s Award Process:

- School includes a recommended loan amount in the award letter. The student is asked to confirm the loan amount and sign and return the letter (or respond via e-mail, voice response unit, or the Internet). Any adjustments in the preferred loan amount could be made by the student as part of the process.

- School requests the borrower to provide his or her requested loan amount on the award letter, via e-mail or the Internet. Upon receipt, the school packages the loan.

- School includes the loan amount in the award letter. The student is asked to return the letter within a fixed number of days if adjustments are necessary. Absent the student’s response, the school assumes the student concurs with the loan amount determined by the school.

April 10, 2003 1-17


1.5.3 Loan Amount - continued - School includes the loan amount in the award letter. The student is advised to contact

the lender or guarantor of any adjustments in the loan amount within a fixed number of days. The lender or guarantor offers e-mail, a 1-800 number, or Internet options to facilitate this process. Absent a response, the school, lender, and guarantor assume the student concurs with the loan amount determined by the school.

- School recommends a loan amount and advises the student to contact the lender (by phone, e-mail, or Internet site) to initiate the application process.

Prior to Loan Disbursement (assuming sufficient time between certification and disbursement process)

- Lender or guarantor issues a pre-disbursement approval notice. The borrower is asked to sign and return the approval notice. Any adjustments in the preferred loan amount are made by the student as part of this pre-disbursement notice.

- Lender or guarantor issues a pre-disbursement approval notice. The student is asked to return the notice if adjustments are necessary. Absent the student’s response within a stated time frame, the lender or guarantor assumes the student concurs with the loan amount determined by the school.

- Loan approval information is provided to the borrower. The borrower is provided a toll-free number, e-mail, voice response, or Internet address to contact the lender to confirm the loan amount or request changes.

Loan Disbursement

- Lender or guarantor sends notice via e-mail with return response requested. Loan Delivery

- Borrower is asked to sign a disbursement roster similar to the process used under the Perkins Loan Program.

- Under EFT, the school secures written acceptance of the final loan amount. (✏ Schools, lenders, and guarantors should identify the Borrower Control Points to be used in their respective processes. )

April 10, 2003 1-18


1.5.4 Loan Cancellation and Adjustments If a student indicates a desire for a loan on the FAFSA or other form, yet later decides a loan is not desired, in whole or in part, the student can cancel the loan request or reduce the amount of the loan by contacting the school, lender, or guarantor, or by denying or returning the loan proceeds. Likewise, the school may cancel the loan based on the student's request. (✏ Schools, lenders, and guarantors should review their loan adjustment process and confirm that all relevant parties are informed of all adjustments or cancellations.) During the community review process, questions were raised as to how participants should communicate new loan information versus an adjustment to an existing loan. As is the case today, some parties can accept increases to loan amounts post-guarantee or disbursement and others cannot. Procedures are in place today to address these processing practices. In many cases, the school certification is used only for new loans whereas a change form or transaction is used for adjustments. These procedures can continue under the MPN. For students using the MPN as an annual note, the Department has provided some increased flexibility for loan adjustments. Adjustments in the annual loan request do not require a signed document. Given this, some changes to the loan adjustment process may be needed. It is recommended that loan providers have the capacity to make loan increases after-guarantee or disbursement rather than treating the adjustment as a new loan – as this will avoid the need for a new MPN. In those cases where an increase cannot occur, a lender or guarantor can set the adjustment up as a new loan on its system yet can note in the loan file or history that the loan is an adjustment to a prior loan thus a new note was not secured. Claims examiners should be aware of this practice as the system may reflect a need for two notes, only a single note will be included in the claim package. 1.5.5 Exchange of Certification Data

The loan process steps and flow of certification information will be based on the processes used by the school. The school must determine the student's eligibility and certify the loan before disbursement. The certification information must be transmitted to the lender or guarantor in paper or electronic form, depending on the school’s process. (Processes like CommonLine are used, thus allowing the school to send data to a central place where the intended party can retrieve this information.) (✏ As described in section 1.5.7, the MPN may or may not accompany the certification information. Upon receipt of the certification information, lenders and guarantors should determine whether an MPN is to be secured or whether such documentation will follow.)

April 10, 2003 1-19


1.5.6 Choice of Lender

To forward the information to the appropriate party, the student's choice of lender must be known. Alternatively, if the school forwards all certification data to the guarantor, the lender code may be left blank and the guarantor will solicit such information from the borrower. The choice of lender may be obtained from the MPN or from another form. In many cases, the student's lender preference is determined via the award letter or other document. Additionally, if the student has prior loans, the previous lender may be used if one is not specified on the award letter or as part of another MPN process. Prior lender information is provided to the school via the national student loan data base. (✏ Procedures should be in place to determine the borrower’s choice of lender thereby ensuring that certification information is transferred to the desired party. On an exception basis, the choice of lender may change following the initial loan. Schools and providers should develop the best approach for addressing these exceptions.)

1.5.7 Signing the MPN

For students attending four year and graduate schools, or other schools that are designated by the Department, the student need only complete and sign a single MPN for all loans required by the student for a maximum 10-year period. For all other students, the student must sign an MPN for each award year. The MPN is most efficiently used when the lender or guarantor prints and collects the MPN after receipt of a school certified loan amount. The school may, however, elect to play a role in securing the completed MPN from the student. In such cases, upon receipt of the completed MPN, the school would send the document to the lender or guarantor, depending on the process used by the school. In order to disburse a loan, the lender must obtain a signed MPN. There are several options for providing the student with the MPN:

➱ The student may start the MPN process by securing an MPN from a school, lender, or guarantor.

➱ The school may provide certification of eligibility to the lender or guarantor who will in turn provide the MPN to the student for signature.

➱ The school may include the MPN in the aid materials sent to the student early in the process.

➱ The school may provide the student with the MPN once the school has an indication the student desires a loan.

