Student Loans and Foreign Schools
Assessing Risks Could Help Education Reduce Program Vulnerability Gao ID: GAO-03-647 July 25, 2003Recent events have increased concerns about the potential for fraud in Education's student loan programs related to loans for U.S. residents attending foreign schools. In 2002, GAO's Office of Special Investigations created a fictitious foreign school that Education subsequently certified as eligible to participate in the student loan program. GAO investigators subsequently successfully obtained approval for student loans totaling $55,000 on behalf of three fictitious students. Over the past decade, Education's Inspector General has investigated many instances of suspected student loan fraud involving individuals applying for loans for purported attendance at foreign schools. The conference report accompanying the 2001 Labor, Health and Human Services, and Education Appropriations Act mandated that GAO examine and report on fraud, waste, and abuse with respect to student loans for Americans attending foreign schools.
Foreign schools offer unique educational opportunities for Americans and help ensure that U.S. students have a wide range of options in pursuing postsecondary education. Almost 70 percent of all U.S. residents receiving Federal Family Education Loan Program (FFELP) funds to attend foreign schools are in medical school and they account for three-quarters of the total loan volume. While some foreign schools participating in the FFELP enroll large numbers of U.S. residents, others enroll only a few, as seen in the table below, which also indicates the countries wherein FFELP loan volume is highest. We found that FFELP is vulnerable to fraud, waste, and abuse in several ways. For instance, many foreign schools do not submit required audited financial statements and program compliance audit reports, which would allow Education to monitor for and detect significant fraud or other illegal acts. For fiscal year 2001, about 57 percent of foreign schools failed to submit audited financial statements, while the vast majority of foreign schools failed to submit program compliance audit reports. Education has taken limited steps to address instances of vulnerabilities to fraud, waste, and abuse. For example, Education has issued a reference guide and conducted training for foreign school officials. However, a number of foreign school officials reported that they had not received training prior to administering FFELP funds. In addition, we found that some foreign school officials are not properly determining and documenting student eligibility for loans; as a result FFELP funds may be provided to students who should not be receiving them. We also found that the on-line training to which Education refers foreign school officials presents information in some cases that is contrary to how foreign schools are to administer FFELP. Education could take additional action to reduce the potential for fraud, waste, and abuse, but will have to address the trade-offs that arise from its actions that may affect student access and burden for various program participants. A comprehensive risk assessment is one method that Education could employ to determine how to balance an appropriate level of oversight with the desire to provide American students access to foreign educational opportunities.
RecommendationsOur recommendations from this work are listed below with a Contact for more information. Status will change from "In process" to "Open," "Closed - implemented," or "Closed - not implemented" based on our follow up work.
Director: Team: Phone:GAO-03-647, Student Loans and Foreign Schools: Assessing Risks Could Help Education Reduce Program Vulnerability
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Report to Congressional Addressees:
United States General Accounting Office:
GAO:
July 2003:
Student Loans and Foreign Schools:
Assessing Risks Could Help Education Reduce Program Vulnerability:
GAO-03-647:
GAO Highlights:
Highlights of GAO-03-647, a report to Congressional Addressees
Why GAO Did This Study:
Recent events have increased concerns about the potential for fraud in
Education‘s student loan programs related to loans for U.S. residents
attending foreign schools. In 2002, GAO‘s Office of Special
Investigations created a fictitious foreign school that Education
subsequently certified as eligible to participate in the student loan
program. GAO investigators subsequently successfully obtained
approval for student loans totaling $55,000 on behalf of three
fictitious students. Over the past decade, Education‘s Inspector
General has investigated many instances of suspected student loan
fraud involving individuals applying for loans for purported
attendance at foreign schools. The conference report accompanying the
2001 Labor, Health and Human Services, and Education Appropriations
Act mandated that GAO examine and report on fraud, waste, and abuse
with respect to student loans for Americans attending foreign
schools.
What GAO Found:
Foreign schools offer unique educational opportunities for Americans
and help ensure that U.S. students have a wide range of options in
pursuing postsecondary education. Almost 70 percent of all U.S.
residents receiving Federal Family Education Loan Program (FFELP)
funds to attend foreign schools are in medical school and they account
for three-quarters of the total loan volume. While some foreign
schools participating in the FFELP enroll large numbers of U.S.
residents, others enroll only a few, as seen in the table below, which
also indicates the countries wherein FFELP loan volume is highest.
Countries with Highest FFELP Loan Volume for Americans Attending
Foreign Schools, Academic Year 2000-01:
[See PDF for image]
Source: GAO analysis of FSA data.
[End of figure]
We found that FFELP is vulnerable to fraud, waste, and abuse in
several ways. For instance, many foreign schools do not submit
required audited financial statements and program compliance audit
reports, which would allow Education to monitor for and detect
significant fraud or other illegal acts. For fiscal year 2001, about
57 percent of foreign schools failed to submit audited financial
statements, while the vast majority of foreign schools failed to
submit program compliance audit reports. Education has taken limited
steps to address instances of vulnerabilities to fraud, waste, and
abuse. For example, Education has issued a reference guide and
conducted training for foreign school officials. However, a number of
foreign school officials reported that they had not received training
prior to administering FFELP funds. In addition, we found that some
foreign school officials are not properly determining and documenting
student eligibility for loans; as a result FFELP funds may be provided
to students who should not be receiving them. We also found that the
on-line training to which Education refers foreign school officials
presents information in some cases that is contrary to how foreign
schools are to administer FFELP. Education could take additional
action to reduce the potential for fraud, waste, and abuse, but will
have to address the trade-offs that arise from its actions that may
affect student access and burden for various program participants. A
comprehensive risk assessment is one method that Education could
employ to determine how to balance an appropriate level of oversight
with the desire to provide American students access to foreign
educational opportunities.
What GAO Recommends:
GAO recommends that Education
* develop on-line training resources specifically designed for foreign
school officials and
* undertake a risk assessment to determine how best to ensure
accountability while considering costs, burden to schools and
students, and access to foreign schools.
Education agreed with our recommendations.
www.gao.gov/cgi-bin/getrpt?GAO-03-647.
To view the full report, including the scope and methodology, click on
the link above. For more information, contact Cornelia M. Ashby at
(202) 512-8403 or ashbyc@gao.gov.
