The electronic-signature (e-signature) process reduces paperwork, speeds the delivery of funds, and simplifies the education-loan process for schools, lenders and borrowers. USA Funds® provides answers to your questions about this new option. Select the question to view the answer.
What is an e-signature?
An electronic signature is an electronic
process or symbol that a person uses to show intent to "sign" a legal document,
such as a contract or promissory note. The e-signature option allows
education-loan borrowers to "sign" for their education loans online rather than
by printing a promissory-note signature page, signing it in ink, and sending it
through U.S. mail.
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What are the advantages of using e-signatures?
Because e-signatures reduce paper and eliminate
mail time for loan applications, all parties in the education-loan process can
benefit. Prior to the authorization for e-signatures, a borrower could apply for
an education loan online, but the borrower still had to submit — and the lender
or guarantor had to collect — a piece of paper with the borrower's "ink"
signature. The e-signature method permits a completely online application
process.
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Does USA Funds support multiple e-signature processes?
USA Funds
does not restrict the e-signature process used by its lender customers, and we do not evaluate the lender's e-signature process for compliance with federal requirements. Please see USA Funds' e-signature policy requirements for lenders.
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What e-signature method does USA Funds support for USA Funds-disbursed loans?
For loans disbursed
by USA Funds, we use the "PIN-less" e-signature
process developed by our guarantor servicer, Sallie Mae. This totally online
process allows a potential borrower to use the e-signature process on Stafford,
PLUS and Federal Consolidation-loan promissory notes without having to obtain —
or remember — a Personal Identification Number (PIN).
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How does the PIN-less e-signature process work?
When schools and lenders opt to make this
process available through an online loan application, borrowers may apply for
education loans, read their rights and responsibilities for repaying those
loans, and submit their "signature" electronically. At each step in the process,
borrowers may switch to the traditional ink-signature process instead, if they
choose. Applicants also may print out and review information displayed on each
of the screens, and they are encouraged to print for their records the screen
indicating that their e-signature process was successful.
Unlike e-signature approaches that rely on PINs, the PIN-less e-signature process introduces no new requirements for schools and lenders.
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What are USA Funds' e-signature policy requirements for lenders?
Beginning January 1, 2005, lenders
must retain detailed documentation of the e-signature processes that they use,
as well as documentation of any changes to their e-signature processes,
including the effective date of these changes. This documentation should clearly
describe the process under which individual notes are endorsed.
Unless the lender follows guidelines established in the U.S. Department of Education's Safe Harbor policy for e-signatures, loans are not insured if deemed by a court to be legally unenforceable because of the e-signature process in use at the time the note was endorsed. If, however, a borrower who signed a promissory note through the electronic-signature process offered by USA Funds later challenges the validity of the promissory note, or the U.S. Department of Education determines that the loan is ineligible for reinsurance, because the note was executed using the electronic-signature process offered by USA Funds, USA Funds will not require the lender to repurchase the loan.
For more information about these requirements, lenders should contact USA Funds' policy advisers.
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Does the PIN-less e-signature process offer education lenders a "safe harbor" for loans deemed unenforceable because of their e-signature?
No. The PIN-less e-signature
process does not authenticate the identity of the borrower through a shared
secret or other credential, so it does not satisfy all of the voluntary
standards established in the "Standards for Electronic Signatures in Electronic
Student Loan Transactions" published by the U.S. Department of Education on
April 30, 2001.
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What protections against unauthorized borrowers does the PIN-less e-signature method offer?
The
PIN-less e-signature process provides the same level of protection as the
"ink"-signature method. For loans made under promissory notes signed with
handwritten signatures, there are the following rigorous financial-aid processes
to provide controls that mitigate risks:
- Borrower applies to school.
- Borrower completes Free Application for Federal
Student Aid (FAFSA).
- Borrower completes specific financial-aid forms.
- Borrower and school receive Student Aid Report (SAR).
- School determines financial-aid offer.
- Borrower enrolls in school.
- School certifies eligibility and validates
attendance.
- Loan funds are disbursed to school for delivery to borrower.
These processes and controls, which effectively
authenticate the identity of borrowers under traditional paper-based
loan-delivery processes, continue under the e-signature processes supported by
USA Funds.
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When will the PIN-less e-signature process be available?
The process now is active, following a
successful test in which USA Funds
participated.
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How do lenders begin offering the PIN-less e-signature process?
Lenders that want to offer the
PIN-less method for loans disbursed by USA Funds should contact Elaine Yednak, USA Funds' lender-operations manager, and sign a letter agreeing to the terms of the process. To reach Yednak, call toll-free at 866-329-7673, ext. 1274, or send e-mail to eyednak@usafunds.org.
For lenders that are not interested in offering the process, there are no requirements — the PIN-less process is an "opt-in" service that calls for the lender to act only if the lender chooses to offer it.
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How can I get more information?
School financial-aid administrators should call
their USA Funds Services representative toll-free at (866) 497-USAF
(866-497-8723), option 5. Lenders may contact Brian Allison, USA Funds vice president of
Technology Initiatives, by calling toll-free at (866) 329-7673, ext. 1286.
Borrowers will learn from their schools whether e-signature options are
available as part of their loan-application process.
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