April 10, 2003 1-20


1.5.7 Signing the MPN – continued In any of the above scenarios, the student may secure a paper version of the MPN or may also receive an electronic copy of the MPN. Any of the information included in the borrower section of the MPN may be prefilled by the school, lender or guarantor. The instructions for the form advise the applicant to make any adjustments to the pre-filled data. (✏ Schools and their loan partners should determine how MPNs will be distributed and collected from Stafford Loan borrowers.) 1.5.7.1 Securing References on the MPN Under the current Stafford Loan origination process, references are collected each time the student completes a Stafford Loan Application/Promissory Note and in the exit conference. This approach will continue for students completing a new Note before each loan. For students participating in the paperless serial loan process, references are collected twice under the MPN process -- once during the initial loan process on the MPN and again at the exit conference. As is the case today, lenders may also choose to solicit confirmation of reference information through periodic mailings to the borrower. (✏ Lenders should examine their reference collection procedures.) 1.5.8 Loan Disbursement Once the student has signed the MPN, the school certification is complete, and the guarantor and lender approval functions are complete, the loan is ready for disclosure and disbursement. The MPN embeds an authorization by the borrower for loan funds to be disbursed via electronic funds transfer and Master Check. No additional documents are required from the borrower. (✏ Schools, lenders and guarantors should be aware of the requirements of their respective loan partners.) 1.5.9 Post-disbursement Provisions Upon disbursing a loan, two servicing features are available under the MPN. First, if the borrower has any prior outstanding FFELP loans, the lender must grant an in-school deferment on such outstanding loans (if the student is otherwise eligible for the deferment) through the anticipated graduation date as reported on the current loan by the school. The borrower’s signature on the MPN provides for deferment request. If the borrower is ineligible for a

April 10, 2003 1-21


1.5.9 Post-disbursement Provisions - continued deferment, the lender must, in the case of an SLS loan, offer the borrower the option of aligning the repayment due dates. In this case, the lender grants the borrower administrative forbearance and postpones the repayment of the borrower’s SLS loans through the end of the grace period on the borrower’s Stafford Loan. In the case of any outstanding subsidized Stafford Loans that is not eligible for deferment and in the case of an unsubsidized Stafford or SLS loan that is granted a deferment through the anticipated graduation date, the lender may grant forbearance and postpone the repayment of the loan(s) through the end of the grace period on the borrower’s current loan. The second servicing feature pertains to the treatment of interest on unsubsidized loan. If the borrower wants to make interest payments during the in-school period, the borrower can advise the lender of his or her interest by checking box 12 on the MPN. Any interest which accrues during the in-school period and grace period that is not paid by the borrower may be capitalized in accordance with the terms of the Note. As part of the disclosure process, the lender should notify the borrower of the procedures for making interest payments and the lender’s policy for capitalizing interest. (✏ Lenders should review their disclosure procedures and make adjustments as necessary.)

1.5.10 Serial Loan Origination The serial loan process is described as either the standard serial loan process or the paperless serial loan process. 1.5.10.1 Standard Serial Loan Origination For students attending a school not designated by the Secretary as eligible to use the paperless serial loan process, the serial loan process mirrors the initial loan process described in the prior sections. For these schools, the MPN serves as an annual note – the MPN is not a multi-year note. This annual note process is called the standard serial loan process. For a student attending a school that uses the standard serial loan process, signing a new Note is required, but if there is a mistake and the student receives a loan that is otherwise valid without signing the new Note, the loan is still enforceable. For lenders and guarantors, it will be necessary, upon receipt of certification data from a school, to determine whether a new Promissory Note should be secured based on the school code. If so, a Note is secured under the same process described previously. If not, serial loans may be made under the Paperless serial Loan Process described in section 1.5.10.2. (✏ Lenders and guarantors should develop such tracking criteria.)

April 10, 2003 1-22


1.5.10.2 Paperless Serial Loan Process For a student enrolled in a four-year or graduate school or other school designated by the Department of Education, the Paperless Serial Loan Process is used for serial loans. From the student's perspective, the process is paperless. If the school is electronic, its process is also paperless. Once such a student has entered into an MPN, the serial loan process can be used -- regardless whether enrollment was consecutive or whether the student entered repayment then returned to school -- provided the MPN has not expired. (See Term of the MPN, section 1.6.) Serial loans are requested in much the same way as the initial loan. Serials can be requested via the FAFSA or other school specific form (e.g., the award letter). Once loan eligibility is determined, eligibility information is transmitted to the lender or guarantor. Non-electronic schools will use the new paper form to provide the school certification. If the school is electronic, the serial loan certification is transmitted using existing processes. (As with the initial loan, electronic schools do not need to complete the paper certification form.) Guarantors and schools need the capability of directing serial loan certifications to the lender indicated on the MPN. Alternatively, if a school directs all certifications to the guarantor, the lender code may be left blank and the guarantor will solicit such information from the borrower. Lender information is included on the National Student Loan Data Base and can be tracked by the school or requested as part of the award letter process. Additionally, if the student changes his or her choice of lender, this information would be communicated by the borrower, guarantor, or lender to the school. (✏ Schools should identify their lender tracking preferences.) Serial loans under the MPN are guaranteed and disbursed using the same procedures as in place today. Once the school certification is received by the lender or disbursing agent and the loan is approved, guaranteed, and disclosed, the loan may be disbursed. Delays caused by the distribution and collection of Promissory Notes are eliminated in the serial loan process. (Lenders and guarantors should be certain MPN tracking and serial loan expiration tracking procedures are in place. If applicable, such procedures should be coordinated with the servicer. Additionally, the lender must ensure that serial disclosures are provided.) In most cases, the student will enter into an MPN with a lender who will in turn use the same guarantor for all loans made under the MPN. However, the MPN is an agreement between the student and lender, and the terms of the contract are not limited to a particular school or particular guarantor. ✏ If there is a change in guarantor, the lender must be certain the new guarantor has the information required to process the loan guarantee. Much of this information is provided on the MPN previously signed by the borrower.

April 10, 2003 1-23


1.5.10.2 Paperless Serial Loan Process – continued If the student changes his or her lender preference, a new Note is generally required. In this circumstance the origination process mirrors the origination process described in prior sections. If, however, one or more loans previously secured by the borrower have been sold to a new holder, the new holder, rather than the original lender, may originate serial loans to the borrower under the existing MPN. Whether the new holder will make loans depends on the loan sale agreement between the seller and purchaser as described in greater detail under the loan sale section of this guide.

April 10, 2003 1-24

Overview of the MPN Terms

1.6 Term of the MPN The MPN may be used for one or more loans covering one or more loan periods. For students enrolled in short-term or two-year schools unless otherwise approved by the Department to use the paperless serial loan process, the MPN only covers a single loan period. For students attending four-year and graduate schools or other schools designated by the Department, serial loans may be made as long as the origination period has not expired. (The origination period is the time frame outlined in the Note or lender’s procedures under which serial loans may be made without the borrower signing a new MPN. The details for revocation are described below. The MPN is not terminated upon expiration of the origination period. The terms and conditions of the loans already disbursed continue to be in full force and effect. However, future loans cannot be made after that date. The maximum term of the origination period must be a date certain that the lender can determine during the initial loan process that will not change. There are two revocation categories -- automatic and lender option. The following events will automatically cause the option to disburse additional loans under the MPN to expire. The events are detailed in the MPN. If the revocation option is exercised and the student applies for a new loan, a new MPN would be initiated. The option to disburse additional loans under the MPN will expire under the earlier of the following conditions:

➱ Upon written notice by the borrower to the lender;

➱ 12 months after the Note was signed if no disbursements have been made; and

➱ 10 years from the date the borrower signed the MPN (if any portion of a loan is made on or prior to 10 years from the signature date, remaining disbursements of that loan can be made).