[End of section]
Contents:
Letter:
Results in Brief:
Background:
FFELP is Vulnerable to Fraud, Waste, and Abuse in Several Ways with
Respect to U.S. Residents Attending Foreign Schools:
Education Has Taken Limited Steps to Reduce the Vulnerability of FFELP
to Fraud, Waste, and Abuse but FFELP Remains Vulnerable:
Additional Actions to Reduce Program Vulnerability Will Require
Balancing Competing Goals:
Conclusions:
Recommendations for Executive Action:
Agency Comments:
Appendix I: Characteristics of Foreign Schools Participating in FFELP,
by Country:
Appendix II: Comments from the Department of Education:
Tables:
Table 1: Education Oversight Components for Foreign Schools:
Table 2: Status of Foreign Schools' Submission of Audited Financial
Statements for Fiscal Year 2001:
Table 3: Status of Foreign Schools' Submission of Program Compliance
Audit Reports for Fiscal Year 2001:
Table 4: Information in COACH Not Applicable to Foreign Schools:
Figure:
Figure 1: Countries with Schools Eligible to Participate in FFELP and
Top 10 Foreign Schools by Loan Volume for Academic Year 2000-01:
Abbreviations:
CPS: Central Processing System:
COACH: Computer-Based Orientation and How-tos:
FAFSA: Free Application for Federal Student Aid:
FFELP: Federal Family Education Loan Program:
FSA: Federal Student Aid:
GAAP: Generally Accepted Accounting Principles:
HEA: Higher Education Act of 1965:
ISIR: Institutional Student Information Report:
MPN: Master Promissory Note:
NSLDS: National Student Loan Database System:
OIG: Office of Inspector General:
PEPS: Postsecondary Education Participants System:
PPA: Program Participation Agreement:
SAIG: Student Aid Internet Gateway:
SAR: Student Aid Report:
SSCR: Student Status Confirmation Report:
United States General Accounting Office:
Washington, DC 20548:
July 25, 2003:
Congressional Addressees:
Recent events have increased concerns about the potential for fraud in
the Department of Education's student loan programs, especially as it
relates to U.S. citizens and permanent residents (hereafter referred to
as U.S. residents) attending foreign schools.[Footnote 1] The Federal
Family Education Loan Program (FFELP), which provided about $23 billion
in loans to students in fiscal year 2000, is the only federal student
financial aid program in which foreign schools participate; about $226
million in FFELP loans were disbursed to U.S. residents attending 407
foreign schools in the 2000-01 academic year. Many of these foreign
schools enroll only a small number of U.S. residents who receive FFELP
funds, but a few schools enroll large numbers.
The conference report accompanying the 2001 Labor, Health and Human
Services, and Education Appropriations Act directed that we examine and
report on the problem of fraud, waste, and abuse related to loans for
U.S. residents attending foreign schools. Accordingly, our specific
objectives were to determine (1) ways in which FFELP is vulnerable to
fraud, waste, and abuse with respect to loans for U.S. residents
attending foreign schools; (2) what Education has done to reduce
FFELP's vulnerability; and (3) additional actions that might reduce
program vulnerability to fraud, waste, and abuse.
To address our objectives, we discussed the vulnerability of FFELP and
actions that Education has taken or could take to address such
vulnerability with officials from Education's Office of Federal Student
Aid (FSA) and Office of Inspector General (OIG), school administrators
and representatives of lenders and guaranty agencies that help to
administer FFELP and guarantee payment to lenders if students fail to
repay loans. We also reviewed relevant documents published by
Education, such as The Student Guide, The Student Financial Aid
Handbook for Foreign Schools 2001-2002, and FSA's on-line training
tutorial. We also reviewed the Higher Education Act (HEA) and related
Education regulations. To further address the first objective, we
reviewed GAO and OIG reports on fraud investigations.[Footnote 2] In
addition, to assess selected foreign schools' ability to manage FFELP
and their roles in reducing program vulnerability, we conducted site
visits to the administrative offices of four schools, conducted
telephone interviews with the administrators of an additional eight
schools, and reviewed student files at eight schools.[Footnote 3] We
selected these schools to reflect a variety of foreign schools in terms
of degree programs offered, school type (private for-profit, private
nonprofit, and public), U.S. resident student enrollment, and whether
they had electronic access to Education's information systems. In
reviewing student files at those schools with fewer than 25 students
receiving FFELP funds, we reviewed the files of all such students to
determine whether school officials had ensured students' eligibility
for loans. In reviewing student files at those schools with more than
25 students receiving FFELP funds, we reviewed the files for those
students for whom Education informed schools, following its initial
review of eligibility for student aid, that additional information was
needed to determine that students qualified for loans. We also obtained
information from Education's Postsecondary Education Participants
System (PEPS) to determine whether schools were meeting the
requirements for participation in FFELP. To further address the second
and third objectives, we interviewed others involved in the FFELP
process, such as school administrators and lending and guaranty agency
officials, and reviewed relevant documents provided by those officials.
We conducted our work between July 2002 and May 2003 in accordance with
generally accepted government auditing standards.
Results in Brief:
FFELP is vulnerable to fraud, waste, and abuse with respect to loans
for U.S. residents attending foreign schools in several ways. Some
school officials are improperly determining and documenting student
eligibility for loans and are unaware of the proper procedures for
doing so. Also, because of budget constraints, Education has not
conducted on-site program reviews at a foreign school since November
2000, even though its earlier on-site reviews of foreign schools
revealed that some schools were inappropriately approving loans. In
addition, certain features of the program increase the potential for
fraud, waste, and abuse. Unlike students attending domestic schools,
U.S. residents attending foreign schools may choose to receive loan
proceeds directly from the lender rather than through their schools and
may receive one lump sum for the entire academic year rather than
multiple disbursements for each semester or other academic year
division, thereby exacerbating the U.S. government's exposure to
potential loss due to fraud, waste, and abuse. Further, many foreign
schools do not submit to Education required audited financial
statements and program compliance audit reports, which can provide
important information that could allow Education to, among other
things, identify vulnerability to fraud, waste, and abuse and detect
actual instances of such activities. For fiscal year 2001, about 57
percent of foreign schools failed to submit audited financial
statements, while the vast majority of foreign schools failed to submit
program compliance audit reports. Finally, an investigation completed
by our Office of Special Investigations revealed vulnerability in
Education's process for determining the eligibility of foreign schools
to participate in FFELP. Education approved a fictitious foreign school
that our undercover investigators created--a step that allowed our
investigators to obtain approval for FFELP loans for fictitious
students.