Lenders or their disbursing agents will be responsible for monitoring these events. A guarantor could also elect to assist in this process. (✏ Lenders and guarantors should be certain tracking systems are in place to determine whether the option to disburse future loans has expired.) There are other conditions under which the lender may revoke the option to make another loan under the MPN. As with the current process, the student must meet the statutory, school, guarantor, and lender eligibility criteria before the disbursement of any loan under the MPN. Examples of such conditions include:

➱ In the event there is a change in circumstances such as: bankruptcy, delinquency, or excessive debt; or

April 10, 2003 1-25

Overview of the MPN Terms - continued

1.6 Term of the MPN - continued

➱ The loan requested is being made under the Lender of Last Resort Program.

➱ The loan requested is being made by a student attending a foreign school. Note: The borrower may fail to complete the signature date on the MPN or provide an invalid date. If this situation occurs, lenders should use the “date received” as the borrower signature date.

April 10, 2003 1-26

Description of Loan Disclosures

1.7 Loan Disclosures As part of the MPN packet, the borrower receives the Promissory Note, Rights and Responsibilities statement, and borrower instructions. Each of these provides the borrower with important information about the loan terms and conditions. As with the current process, a loan-specific disclosure is provided and includes borrower specific loan disclosures such as loan amount, interest rate, loan fees, and cumulative indebtedness. This guide includes sample loan-specific disclosures for use with the MPN. This section of the guide discusses the disclosure process in detail.

1.7.1 Loan-specific Disclosures Nearly all of the disclosure requirements established by Section 433 of the Higher Education Act or the FFELP regulations are included in the standard MPN and the Rights and Responsibilities statement. The remaining mandated disclosure items are specific data elements (e.g., current interest rates, fee amounts) that are included in the loan-specific disbursement disclosure document sent at or before the first disbursement of each loan. As with the current process, the loan-specific disbursement disclosure is issued by either the lender or guarantor, and may be mailed either directly to the borrower or delivered to the school for dissemination. As with the current process, the borrower is not required to sign and return the loan-specific disclosure. The borrower’s acceptance of the loan funds is his/her agreement to the terms of the Note. The Task Force has developed prototypes of loan-specific disbursement disclosures needed to comply with the provisions of Section 433 of the Act. The initial loan-specific disbursement disclosure provides for flexibility for each lender or guarantor to test new options for disclosing important loan information to student borrowers. Not only may the content vary, but the frequency and format should also be tested to improve the quality of communication to borrowers. The initial disclosure can serve as a vehicle to communicate lender policies on a number of issues including term of loan, capitalization of interest policies, and to provide information about customer service access and other unique loan benefits and services.

1.7.2 Serial Loan Disclosures If the borrower is signing a new MPN, the borrower will receive the same disclosures as described in the above section.

April 10, 2003 1-27

Description of Loan Disclosures - continued

1.7.2 Serial Loan Disclosures - continued For loans made under the paperless serial loan process, the subsequent loan-specific disbursement disclosure will be issued at or before the first disbursement of the loan. The procedures for delivering this form to the borrower mirror the procedures outlined above for the initial loan. The prototype loan-specific disclosures developed by the Task Force focus on issues most applicable to serial loans made under the paperless serial loan process. Information such as loan indebtedness under the MPN, lender policies, and previously undisclosed loan terms are provided in this document. It is expected that by the academic year when serial loans are being made under the paperless serial loan process, lenders and guarantors will have modified their existing loan-specific disclosures (see prototypes included in Section 4). Certainly, lenders may opt to add this information before the second year in which the MPN is in use. In addition to the loan-specific disclosure, the borrower will receive Plain English Disclosure text. This will include key disclosure information provided on the MPN and the Rights and Responsibilities statement issued with the initial loan. Additionally, new loan terms and conditions will either be disclosed on the serial loan-specific disclosure or Plain English Disclosure. The Plain English Disclosure text can be on the reverse side of the loan-specific disclosure or included with this form. (✏ For simplicity, lenders and guarantors may elect to provide the Plain English Disclosure text with all loan-specific disclosures regardless of whether or not the loan is an initial loan or serial loan. This will provide “double the information” for students who just completed the MPN and secured a new loan packet. ) 1.7.3 Annual Borrower Statement In addition to the loan disclosure, lenders or guarantors may elect to provide an annual notice to the borrower that provides an account status. This annual notice may request updated information from the borrower or could serve as an "informational purposes only" document. A model of the annual disclosure is included in the informational guide. (✏ Lenders and guarantors should review their existing disclosures -- loan specific and annual account statement and make any changes they deem necessary to support the MPN.)

April 10, 2003 1-28

Loan Servicing Overview

1.8 Loan Servicing Servicing of an MPN loan follows the same processes in place today for a loan made under an annual Application/Promissory Note. The statutory provisions in effect at the time each individual loan is made determines the interest rate, deferment, and other features applicable to each loan made under the MPN. The MPN includes the option for borrowers to include an e-mail address. Use of this field in origination and servicing is optional. The e-mail address is not a required contact for skip tracing purposes nor is a lender/servicer required to initiate skip tracing if the e-mail address is invalid. 1.8.1 Treatment of Interest If a borrower receives unsubsidized loans under the MPN, the borrower has the option to pay the monthly interest that accrues or to defer the interest payments. The front of the MPN states that unless the borrower makes interest payments, the interest payments will be deferred. This policy is also restated in the loan-specific disclosure statement. If interest is deferred, the lender may capitalize the interest no more frequently than quarterly. (✏ Lenders should use this opportunity to examine unsubsidized interest student billing/capitalization procedures.)

The MPN process does not impact the tracking or reporting of interest payments for student loan interest deductibility. 1.8.2 Refunds and Cancellations Refunds or cancellations of MPN loans are posted to the applicable loan, as under the current process. Like today, loans may not generally be sold until the loan is fully disbursed. A loan is considered fully disbursed under an MPN when all disbursements applicable to the loan have been completed. The lender does not need to wait until all borrowing under the MPN has been completed before selling the loans. 1.8.3 Credit Bureau Reporting The MPN does not impact existing credit bureau reporting requirements.