Education has taken limited steps--since the beginning of 2002 and
throughout the course of our audit work--to reduce FFELP vulnerability
to fraud, waste, and abuse but FFELP remains vulnerable. For example,
in January 2002, Education issued a reference guide for foreign schools
designed to explain their legal requirements as participants in FFELP
and conducted training sessions for foreign schools officials to
supplement the reference guide in several countries. However,
interviews with officials at foreign schools suggest that some
officials remain unfamiliar with program procedures, such as how to
properly determine and document students' eligibility for FFELP loans.
As a result, FFELP funds may be provided to students who should not be
receiving them. A number of school officials also reported that they
had not received training prior to administering FFELP funds.
Education's on-line training tutorial for FFELP administrators, to
which Education refers foreign school officials for training, does not
include information specific to foreign schools and even presents
information that is contrary to how foreign schools are to administer
FFELP. In addition, although in December 2002 Education requested that
all foreign schools submit overdue audited financial statements and
that schools that have certified $500,000 or more in FFELP loans submit
program compliance audit reports, it has not decided on the
consequences for schools that do not comply with the request. Further,
in response to our prior investigation during which Education granted
approval to a fictitious foreign school that our undercover
investigators created, Education has retrained its staff to verify
school existence with in-country officials, required documentation of
the verification, and performed verification of the existence of all
currently participating schools. However, Education's process does not
include conducting on-site visits to verify the existence of foreign
schools nor has it reached a final decision on how it will verify the
existence of new foreign schools. As a result, no new foreign schools
have been approved for participation in FFELP since the summer of 2002,
even though applications have been received from 19 schools.
Education could take additional action to reduce the vulnerability of
FFELP to fraud, waste, and abuse with respect to loans for U.S.
residents attending foreign schools, such as more strictly enforcing
audit requirements or providing electronic access to information
systems to help school officials more easily determine students'
eligibility for FFELP loans. However, any steps that Education takes
will likely involve trade-offs that may affect access, accountability,
and burden for various participants in FFELP. For example, Education
could aggressively enforce foreign schools' audit reporting
requirements for annual audited financial statements and program
compliance audit reports, but doing so may lead to unintended
consequences, such as foreign schools withdrawing from FFELP,
potentially limiting students' access to such institutions. Several
foreign school officials told us that the audit reporting requirements
provide a disincentive to participate in FFELP because of the
administrative and financial burdens associated with the requirements,
especially when few U.S. residents attend their schools. Changing loan
disbursement procedures may also minimize the potential for fraud,
waste, and abuse of FFELP funds, but these changes might entail some
burden on the part of schools and students. Some schools, in fact, are
unaccustomed to handling student financial aid because such systems do
not exist in their own countries for their own students. While
providing foreign schools electronic access to Education's databases
would assist foreign school administrators in fulfilling their
responsibilities, doing so may increase information security risk. To
help agencies balance how best to achieve important program goals while
safeguarding assets from fraud, waste, and abuse, we have issued
standards for internal controls that provide a framework for
identifying areas at greatest risk. In addition, we have issued various
reports that are useful tools to assist agencies in evaluating internal
controls and addressing improper payments resulting from fraud, waste,
and abuse. Among other things, these reports highlight the importance
of conducting risk assessments--comprehensive reviews and analyses of
program operations to determine the nature and extent of program risks-
-and identifying cost-effective control activities to address
identified risks.
In this report, we make recommendations to the Secretary of Education
to develop on-line training resources specifically designed for foreign
school officials and conduct a risk assessment to determine how best to
ensure program integrity while helping to provide U.S. residents with
access to foreign schools.
We provided Education with a copy of our draft report for review and
comment. In written comments on our draft report, Education agreed with
our reported findings and recommendations. Education's written comments
appear in appendix II. Education also provided technical clarification,
which we incorporated where appropriate.
Background:
Foreign schools can offer unique educational opportunities for U.S.
residents, such as improved language proficiency and knowledge of other
cultures, and help ensure that U.S. residents have a wide range of
options in pursuing postsecondary education. The number of loans
certified for U.S. residents attending foreign schools has risen from
just under 4,600 in the 1993-94 academic year to over 13,000 in the
2000-01 academic year. Over 500 schools in 44 foreign countries are
currently eligible to participate. About 9,000 of these students attend
foreign medical schools and account for about three-quarters of the
total loan volume.[Footnote 4] By country, the highest volume of FFELP
loans--over $35 million--are for students attending school in Dominica;
its sole eligible institution is a private, for-profit medical school.
England, ranked fourth in loan volume, and Canada, seventh, have the
largest number of institutions eligible to participate in the FFELP--
182 and 108, respectively. Those countries participating in the FFELP
and the top 10 foreign schools in loan volume for the 2000-01 academic
year are indicated in figure 1. While a few foreign schools enroll
large numbers of U.S. residents who receive FFELP funds, the majority
of foreign schools enroll only a small number. For example, Queen's
College at the University of Oxford had just 3 students receiving FFELP
funds in 2001. For more information on the ranges for numbers of U.S.
residents receiving FFELP funds for attendance at schools in different
countries, see appendix I.
Figure 1: Countries with Schools Eligible to Participate in FFELP and
Top 10 Foreign Schools by Loan Volume for Academic Year 2000-01:
[See PDF for image]
[End of figure]
In order to participate in FFELP, foreign schools must submit a variety
of documents, such as an application and a copy of the most recent
course catalog. Once Education initially certifies the school for
participation, the school enters into a Program Participation Agreement
(PPA) with Education that requires it to comply with the laws,
regulations, and policies governing FFELP. PPAs vary, but some may be
valid for up to 6 years. To maintain its ability to participate, the
foreign school must demonstrate that it is administratively capable of
providing the education promised and of properly managing the program,
and that it is financially responsible. Schools must submit program
compliance audits and audited financial statement reports to Education
on an annual basis. Program compliance audit reports are intended to
demonstrate schools' ability to administer FFELP in compliance with HEA
and related Education regulations, while audited financial statements
serve as evidence of schools' financial responsibility. Schools must
submit recertification materials to Education for continued
participation in FFELP before the expiration of their current PPA.
Education evaluates the application and accompanying documentation to
determine whether a school is eligible to participate. Education's
Foreign Schools Team, consisting of eight staff members and one
director, is responsible for assisting and overseeing foreign schools.
Some of the ways in which the team oversees foreign schools, which are
similar to the way Education oversees domestic schools, are presented
in table 1. Education also has responsibility for maintaining
information systems involved in the loan process, which is discussed
more fully below.