April 10, 2003 1-29

Loan Servicing Overview - continued

1.8.4 Conversion to Repayment Loans made under an MPN begin repayment following the applicable grace period for Federal Stafford loans. If the borrower has prior loans, he/she may postpone the repayment of the prior loans until the expiration of the grace period on the new loans. To the extent practicable, all loans made to a borrower under an MPN and any prior loans should be serviced as a single account with a single payment for the borrower. 1.8.5 Deferment Loans made under the MPN are eligible for deferment based on the rules applicable to the individual loans. Except where prohibited by regulation, any postponement of repayment of one of a borrower's loans also should be extended to any other loans the borrower has under the MPN. 1.8.6 Loan Collection Loan collection under an MPN follows existing procedures. If the lender groups loans for a borrower into a single repayment record, loans within that record would be grouped for collection purposes. As is currently the case, lenders are encouraged to service all loans for a borrower as a single account. 1.8.7 Payment in Full Upon payment in full of a loan, the lender notifies the borrower that the loan is paid in full. If all loans made under the MPN are paid in full, the lender notifies the borrower of the paid in full status and, as provided in the Promissory Note, the lender may return the MPN or provide the borrower with other written notice. (✏ Lenders should examine procedures for notifying the borrower of a paid in full loan.)

April 10, 2003 1-30

Claim Filing Procedures

1.9 Claim Filing Under the MPN As with the original common Stafford/SLS/unsubsidized Stafford Application/Promissory Note, the claim procedures must be able to accept a true and exact copy as a borrower may default on one but not all loans made under an MPN. Such an approach is consistent with the procedures outlined in the Common Manual. Use of the true and exact copy is also the process to be used to address some of the unique aspects associated with loan sales. If a guarantor closes or if a borrower changes schools, it is possible this will result in a change in the loan guarantor for serial loans. As noted earlier, accommodating this option will allow the student to continue to borrow with the same lender (thus allowing unity of servicing) and avoid delays in the process created by the dissemination and collection of Promissory Notes. Exceptional circumstances like these will also add to the use of the true and exact copy of the MPN. To evaluate the incidence of circumstances under which a claim is filed with a copy of the Note, one must consider the profile of a typical defaulter. Students attending schools offering shorter term programs have a higher default rate than students attending four-year and graduate schools. Since students attending shorter term schools will be signing a new note each year (see Section 1.5.4 regarding discussion on loan adjustments), the issue of Note copies is generally eliminated. Of the four-year and graduate school population, there is a higher default rate for students who attend for one year then fail to re-enroll. In these cases, only a single loan will be made thus the original MPN will be filed. Copies of Notes may be filed with a claim in cases where the student attends a four-year or graduate school, receives multiple loans, and actions occur which cause a split status/ownership of those loans. Copies of Notes will be the exception during the claim process. Another question regarding claims is how the guarantor can track loans to an MPN. This is important for loans made during the transition period. For periods of enrollment beginning before July 1, 1999, the guarantor can assume a loan specific Note must be filed with each claim on any loan made for periods before the implementation date. Additionally, the Dear Colleague requires use of the MPN for loans certified on/after July 1, 2000 or any loan for a period of enrollment beginning on/after that date. Again, guarantors can assume any loan made on/after the final implementation date is made under an MPN. A third proposed check point is to examine the disbursement date of each loan to be certain the disbursement is on/after the date the MPN is signed. The CommonLine procedures will indicate whether a current note or MPN has been signed -- this will likely only be captured during the transition period.

April 10, 2003 1-31

Loan Sale Considerations

1.10 Loan Sales As with the current process, a loan can generally be sold upon full disbursement. In developing the MPN, a structure was sought that would recognize the current marketplace and economical and logistical considerations relating to loan sales and transfers. With loan sales, lender consolidation, and guarantor consolidation, the MPN process must ensure that there is flexibility in this process while also encouraging consistency of servicing and a single holder concept.

1.10.1 Who Holds the MPN? Who retains the original MPN in the case of a loan sale (the originating lender or the new holder) is a contract issue and should be negotiated by the two parties (just as lenders and secondary markets negotiate who retains the original Application/Promissory Note in the case of a loan made under the three-in-one (and now two-in-one) Application/Promissory Note). State laws and provisions of financings may dictate who retains the original Note, making this a contract provision. 1.10.2 Who Will Originate Future Loans? Generally under the MPN, if loans are sold to a new holder, the originating lender will continue to serve the borrower and provide any additional loans the borrower may need. Where loans are sold and additional loans are made, the originating lender should make every effort to transfer the new loans to the holder of the existing loans. This process mirrors the approach followed under the Stafford Loan Application/Promissory Note. As an alternative, if one or more of a borrower’s loans are sold to a holder who is an eligible lender, and the originating lender no longer intends to make serial loans, the new holder may acquire the right to offer serial loans to the borrower under the existing MPN. An additional MPN is not necessary. This alternative might arise in circumstances including lender mergers and acquisitions, as well as when the original lender is no longer making FFELP loans. When the right to offer serial loans is transferred to a new holder, the loan sale agreement must document this transfer. Upon acquisition of the borrower’s existing loans, the borrower is notified of this transfer and his or her option to use the new lender or to select another FFELP loan provider. The borrower may use the holder that has acquired the right to offer new loans under the existing MPN or elect to secure loans from another FFELP loan provider.

April 10, 2003 1-32

Section 2


PROCESS FLOWS

April 10, 2003

Student submitsFAFSA

Master Promissory NoteProcess Flow

Student/Borrowerreceives SAR School

receives ISIR

School determinesfinancial aid award

Studentaccepts awardand chooses

lender

School initiates loancertification process

School sendscertification to Lender

School sendscertification to

Guarantor

Lender Flow

Guarantor Flow

Guarantor andLender Loan

Approved

A

C

B

D

Year 1 Serial Years

Start

Loan disbursed viacheck, mastercheck or EFT

Same lender?

IsSchool Eligible for

Paperless Serial LoanProcess?

Yes

New MPNRequired, Return

to Point “C”No

No

Yes

Funds Released toStudent End

E

MPN may be issued to borrowerat points A, B, C, or D.

Borrower control for adjustmentsto loan amount can occur at any/

all points A-E.

Disclosure may occur at points Dand/or E.

Section 3


IMPLEMENTATION CHECKLIST

April 10, 2003

Implementation Checklist for Schools

Evaluation ✔ If you are a four-year or graduate school (or other school determined by ED to be eligible to

use the paperless serial loan process) determine if you will permit serial loans under one MPN or if you wish to be an exception and require a new MPN each year.