Table 1: Education Oversight Components for Foreign Schools:
Oversight component: Audited financial statements; Purpose: Provides
Education with information to evaluate a school's financial condition.
Oversight component: Program compliance audit reports; Purpose:
Provides information about schools' compliance with HEA and related
Education regulations.
Oversight component: On-site program reviews; Purpose: Assesses
schools' ability to administer FFELP.
Oversight component: Initial certification and recertification
process; Purpose: After Education certifies a school as eligible to
participate in FFELP, the school and Education enter into a program
participation agreement that requires a school to adhere to all
applicable laws and program regulations.
Source: Education.
[End of table]
While Education and the foreign schools each have specific
responsibilities, other parties are involved in the student loan
process, including students, lenders, and guaranty agencies. Students
are responsible for filing certain loan application materials, while
lenders make loans, and guaranty agencies repay lenders the loan funds
if the borrower defaults.
Regardless of whether a student plans to attend a foreign or domestic
school, a student applying for a FFELP loan is required to first submit
a Free Application for Federal Student Aid (FAFSA). The student must
also sign the Master Promissory Note (MPN), which outlines the
students' responsibilities for repaying the loan. The information
provided by the student on the FAFSA is checked by Education against
various information systems, including Social Security Administration
databases and the National Student Loan Database System (NSLDS), to
test the accuracy of information and to assess the student's loan
history.
The administrators of the school the student plans to attend must
certify the student's eligibility for loans and the loan amount based
on the output from the FAFSA.[Footnote 5] This output will indicate
whether there are any issues with the student's eligibility based on
the information provided by the student and the edit checks against the
various databases. For example, the output would indicate if the check
against SSA's databases revealed that the social security number
provided did not match the name provided by the student, or if the
check against Education's NSLDS revealed that the student was in
default on previous loans. In addition, the output includes the
Expected Family Contribution, which is the amount the student and his
family are expected to contribute to educational expenses. The
administrators determine the student's financial need based on this
information, the cost of attendance, and the amount of financial aid
other than FFELP funds that the student is expected to receive.
Once the school has certified the student's eligibility and loan amount
and the student has signed the MPN, the lender can disburse the loan.
Although lenders disburse loans for students attending domestic schools
to the school, a chief difference for students attending foreign
schools is that lenders may disburse loans either directly to students
or to the foreign school the student is attending. The guaranty agency
then sends to the student's school a student status confirmation report
(SSCR), which lists all students for whom loans were guaranteed for
attendance at the school. School officials must indicate the enrollment
status of these students and return the form to the guaranty agency.
FFELP is Vulnerable to Fraud, Waste, and Abuse in Several Ways with
Respect to U.S. Residents Attending Foreign Schools:
FFELP is vulnerable to fraud, waste, and abuse in several ways. Some
school officials who do not have electronic access to Education's
information systems are improperly documenting and determining student
eligibility for loans and are unaware of the proper procedures to do
so, which could result in ineligible students receiving federal funds.
In addition, Education has not conducted any on-site reviews to assess
schools' ability to administer FFELP since November 2000. Moreover,
exposure to fraud, waste, and abuse is increased because students
attending foreign schools, unlike students attending domestic schools,
can choose to receive loans directly and in one lump sum for the entire
academic year. Further, foreign schools do not submit required audited
financial statements and program compliance audit reports, which
compromises Education's ability to monitor for and detect significant
fraud or other illegal acts. Also, an investigation by our Office of
Special Investigations revealed vulnerability in Education's process
for determining the eligibility of foreign schools to participate in
FFELP.
Some Foreign School Officials Are Not Properly Determining and
Documenting Student Eligibility for Loans:
Interviews with foreign school officials and our review of school files
revealed that some officials are not properly determining and
documenting students' eligibility for FFELP loans. As a result, FFELP
funds may be provided to students who should not be receiving them. In
particular, we found that several schools were using incorrect versions
of documents Education generated to alert school officials to
information that might indicate a student is ineligible for FFELP
loans. We identified this problem among those schools that did not have
electronic access to Education's information systems that contain data
needed to determine students' eligibility for loans. Of the over 500
foreign schools participating in FFELP, only 32 can electronically
access these information systems. However, these 32 schools certified
about 70 percent of the total foreign school FFELP loan volume for
fiscal year 2001.
Electronic access to Education's information systems can help ensure
that schools use the correct information to determine whether students
should be receiving FFELP loans. In accessing Education's information
systems, schools can obtain Institutional Student Information Reports
(ISIR), which Education generates to help schools determine whether
students are eligible for loans. ISIRs contain summary information
provided on students' FAFSAs as well as the results of various computer
matches that Education conducts. ISIRs indicate, among other things,
whether an applicant's social security number reported on the FAFSA is
valid, whether a loan applicant has ever defaulted on a student loan,
and how much an applicant has previously borrowed. Electronic access to
Education's information systems under its existing procedures will not
be granted unless a foreign school has among its staff a person who
possesses a U.S. social security number. Few foreign schools meet this
requirement. In the absence of obtaining ISIRs, foreign school
officials must rely on and obtain from students a special eight-page
version of the Student Aid Report (SAR), which is also generated by
Education and contains information similar to that found in the ISIR.
Education typically provides students with only an abbreviated two-page
SAR, which summarizes information students submit on the FAFSA, but
does not contain all of the information foreign school officials need
to determine whether a student is eligible for a loan. Students must
specifically request the special eight-page version from Education.
Rather than documenting and determining student eligibility based on
the eight-page SAR, we found that certain foreign school officials were
improperly basing their student eligibility determinations on the two-
page SAR.
In reviewing files to determine if schools were properly determining
and documenting students' eligibility for FFELP loans, we found that
the 2 schools with electronic access to Education's information systems
had copies of ISIRs for every student file we reviewed. Each of these
schools had certified in excess of $30 million in FFELP loans and
together certified about 30 percent of the total FFELP loan volume for
fiscal year 2001. However, 5 of the 6 schools without access to
Education's information systems, which collectively certified over $3
million in FFELP loans for fiscal year 2001, did not have copies of
ISIRs or eight-page SARs on file indicating that schools may have
approved loans without obtaining the information necessary for
determining student eligibility. Some school officials, in fact, told
us that they verified students' eligibility for loans based of the two-
page SAR and were unaware that without the eight-page SAR or ISIR,
students' eligibility for loans could not be properly verified and
documented.