✔ If you wish to be an exception and require annual MPNs, contact your loan partners

(guarantors and lenders you commonly use). Options such as CommonLine can be used to allow you to indicate that you want a new Note for all or some of your students.

Process Flow ✔ Examine existing FFELP processing flows to determine any necessary changes or whether a

new flow may be preferable.

Consumer Information ✔ Evaluate consumer information regarding financial aid available. You may elect to modify

your student loan information to reflect the MPN process, if applicable. ✔ Make revisions to entrance counseling materials as necessary to incorporate information

about how the MPN will be used on your campus and to be certain student is advised that use of MPN could differ if student enrolls at another institution.

Loan Requests ✔ Evaluate processes under which a student may request a loan. Select one or more options to

be used for the MPN process. ✔ Ensure tracking procedures are in place to identify when a borrower has requested a loan. ✔ Evaluate processes for obtaining the requested loan amount (subsidized and unsubsidized)

from the student since the MPN does not request the student to identify a specific loan amount.

April 10, 2003 3-1

Implementation Checklist for Schools - continued

Promissory Notes ✔ Identify preferences for distribution and collection of promissory notes, if desired. ✔ If your school will distribute promissory notes, be certain to flag students eligible for serial

loans. ✔ If your school will not distribute promissory notes, arrange for your guarantor(s) or lender(s)

to send the MPN to the students upon receipt of the loan certification data, if applicable.

Application Certification ✔ Determine loan amount to be certified. Under the MPN, the school may certify the loan

amount the student requested (within applicable limits) rather than the maximum loan eligibility if requested loan amount is known. This process may reduce potential adjustments later in the loan process.

✔ Evaluate School Certification data exchange process. If currently using paper, consider

whether electronic processing is an option for your school. ✔ To be certain certification data is sent to the student’s choice of lender, determine tracking

procedures. Your school may obtain this information from the student on the award letter, the ISIR, from NSLDS or from the guarantor. Alternatively, if you forward all certifications to the guarantor, the lender code may be left blank and the guarantor will secure this information.

Data Fields ✔ Review School Certification data currently provided -- electronic or paper -- and make

necessary adjustments to meet the format of the MPN certification method.

Control Points ✔ Review and confirm borrower control points associated with your institution. Consider

implementing a letter to students explaining procedures for canceling loan amounts, lowering loan amounts, or returning disbursed funds.

April 10, 2003 3-2

Implementation Checklist for Schools - continued

Disbursement of Proceeds

✔ If you are not participating in EFT, consider this option to improve loan delivery under

MPN. ✔ If you do not want loans disbursed via EFT, be certain your loan partners understand you or

the student have a preference for either individual checks or Master Check.

Loan Adjustments ✔ Review loan adjustment procedures with primary loan partners. ✔ Review internal systems to be sure they properly identify and track changes in loan amounts

under the MPN process. This includes discerning between adjustments made to existing loans already guaranteed and to new loans if your school is certifying serial loans.

April 10, 2003 3-3

Implementation Checklist for Lenders

Process Flow

✔ Examine existing processing flows to determine the necessary changes or whether a new flow may be preferable.

✔ Review school preferences for processing flows. Will the school transmit certification data via paper or electronic process? Will the school distribute MPNs or will you or the guarantor provide this function? Will the borrower return the MPN to the school, guarantor or you? Will the school be certifying the requested loan amount or eligible amount?

The answers to these questions will help you identify the steps you must take upon receipt of school certification information.

✔ Understand school disbursement preference in terms of EFT, Master Check, or individual check. Consider EFT if you are not currently using this disbursement method. EFT is becoming very popular to schools and will enhance the Paperless Serial Loan Process.

✔ For borrowers eligible for the paperless serial loan process, consider procedures to replace any annual serial loan application/note mailings with a letter.

✔ Implement a procedure to identify when you have an MPN and when you need to obtain an MPN before making disbursements. Variables to consider include the type of school, the borrower's signature date, and the MPN revocation date.

✔ For processing loans involving schools that are not electronic, implement procedures to match school certifications to MPNs or system loan records, in the case of serial loans made under the Paperless Serial Loan Process.

Data Fields

✔ Modify system record layouts as needed to reflect data field changes.

✔ Implement tracking procedures to record the MPN signature date and MPN revocation date.

April 10, 2003 3-4

Implementation Checklist for Lenders - continued

✔ Examine capabilities for receipt of school certification information. To maximize the

service you provide to students and schools, consider using an electronic process if you are not already electronic.

School Tracking

✔ Implement a table of eligible four-year and graduate schools (and any other school designated by ED) to help determine which schools are eligible to use the paperless serial loan process.

Control Points

✔ Select borrower control points to be offered. Consider implementing a letter to be sent to students at or prior to disbursement explaining procedures for canceling loan amounts, lowering loan amounts, or returning disbursed funds.

Loan Adjustment

✔ Review loan adjustment procedures with school clients.

✔ Review loan adjustment procedures with other primary partners.

✔ Consider a process for deleting non-disbursed loan records to be used when no disbursement has occurred within 12 months of the date the borrower signed the MPN.

Bankruptcy

✔ Determine whether your policy requires a procedure to obtain a new MPN before making loans to a borrower who has filed a bankruptcy petition to ensure new loans become post-petition debts.

Disclosure

✔ Evaluate model loan-specific disclosure statements to be used with each loan disbursed under the MPN. The loan-specific disclosure statement, coupled with the information provided in the loan package (initial loan) and standard serial loan disclosure statement, must comply with the provisions of the law. Modify your existing forms as necessary such as by incorporating the Plain English Disclosure text.

April 10, 2003 3-5

Implementation Checklist for Lenders - continued

✔ Determine the process for facilitating interest payments for borrowers who request to make

interest payments on their unsubsidized loans during school. Such information should be included on the disclosure.

Updating Borrower Data

✔ Consider periodically soliciting updated reference information from borrowers (see sample

Borrower Record Update Request form), or provide an opportunity for borrowers to update reference information.

✔ Implement procedures to examine and update the borrower's address, if more current, upon receipt of school certification data.

Loan Sale and Assignment

✔ Review existing endorsement and contract language for loan sales. Consider

recommendations contained in Section 6.

Claim Filing

✔ Evaluate and modify claim filing procedures to identify when a claim is filed with the MPN or a true and exact copy of the MPN, where applicable.

Paid-in-full Loans

✔ Evaluate procedures for notifying borrowers when a loan is paid in full. Develop a written notice to be used in instances where loans under the MPN payoff at different points in time.