The inability of foreign school officials to electronically access
Education's information systems also creates the potential for delays
in schools confirming and reporting student enrollment. Schools must
confirm the enrollment of students who have borrowed FFELP funds
through the use of a SSCR. Without timely and accurate reporting of
student enrollment, detecting an individual who receives an FFELP loan
but never enrolls in a foreign school is made more difficult. Schools
that have electronic access to Education's information systems can
enter these data directly into Education's information systems.
Guaranty agencies can then retrieve data through these information
systems and monitor whether students whose loans the agency has
guaranteed are in fact enrolled in the foreign school. Schools that do
not have electronic access to Education's information systems, however,
rely on guaranty agencies to send them SSCRs, which they then must
return to guaranty agencies via postal mail. Several school officials
told us that the inefficiency and lack of dependability of postal mail
interfered with their timely submission of SSCRs.
Education Has Not Recently Conducted On-Site Program Reviews, Which
Could Help Ensure Program Integrity:
Education has not conducted an on-site program review--which is
intended to assess, promote, and improve schools' compliance with laws
and regulations and help ensure program integrity--at a foreign school
since November 2000. Program reviews can supplement the information
provided to Education through the required annual audit reports and
also help Education to monitor for fraud. Between March 1999 and
November 2000, Education conducted six such program reviews at foreign
schools (or the U.S. administrative office of the foreign school). As a
result of these reviews, Education identified problems with how schools
were administering FFELP. For example, the reviews revealed that some
foreign school administrators had certified FFELP loans for students in
excess of allowable loan limits and certified loans without verifying
students' eligibility for FFELP loans. However, a senior FSA official
stated that because of budget constraints, on-site visits at foreign
schools may not be a feasible use of Education's funds at this time.
Loan Disbursement Processes for Foreign Schools May Exacerbate
Potential Loss of FFELP Funds:
Exposure to potential loss through instances of fraud, waste, and abuse
is exacerbated by the fact that students attending foreign schools,
unlike those attending domestic schools, may choose to receive loans
directly from the lender rather than through their schools and may
receive all loan proceeds in one lump sum for the entire academic year
rather than receive the proceeds in multiple disbursements during the
academic year. For example, Education's OIG investigated a case in
which a single individual submitted about 50 fraudulent loan
applications for over $900,000 by falsely claiming enrollment at
foreign medical schools. About 26 of the loans, totaling about $400,000
in FFELP funds, were disbursed to the individual before the fraud was
detected. Such cases of fraud underscore the importance of foreign
schools confirming and reporting student enrollment information to
guaranty agencies. Over the past decade, Education's OIG has
investigated 90 cases of suspected FFELP fraud, many of which involved
individuals requesting to receive loan proceeds directly and posing as
foreign school students. During this same time period, according to an
Inspector General official, the OIG recouped about $2.75 million in
restitution from the successful prosecution of cases and prevented an
additional $1.2 million from being disbursed.
Many Foreign Schools Fail to Submit Required Annual Audit Reports That
Could Help Education Monitor for and Detect Fraud, Waste, and Abuse:
Many foreign schools have not submitted required annual audited
financial statement and program compliance audit reports, which enable
Education to monitor whether schools are using correct procedures to
award, disburse, and account for the use of federal funds as well as
help Education monitor for and detect significant fraud or other
illegal acts. According to Education's OIG Foreign School Audit Guide,
the annual audit reports are the primary tools used by Education
program managers to meet their stewardship responsibilities in
overseeing FFELP. For fiscal year 2001, about 57 percent of foreign
schools failed to submit audited financial statements.[Footnote 6]
Collectively, these schools certified about $38 million in FFELP loans,
about 17 percent of the total foreign school loan volume during the
period. Further, Education regulations require foreign schools that
certify $500,000 or more in FFELP loans during a fiscal year to have
audited financial statements presented in U.S. Generally Accepted
Accounting Principles (GAAP). For fiscal year 2001, nearly one-third of
the foreign schools that certified $500,000 or more in FFELP loans
failed to submit audited financial statements. Moreover, of those
schools that certified $500,000 or more in FFELP loans and submitted
audited financial statements for the period, over half did not submit
statements presented into U.S. GAAP as required. (See table 2.):
Table 2: Status of Foreign Schools' Submission of Audited Financial
Statements for Fiscal Year 2001:
FFELP loan volume: $0-249,999; Number of schools: 419; Number of
schools that did not submit audited financial statements: 257; Volume
of FFELP loans certified by schools not submitting audited financial
statements: $11.9 million; Number of schools submitting audited
financial statements in U.S. GAAP: Not applicable.
FFELP loan volume: $250,000-499,999; Number of schools: 39; Number of
schools that did not submit audited financial statements: 19; Volume of
FFELP loans certified by schools not submitting audited financial
statements: 6.2 million; Number of schools submitting audited financial
statements in U.S. GAAP: Not applicable.
FFELP loan volume: $500,000 +; Number of schools: 52; Number of schools
that did not submit audited financial statements: 16; Volume of FFELP
loans certified by schools not submitting audited financial statements:
20.1 million; Number of schools submitting audited financial statements
in U.S. GAAP: 16.
FFELP loan volume: Total; Number of schools: 510; Number of schools
that did not submit audited financial statements: 292; Volume of FFELP
loans certified by schools not submitting audited financial statements:
$38.2 million.
Source: GAO analysis of FSA data.
[End of table]
In addition to submitting audited financial statements, all foreign
schools are required to submit program compliance audit reports on an
annual basis. These reports address schools' compliance with the laws
and regulations that are applicable to FFELP. In fiscal year 2001,
however, only 7 percent of all foreign schools submitted such reports.
Of schools that certified $500,000 or more in FFELP loans, over 40
percent failed to submit program compliance audit reports. The vast
majority of those schools that certified less than $500,000 in FFELP
loans also failed to submit such reports. While those schools that
submitted program compliance audit reports collectively certified about
75 percent of the total FFELP loan volume for fiscal year 2001, the
remaining schools certified about $59 million in FFELP loans. (See
table 3.):
Table 3: Status of Foreign Schools' Submission of Program Compliance
Audit Reports for Fiscal Year 2001:
Dollars in millions: FFELP loan volume: $0-249,999; Number of schools:
419; Number of schools that did not submit program compliance audit
reports: 419; Volume of FFELP loans certified by schools not submitting
program compliance audit reports: $21.6.
Dollars in millions: FFELP loan volume: $250,000-499,999; Number of
schools: 39; Number of schools that did not submit program compliance
audit reports: 34; Volume of FFELP loans certified by schools not
submitting program compliance audit reports: 11.8.
Dollars in millions: FFELP loan volume: $500,000 +; Number of schools:
52; Number of schools that did not submit program compliance audit
reports: 23; Volume of FFELP loans certified by schools not submitting
program compliance audit reports: 25.9.
Dollars in millions: FFELP loan volume: Total; Number of schools: 510;
Number of schools that did not submit program compliance audit reports:
476; Volume of FFELP loans certified by schools not submitting program
compliance audit reports: $59.3.
Source: GAO analysis of FSA data.
[End of table]
Some Foreign Schools Do Not Provide Loan Counseling for Student
Borrowers:
Interviews with foreign school officials and our review of school files
revealed that some foreign schools do not provide loan counseling.
Despite that default rates for foreign schools as a whole are
relatively low, loan counseling is important because new students often
have little or no experience with repaying and managing debt. Such
counseling can help borrowers avoid defaulting on their loans, which
can, in turn, help prevent waste from occurring in FFELP. Two of the
schools we visited, which are also the schools with electronic access
to Education's information systems, had staff available to provide loan
counseling and school officials reported doing so both prior to
students' arrival on campus and after students' registration on campus.
Other school officials, who had certified loan volumes ranging from
$100,000 to about $1 million, stated that loan counseling was not
provided as required by regulations.
No On-Site Visits Conducted to Verify Existence of Foreign Schools:
Education's current eligibility certification process does not include
conducting on-site visits to verify the existence of foreign schools.
As we reported in November 2002, due in part to this weakness,
Education granted approval to a fictitious foreign school that our
undercover investigators created and which enabled our investigators to
obtain approval for FFELP loans for fictitious students. To obtain
approval to participate in FFELP, our investigators created various
false documents required to be submitted with its PPA, including a
course catalog, audited financial statements, and a letter purporting
to be from United Kingdom government authorities acknowledging the
school as a nonprofit, degree-granting institution. Education did not
verify the existence of the school with foreign government officials or
other parties or sources before certifying the school as eligible to
participate in FFELP. After receiving approval of their fictitious
school, our investigators also requested and obtained information
necessary for the school to certify student eligibility for loans. Our
investigators then sought FFELP loans by filing FAFSAs using three
different fictitious student identities and applying for loans from
three different lenders. Our investigators created false school
certifications of these students' eligibility for loans and also
created false student enrollment reports. Two of the three lenders to
whom our investigators submitted applications approved loans totaling,
in the aggregate, $55,000, at which point we completed the
investigation. Based on the results of our investigation, we
recommended that Education implement a process, including conducting
on-site visits, to ensure that a foreign school applying to participate
in FFELP actually exists.
Education Has Taken Limited Steps to Reduce the Vulnerability of FFELP
to Fraud, Waste, and Abuse but FFELP Remains Vulnerable:
Education has taken limited steps--since the beginning of 2002 and
throughout the course of our audit work--to reduce the vulnerability of
FFELP to fraud, waste, and abuse; however, its actions in some cases
have been limited or have achieved limited results. In an effort to
share more information with foreign school officials to help them
comply with HEA and Education requirements, Education has increased the
technical assistance it provides to foreign schools by publishing a
reference guide and holding a series of training sessions. In addition,
to assist foreign schools in complying with audit requirements,
Education's OIG issued a Foreign School Audit Guide in September 2002.
However, interviews with foreign school officials and review of school
files revealed that these efforts may not be sufficient to ensure that
FFELP is being properly administered by the schools. Our review also
found that the on-line training tutorial made available to foreign
school officials on Education's Web site does not contain information
specific to foreign schools and even has information contrary to how
foreign schools are to administer FFELP. Moreover, while Education
requested that all foreign schools with overdue audited financial
statements and certain schools with overdue program compliance audit
reports submit them, it has not decided on the consequences for schools
that do not comply with the request. Finally, in response to our fraud
investigation, Education established new procedures for staff to use in
certifying schools' eligibility to participate in FFELP and provided
its staff training on the new procedures yet no new foreign schools
have been approved for participation in FFELP since the summer of 2002.
Reference Handbook and Training Provided to Foreign School Officials,
Yet Some Officials Remain Unaware of How to Properly Administer FFELP:
Education has provided a reference handbook and training to foreign
school officials; however, our interviews with several school officials
and our review of schools' files revealed that they remain unaware of
how to properly administer FFELP, which may increase the risk of fraud,
waste, and abuse occurring. In January 2002, Education issued the
Student Financial Aid Handbook for Foreign Schools: 2001-2002. The
Handbook was designed to help participating foreign schools achieve
manageable, student-friendly administration of FFELP and to ensure that
schools are aware of the legal requirements of participating in FFELP.
According to FSA, the Handbook was mailed to all foreign schools
participating in FFELP and it is currently posted to Education's Web
site. Education also held a series of training sessions for foreign
school officials during 2002 in several locations, including Canada,
Australia, England, Scotland, and Puerto Rico. Also, in September 2002,
Education's OIG issued a Foreign School Audit Guide, which assists
foreign school officials in complying with the audited financial
statement and program compliance audit requirements. To supplement this
information, Education offers an on-line training tutorial, FSA
COACH,[Footnote 7] for school officials' use, although it was not
specifically designed for foreign school officials.
However, Education's efforts to improve FFELP administration through
training may have fallen short because knowledge of the training
materials available was not widespread among the school officials we
spoke to during our review. For instance, two foreign school
administrators indicated that they had not received the Handbook from
Education. In addition, as previously discussed, some foreign school
officials were unaware of how to properly document and determine
student eligibility for FFELP loans. Furthermore, although HEA
regulations require training for officials at schools newly certified
to participate in FFELP, Education officials did not provide
information about training requirements or opportunities to our
undercover investigators when we created the fictitious foreign school.
An FSA official said that Education does not require foreign school
officials to travel to the United States to attend available training
before certifying a schools' eligibility to participate in FFELP
because of concerns about the financial burden on foreign schools.
Instead, FSA provides training materials, along with information about
how to use FSA COACH, to school officials. However, some administrators
remain unaware of any on-line information, and when we interviewed
foreign school officials at schools that have been participating in
FFELP for a number of years, several indicated that they had not
received training prior to administering FFELP.