April 10, 2003 3-6

Implementation Checklist for Guarantors

Process Flows ✔ Examine existing processing flows to determine if any changes or enhancements need to be

made to your process or operating system. ✔ Work with schools and lenders to ensure that current processing flows are modified or

changed where applicable to support the MPN process. This includes proactive communication about any procedure changes to how loan guarantees are processed including:

How MPN is distributed, and by whom. Where the borrower sends the MPN.

Data Fields and Flows

✔ Evaluate and determine what processing and systemic changes need to be made to support

the unique identification of the MPN at the loan level.

Capability to distinguish between an annual note and a serial MPN, to recognize MPN paperless serial loans as they are received both electronically and manually.

Capturing of the borrower’s signature, date, and MPN expiration date (if desired). ✔ Evaluate and design a method for uniquely tracking schools eligible for the paperless serial

loan process. This includes the ability to add, modify, or delete institutions readily as eligibility changes.

✔ Ensure that your school-based software products (where applicable) can fully support the

MPN process.

Loan Adjustments

✔ Evaluate and review loan adjustment procedures with schools and lenders to ensure effective

and proper follow up based on Borrower Control Point options selected. This includes coordination with CommonLine and NSLDS where applicable.

✔ Examine how canceled and paid in full loans are updated on systems to make sure that each

loan under the MPN is tracked uniquely.

April 10, 2003 3-7

Implementation Checklist for Guarantors - continued

Claim Processing ✔ Evaluate and modify claim review procedures to allow for claim filing with the MPN

scenarios. This includes processing of “true and exact” copies of the note where applicable.

Disclosures ✔ Ensure that any changes in the content and delivery of disclosures are provided (where

applicable) and consistent with the MPN process.

April 10, 2003 3-8

Implementation Checklist for Secondary Markets

Loan Sale and Assignment

✔ Review existing endorsement and contract language for loan sales. Consider recommended loan sale and endorsement language included in Section 6 of this guide.

✔ Modify portfolio record review procedures to reflect whether the seller will assign the original MPN or a true and exact copy of the original MPN. Modify any applicable contract provisions.

✔ Work with debt holders to clarify use of a true and exact copy of an MPN regarding perfection of a security interest in loans.

✔ Review the Implementation Checklist for Lenders regarding loan servicing items.

April 10, 2003 3-9

Section 4


SAMPLE DISCLOSURE STATEMENTS

April 10, 2003 Please note: Sample #4 of the sample disclosure statements is provided in hard-copy form only.

Section 5


EDITS

April 10, 2003

Edits

This section covers information on edit guidelines for use when processing loans made under a Master Promissory Note (MPN). Processing Electronic Information For schools with electronic capabilities, it is recommended that lenders and guarantors use the file formats established for the CommonLine system. See the NCHELP FFELP CommonLine Network Application File document for further information. Processing Manual Information Although the MPN process is most efficient when information is exchanged electronically, the following guidelines are recommended when processing loans for students attending schools without electronic capabilities.

Master Promissory Note and School Certification Manual Edit and Follow-up Guidelines

Follow-up Instructions: Code 1 If data is missing or invalid, follow-up is required which may include, but is not

limited to: • a telephone call by the lender or guarantor that is processing the document or data

to the school, guarantor, lender or borrower to obtain the missing information, or • substituting data based on previous loan application/notes, MPNs or system

records. The source of information must be documented. Written confirmation is not required.

Code 2 Verbal confirmation through a telephone conversation may not be used. If a signature is missing (borrower or school), a promissory note or certification form must be returned for the signature.

April 10, 2003 5-1

Edits - continued

Master Promissory Note Data Element Item

# General Edit Requirement and Follow-up Instructions

Last Name 1 Code 1 • Hyphens, apostrophes, and spaces are acceptable data. • Periods and commas should not be used. • Professional and educational titles should not be considered part

of the name. • The first character of the last name must be alphabetic and cannot

be blank. Example: SMITH JR (John W. Smith, Jr., M.D.)

First Name 1 Code 1 • Hyphens, apostrophes, and spaces are acceptable data. • Periods and commas should not be used. • Professional and educational titles should not be considered part

of the name. • If student has no first name, use NFN in first name field. Example: JOHN (John W. Smith, Jr.)

Middle Initial 1 Code 1 Blank field indicates no middle initial.

Social Security Number

2 Code 1 • Must be numeric and nine digits. • Must be a valid SSN (not a pseudo SSN). • Must not begin with an 8 or 9, and the first three characters must

not be 000. Permanent Street Address

3 Code 1 • P.O. Box or Rural Route number is acceptable.

City 3 Code 1 • If the address is in a territory or foreign country, both the city and

the territory or country name should appear in this field, separated by a comma and a single space. If applicable, a foreign postal code may also be included.

Example: LONDON, ENGLAND State 3 Code 1

• Two character state abbreviation • If the address is in a territory or foreign country, the two-

character state abbreviation for that location should appear in this field.

April 10, 2003 5-2

Edits - continued

Zip Code 3 Code 1

• Five-digit zip code of the borrower's permanent home address. • If the address is in a foreign country, fill the field with nines

(99999). Zip Code Suffix 3 Code 1

• Four-digit zip code extension of the borrower's permanent home address.

• If the suffix is not available, fill the field with zeros. • If the address is in a foreign country, fill the field with nines

(9999). Home Telephone Number

4 Code 1 • Three-digit area code and seven-digit telephone number. • No follow-up required if borrower indicates “N/A” (or similar

phrase). Date of Birth 5 Code 1

• Must include month, day and year. • Must be in the past.

Driver’s License, State, Number

6 Code 1 • No follow-up required if the student indicates “N/A” or similar

phrase in this field. E-mail Address 7 Code 1

• No follow-up required if blank. Lender Name, City, State and Zip Code

8 Code 1 • First-time borrowers: If blank and Item 9 (lender code) is blank,

the student must specify a lender. If this item is blank and Lender Code (Item 9) is completed, the guarantor or lender may insert/assume the Lender Name based on the Lender Code.

• Serial borrowers: If blank, the guarantor or lender may assign the borrower to the lender which holds the borrower's most recent loan. The borrower must be notified of the lender assignment and be provided the opportunity to change the designation.

• All borrowers: If the Lender Name (Item 8) does not match the Lender Code (Item 9), the guarantor or lender may use the Lender Name as the correct information and change the Lender Code.

Lender Code, if known

9 Code 1 • The unique identification number assigned by ED to the lender. • If this item is blank or invalid, the guarantor or lender may insert

the Lender Code based on the Lender Name in Item 8.

April 10, 2003 5-3

Edits - continued

References 10 Code 1

• Two complete references with different addresses required. • One reference must be a parent (if living) or legal guardian. • Addresses outside the US are not acceptable, with the exception

of military addresses, US embassy addresses and US territories addresses.

• No follow-up required if the lender or guarantor has complete information from a previous application.

Requested Loan Amount

11 Code 1 • If the borrower does not indicate a requested loan amount, no

follow-up is required and the loan amount defaults to the eligibility amount determined by the school.

• If the requested amount is altered, illegible or if the borrower requests to alter it (increase or decrease), code 1 follow-up is applicable.

Interest Payments

12 Code 1 • No follow-up is required for a blank response. A blank response

indicates that the borrower does not want to pay unsubsidized interest while in school.

Borrower's Signature

16 Code 2 • The promissory note, or a new promissory note must be signed. • An unsigned promissory note may be supplemented with a signed

promissory note to form a completed promissory note. Today's Date 17 Code 1

• Must include month, day and year. • If the borrower did not provide a date or the date is in the future,

the lender may use the promissory note receipt date.

School Certification Data Element Item

# General Edit Requirement and Follow-up Instructions

School Code 1 Code 1 • Six-character identification number assigned by ED to the school. • No follow-up required if code can be determined from

information in item 1.

April 10, 2003 5-4

Edits - continued

School Information (Name, Address, and Phone Number)

2 Code 1 • If blank or unclear, lender or guarantor may use the school code

in item 1 to obtain school name or resolve discrepancy.

Borrower's Last Name

3 Code 1 • Hyphens, apostrophes, and spaces are acceptable data. • Periods and commas should not be used. • Professional and educational titles should not be considered part

of the name. • The first character of the last name must be alphabetic and cannot

be blank. Example: SMITH JR (John W. Smith, Jr.)

First Name 3 Code 1 • Hyphens, apostrophes, and spaces are acceptable data. • Periods and commas should not be used. • Professional and educational titles should not be considered part

of the name. • If student has no first name, use NFN in first name field. Example: JOHN (John W. Smith, Jr.)

Middle Initial 3 Code 1 Blank field indicates no middle initial.

Social Security Number

4 Code 1 • Must be numeric and nine digits. • Must be a valid SSN (not a pseudo SSN). • Must not begin with an 8 or 9, and the first three characters must

not be 000. Permanent Street Address

5 Code 1 • P.O. Box or Rural Route number is acceptable.

City 5 Code 1 • If the address is in a territory or foreign country, both the city and

the territory or country name should appear in this field, separated by a comma and a single space. If applicable, a foreign postal code may also be included.

Example: LONDON, ENGLAND

April 10, 2003 5-5

Edits - continued

State 5 Code 1

• Two character state abbreviation • If the address is in a territory or foreign country, the two-

character state abbreviation for that location should appear in this field.

Zip Code 5 Code 1 • Five-digit zip code of the borrower's permanent home address. • If the address is in a foreign country, fill the field with nines

(99999). Zip Code Suffix 5 Code 1

• Four-digit zip code extension of the borrower's permanent home address.

• If the suffix is not available, fill the field with zeros. • If the address is in a foreign country, fill the field with nines

(9999). Telephone Number

6 Code 1 • Three-digit area code and seven-digit telephone number. • No follow-up required if borrower indicates “N/A” (or similar

phrase). Date of Birth 7 Code 1

• Must include month, day and year. • Must be in the past.

Borrower E-mail Address (optional)

8 Code 1 • No follow-up required if blank.

Lender Code/Name

9 Code 1 • Six-character identification number assigned by ED to the lender. If this item is blank or invalid, the guarantor or lender may change the Lender Code based on the Lender Name in Item 8 of the MPN.

Grade Level 10 Code 1 • Undergraduate

1 = 1st year (freshman) 2 = 2nd year (sophomore) 3 = 3rd year (junior) 4 = 4th year (senior) 5 = 5th year (undergraduate)

April 10, 2003 5-6

Edits - continued

Grade Level 10 • Graduate or Professional

A = 1st year B = 2nd year C = 3rd year D = Beyond 3rd year

Enrollment Status (Check one)

11 Code 1

Anticipated Completion (Graduation) Date

12 Code 1 • Must include month, day and year. • If the day of the month is missing, the lender or guarantor may

default to the last day of the month. Loan Period 13 Code 1

• Must include month, day and year. Certified Loan Amounts (subsidized)

14a Code 1 • If 14b has a value in it, a blank may be considered "$0".

Certified Loan Amounts (unsubsidized)

14b Code 1 • If 14a has a value in it, a blank may be considered "$0".

Recommended Disbursement Date(s)

15 Code 1 • Must include month, day and year • Guarantors: No follow-up required if blank and the guarantor has

obtained authorization from the school to establish disbursement dates on behalf of the school.

• Lenders: No follow-up required if blank and the lender has obtained dates from the guarantor.

Signature of Authorized School Official

16 Code 2 • Signature is not required for electronically submitted

certifications. Name/Title 16 Code 1

• Printed name is not required if signature is clear. • School official's title is not required.

Date 17 Code 1 • Must include month, day and year. • If the school did not provide a date or the date is in the future, the

lender may use the certification receipt date.

April 10, 2003 5-7

Section 6


SAMPLE LOAN SALE PROVISIONS

April 10, 2003

Sample Loan Sale Provisions

Introduction This document contains recommended sale contract and endorsement language for loans made through the Paperless Serial Loan Process under a Master Promissory Note (MPN). Provisions for Inclusion in Bills of Sale The following is recommended for the inclusion in Bills of Sale:

If any Loans sold by this Bill of Sale were made under a Master Promissory Note: [CHECK 1 or 2 AND 3 or 4] 1. ____ the sale of such Loans includes an assignment of the Seller’s right to offer

future Loans under such Master Promissory Note. 2. ____ the sale of such Loans expressly excludes an assignment of the Seller’s right to

offer future Loans under such Master Promissory Note, and the Seller expressly reserves to itself such right to offer future Loans under such Master Promissory Note. If the Seller reserves to itself the right to offer future Loans, this right is not assignable by the Seller except to the surviving entity following a merger of Seller.

3. ____ the original Master Promissory Note is being delivered to Purchaser. 4. ____ a true and exact copy of the Master Promissory Note is being delivered to

Purchaser. Endorsement Several scenarios exist regarding the endorsement of a Master Promissory Note for loans made under the Paperless Serial Loan Process. Under the first scenario, all of the loans made under that MPN are delivered to the purchaser with the original MPN. Under the second scenario, all of the loans made under that MPN are delivered to the purchaser with a true and exact copy of the original MPN. In both cases, no change is needed in the existing endorsement language used for the sale of loans made under the existing subsidized/unsubsidized Stafford Application and Promissory Note.