Even when training materials did reach FFELP administrators, these
materials may have been insufficient to assist school officials. While
some officials told us that they found the information and training
useful, other officials told us that they did not. For example, several
foreign school officials we spoke with indicated that the training
sessions were very useful and indicated that holding such trainings
more frequently would be valuable. One school official, however,
commented that his peers found the regulatory and legislative
information contained in the Handbook beyond their grasp, and that some
of the information was confusing, especially for those school officials
in countries where student financial aid is administered in an entirely
different fashion than in the United States. Many other school
officials commented on the need for better on-line information. Some
found Education's Web page difficult to navigate and some reported
being unable to find needed information. Finally, while reviewing
COACH, we found that much of the information contained within it was
not applicable to foreign schools and, in some instances, it presents
information that is contrary to how foreign schools operate. (See table
4.):
Table 4: Information in COACH Not Applicable to Foreign Schools:
Type of information: FAFSA verification process; COACH statement: A
major financial aid office responsibility is the verification of
application data for students whose applications have been selected by
Education's Central Processing System (CPS).; Reason not applicable to
foreign schools: Education regulations exempt foreign schools from
verifying information that students report on the FAFSA.
Type of information: Electronic systems; COACH statement: Schools must
enroll in the Student Aid Internet Gateway (SAIG), which is Education's
electronic vehicle for transmitting application data to and from
schools. Schools must receive ISIRs through SAIG for every student to
whom they award Title IV funds.; The CPS transmits ISIRs to schools
electronically. ISIRs are designed to provide all the data that a
school needs to determine a student's eligibility for federal student
aid. Corrections to ISIR information can be made by schools
electronically.; All schools are required to have on-line access to the
NSLDS Internet Web site for financial aid professionals.; Reason not
applicable to foreign schools: To enroll in SAIG the school must have
at least one staff member with a U.S. social security number, which
most foreign schools do not have. Therefore, most foreign schools are
not enrolled in SAIG, and they do not receive the ISIRs.; ; ; NSLDS is
accessed through SAIG.
Type of information: Loan disbursement procedures; COACH statement: The
school is also responsible for receiving FFELP funds disbursed by the
lender (or the guaranty agency on the lender's behalf) and delivering
these funds to the student.; Reason not applicable to foreign schools:
Students attending foreign schools may opt to receive loan
disbursements directly from lenders. In addition, single rather than
multiple disbursements are allowed for students attending foreign
schools. These alternatives are not explained in Coach.
Type of information: SSCR information received on-line; COACH
statement: Schools must complete and return SSCRs to Education's
NSLDS.; Reason not applicable to foreign schools: Most foreign schools
do not have access to NSLDS (to obtain access they must be enrolled in
SAIG). Guaranty agencies are responsible for sending such schools a
paper copy of the SSCR. Schools indicate enrollment information on the
SSCR and return it to the guaranty agency, which then uses the
information to update NSLDS.
Source: FSA University Web site; COACH tutorial.
[End of table]
While COACH was not designed specifically for foreign schools,
Education directs foreign school officials to COACH for training
materials upon certification, and the COACH tutorial states that it is
a comprehensive introductory course on school requirements for
administering FFELP and other student financial aid programs.
Education Has Requested Foreign Schools to Submit Overdue Audited
Financial Statement and Program Compliance Audit Reports but Has Not
Decided on Consequences for Schools That Fail to Do So:
In December 2002, during the course of our review, Education sent
letters to all foreign schools requesting that they submit overdue
audited financial statement reports. They also requested schools that
certify $500,000 or more in FFELP loans to submit program compliance
audit reports for the 4 most recent fiscal years. Education told the
schools that failure to submit the requested documents within 45 days
would result in consequences. Education is now considering revoking or
denying schools' certification to participate in FFELP if it did not
receive overdue audited financial statement and program compliance
audit reports.
In Response to Our Investigation, Education Has Taken Steps to Address
Deficiencies Identified in Creating a Fictitious Foreign School, but
Some Changes Have Not Yet Been Implemented:
According to Education officials, FSA revised internal procedures for
verifying schools' legitimacy, and its foreign schools' team was
retrained. The retraining covered school eligibility requirements with
an emphasis on the importance of validating with the appropriate
foreign education office that a school is legitimate. To help staff
verify that a school is legitimate, Education modified an internal
checklist to include space for documenting the source and date of
validation in the school's file. Since learning of our investigation,
Education verified the existence of all schools that are participating
in FFELP, by either checking that the school is approved on an official
Web site, or by corresponding or speaking with country education
offices and ministries. Additionally, with respect to new applications
from schools that have not previously participated in FFELP, Education
no longer accepts a post office box address as the official location of
a school or a third party servicer that administers FFELP for the
school.
Education has not yet implemented some planned changes in its
procedures for determining FFELP eligibility of new foreign school
applicants. Consequently, no new foreign schools have been certified to
participate in FFELP since Education became aware of the school we
created in May 2002, even though applications have been received from
19 schools. Education is currently considering implementing a process
similar to that used when a domestic school applies for participation.
This process would entail circulating the name of the school and its
owners among a number of officials in FSA and other Education offices
to determine whether staff have any information or knowledge that would
affect a decision to certify the school's eligibility to participate in
FFELP. Education's International Affairs staff, who coordinate the
agency's various international programs, would be among those to whom
such information would circulate. If any staff were to raise concerns
about the school or its owners, Education would consider conducting an
on-site program review.
Additional Actions to Reduce Program Vulnerability Will Require
Balancing Competing Goals:
Education could take additional action to address the goal of reducing
the vulnerability of FFELP to fraud, waste, and abuse, such as more
strictly enforcing school audit requirements or providing electronic
access to information systems to help school officials more easily
determine students' eligibility for FFELP loans. However, any steps
that Education takes will likely involve trade-offs that may affect
access, accountability, and burden for various participants in FFELP.
For example, Education could aggressively enforce foreign schools'
audit reporting requirements, but this may lead to unintended
consequences, including limiting students' access to such institutions
if foreign schools withdraw from FFELP as a result. Other potential
steps include changing disbursement procedures to help limit the
federal government's exposure to loss, but doing so may increase
burdens for schools and students. In addition, providing foreign school
officials with electronic access to information may help them properly
determine student eligibility for FFELP loans, but may increase
security risks. Additionally, we have developed tools that could help
Education determine how to balance the objectives of providing U.S.
residents with access to foreign schools while protecting the
taxpayers' investment that is intended to help provide that access.