April 10, 2003 6-1

Sample Loan Sale Provisions - continued

Under the third scenario, the original MPN is delivered to the purchaser, but the seller is not delivering all the loans made (or that may be made) under the MPN, for example, when the seller sells the first loan under the MPN but retains the right to offer future loans under that MPN. As with the approach used for the existing subsidized/unsubsidized Stafford Application and Promissory Note, the endorsement (blanket or individual) must reflect that the Note is being endorsed only to the extent it evidences the particular loans made under the MPN that are being transferred. The following blanket endorsement language and individual endorsement language is recommended:

Blanket Endorsement:

By signing this endorsement, the undersigned endorses the attached Promissory Note, which is one of the Promissory Notes described in the Bill of Sale executed by [Lender] in favor of [Purchaser]. If the Promissory Note is a Master Promissory Note, the undersigned endorses such Master Promissory Note only to the extent it evidences particular loans that are described in such Bill of Sale. Except as stated in the previous sentence, this is an unrestricted endorsement and without recourse except as provided in the [INSERT NAME OF AGREEMENT] dated __________, 19___ between [Lender] and [Purchaser]. This endorsement may be effected by attaching either this endorsement or a facsimile to each of the notes.

Individual Endorsement:

The undersigned, for value received and pursuant to the terms and conditions of the Loan Sale contract between [Lender] and [Purchaser], hereby endorses all of its rights, title and interest in this Promissory Note which is described in the Bill of Sale executed by [Lender] in favor of [Purchaser] only to the extent it evidences the loan described in such Bill of Sale. Except as stated in the previous sentence, this is an unrestricted endorsement and without recourse except as provided in the [INSERT NAME OF AGREEMENT] dated _____________,19___ between [Lender] and [Purchaser].

Sale Contract It is recommended that the following provisions be added to contracts for the sale of loans made under a Master Promissory Note [note that these provisions may need to be modified based on terminology and layout of the form contract]:

April 10, 2003 6-2

Sample Loan Sale Provisions - continued

If any Loans that are to be sold under this Agreement were made under a Master Promissory Note: [CHECK 1 or 2 AND 3 or 4] 1. ____ the sale of such Loans includes an assignment of the Seller’s right to offer

future Loans under such Master Promissory Note. The Seller agrees that it will not offer or make any future loans under such Note.

2. ____ the sale of such Loans expressly excludes an assignment of the Seller’s right to

offer future Loans under such Master Promissory Note, and the Seller expressly reserves to itself such right to offer future Loans under such Master Promissory Note. If the Seller reserves to itself the right to offer future Loans, such right is not assignable by the Seller except to the surviving entity following a merger of Seller. The Purchaser agrees that it will not offer or make any future loans under such Note.

3. ____ Seller will deliver to Purchaser the original Master Promissory Note for each

such Loan at the time Promissory Notes are required to be delivered by Seller by the terms of this Agreement.

4. ____ Seller will deliver to Purchaser a true and exact copy of the Master Promissory

Note for each such Loan at the time Promissory Notes are required to be delivered by Seller by the terms of this Agreement.

April 10, 2003 6-3

Section 7


COMMONLINE UPDATE

April 10, 2003

CommonLine Update

The CommonLine Workgroup has finalized and released Release 3 of the CommonLine formats available for use in the ‘98-’99 award year. The current CommonLine Release 3 includes changes to the Application Send file, which allows CommonLine partners to transmit application information for guarantee, and to the Application Response file, which allows Service Providers to reply to their partner’s request and to the Change Transaction file, which allows CommonLine partners to transmit loan status changes to previous processed applications. The Workgroup intended these layouts to remain in place and to stabilize the use of CommonLine. No new anticipated releases were scheduled until legislative or regulatory changes (i.e., Reauthorization) required modifications to the layouts or other initiatives such as the Master Promissory Note were implemented. The CommonLine Workgroup has diligently followed the progress of the NCHELP Line of Credit Task Force and the Master Promissory Note proposal. The CommonLine Workgroup is aware of and supportive of the MPN initiative and has performed preliminary work in preparation for approval of the MPN. A sub-committee of the CommonLine Workgroup has recommended changes to the files to allow their use in support of the Master Promissory Note processing scenarios. The CommonLine Workgroup is reviewing the recommended changes in detail and will finalize any changes to the files now that the Master Promissory Note initiative is approved by the Department of Education. The revised CommonLine file specifications will be published in time for the MPN implementation which is currently targeted for July 1, 1999. The following are some of the anticipated changes to the files:

• eliminate the exchange of certain data elements currently required by the Common Application;

• add new data elements currently not required on the annual Application/Promissory Note;

• add a new code to identify the Master Promissory Note; • identify and accommodate the serial loan renewal process; and, • redefine the unique identifier and the loan sequence numbers.

Elimination of Data Element Exchange Data elements not necessary for loan guarantee will be removed from the certification transmission process. These data elements include the student’s cost of attendance, expected family contribution and estimated financial aid. Also, other borrower data elements will be eliminated from the application flow, such as the deferment and EFT questions and borrower requested loan type. Some of these data elements, however, must still be tracked internally by lenders or loan originators.

CommonLine Update - continued

Addition of Data Elements Data elements new to the Master Promissory Note, e.g., e-mail address will need to be added to the Application Send, Response and Change Transaction files. A modification of the Requested Loan Amount field to accommodate the borrower’s request of a specific loan amount or the maximum amount certified by their school will need to be defined. MPN Identifier Code A new code needs to be added to the existing field that identifies which version of the Common Application is being used in order to notify the service provider when a certification is based on a Master Promissory Note or a Common Application. This will allow for the use of the same files (abbreviated) while the Common Application and the MPN are being used concurrently during the transition period. Annual Note vs. Serial Loan Process Identifier A process code will be needed to allow for more school control over the application process. This code will notify the service provider that if a MPN is already in place (if the school is eligible and chooses to participate in the Paperless Serial Loan process), then the service provider may use the existing Master Promissory Note and eliminates needless promissory notes from being sent, completed and returned by borrowers. Unique ID and Sequence Number The use of the unique ID will be linked with each school certification rather than the promissory note, as the school certification is loan period specific while the promissory note may not be (serial loans available to borrowers attending four year and graduate programs). NOTE: As this initiative is finalized, additional CommonLine flows or refinement of the above proposed changes will be developed.

implementation guide · 1.2.1 simplified federal stafford loan note and process for all borrowers...

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