Stricter Enforcement of School Audit Requirements Would Provide
Education More Data to Assess Vulnerability, but May Reduce Student
Access:
Education could more strictly enforce school audit report requirements,
but doing so may limit U.S. residents' access to foreign schools. FSA
officials have stated that while Education is committed to maintaining
the integrity of the FFELP program, it is also committed to providing
access to international education opportunities for U.S. resident
students and does not want to create barriers to those opportunities.
As previously discussed, a large number of foreign schools have failed
to submit required audited financial statement and compliance audit
reports to Education in a timely manner. FSA officials told us that
balancing enforcement of these statutory and regulatory provisions with
providing students access to foreign schools is challenging. In their
opinion, the current compliance audit requirements may place an undue
burden and result in excessive costs for foreign schools that enroll
few U.S. residents. Several foreign school officials we spoke to also
told us that they found such audits to be costly, considering that
students receiving FFELP loans constituted very small proportions of
their student bodies. According to these officials, these audit
requirements provide a disincentive to participate in FFELP in order to
avoid what they perceive as an administrative and financial burden.
Education officials are now considering whether to issue letters to
foreign schools that certify less than $500,000 annually in FFELP loans
requesting program compliance audit reports and whether an alternative
approach to overseeing these schools should be taken.
In addition to requiring foreign schools to submit audited financial
statements and compliance reports, another potential step Education is
considering relates to the requirement that certain schools submit
audited financial statements under U.S. GAAP. Several school
administrators and government officials in the United Kingdom told us
that they found the requirement for schools to submit audited financial
statements presented in U.S. GAAP to be burdensome, in light of the
audit requirements of their home country. They stated that they
believed that the United Kingdom's accounting standards are
sufficiently comparable to U.S. GAAP that Education should accept their
statements for purposes of meeting FFELP statutory and regulatory
requirements. Doing so, according to these officials, would reduce the
administrative and financial burden associated with the requirement.
Further, because Education's regulation requiring that audited
financial statements be presented under U.S. GAAP applies only to
foreign schools that certify $500,000 or more in FFELP loans, these
officials told us that foreign schools have an incentive to limit
enrollment of students receiving FFELP loans so that they do not exceed
this threshold.
Education is currently considering whether to allow exemptions for
foreign schools located in Canada and the United Kingdom--which
collectively accounted for 314, or about 62 percent of the total
foreign schools participating in the FFELP during academic year 2000-
01--to its regulations requiring audited financial statements be
presented into U.S. GAAP. According to an FSA official, the
justification for such an exemption is based on the results of a
comparison of several foreign countries' auditing standards contained
in Education's policies and procedures manual, developed in
consultation with a private accounting firm. While the purpose of the
manual is to provide a methodology for FSA staff to use in assessing
the financial health of foreign schools certifying less than $500,000
in FFELP loans, the manual does contain a limited analysis comparing
the selected foreign countries' accounting standards with U.S. GAAP and
the potential effects of Education relying on foreign standards on the
results of its analyses.
Changing Loan Disbursement Procedures Would Reduce Exposure to Fraud,
Waste, and Abuse, but Decrease Lender, School, and Student Flexibility:
Education could seek statutory, and consider regulatory, changes to
loan disbursement procedures to address the potential for fraud, waste,
and abuse; however, such changes could have a significant impact on
schools and students. In our discussions with FFELP lenders and school
officials, we found that disbursement methods and preferences vary
among both lenders and schools. For example, representatives of one
large FFELP lender told us that it is their standard operating
procedure to disburse student loan proceeds directly to student
borrowers by sending them checks. In contrast, a representative of
another large FFELP lender, which specializes in making FFELP loans to
students attending foreign medical schools, told us that it only (1)
issues checks that are payable to both the student borrower and the
foreign school and (2) sends these checks, or electronically transfers
loan proceeds, to foreign schools, requiring student borrowers to
obtain their funds through the schools. Some foreign school officials
encourage students to receive their loan proceeds in this manner, as it
helps the school maintain control of the funds. According to a guaranty
agency official, a school official, and an FSA official some schools do
not have financial aid offices or routinely carry out such functions at
their institutions and therefore do not have the resources to be an
intermediary between lenders and students. Other school officials told
us that they are prohibited by local regulations from taking out
student fees from loan checks and remitting the difference to students.
In addition to receiving loan proceeds directly from lenders, students
attending foreign schools may also receive loan proceeds in one lump
sum rather than in multiple disbursements. According to many of the
lenders and foreign school officials we spoke to, students frequently
elect to receive their loan proceeds in this way, particularly students
who are enrolled in 1-year graduate programs. Yet, several school
officials told us that they prefer multiple disbursements for their
students as the school is on a semester or trimester calendar and
multiple disbursements provide them more assurance that expenses will
be paid. One lending official, however, told us of an instance in which
a student had trouble entering a country because she did not have
sufficient proof that she had enough funds for the academic year. Thus,
allowing students to receive loan proceeds in one lump sum might help
students in such situations.
Education is considering taking additional steps with respect to
current disbursement procedures. As previously discussed and as
documented by prior OIG investigations, the disbursement procedures
used to provide loan proceeds to U.S. residents attending foreign
schools exposes the federal government to increased risk for potential
losses. Education is considering encouraging or requiring lenders to
take steps prior to disbursing loan funds to students attending foreign
schools. These steps could include (1) confirming that schools are
eligible to participate in FFELP, (2) verifying that students are
accepted for enrollment at foreign schools prior to disbursing funds,
and (3) continuing to notify foreign schools when loan disbursements
are made to student borrowers.
Providing Schools Electronic Access to Education Data Could Improve
Eligibility Determinations but Increases Information Security Risks:
Providing electronic access to Education's information systems needed
to determine student eligibility may help improve schools'
administrative capacity but may also increase information security
risk. The lack of electronic access decreases schools' administrative
capacity, as foreign school officials have difficulty obtaining the
documentation necessary to determine student eligibility and impedes
the exchange of SSCRs with guaranty agencies. Education is currently
working to address these issues and is considering providing foreign
school officials with an alternative to requiring that someone on their
staff possess a U.S. social security number to access its information
systems. However, poor information security is a high-risk area across
the federal government with potentially devastating
consequences.[Footnote 8] Threats to the security of any data system
may include attempts to access private information by unauthorized
users, user error, as well as pranks and malicious acts. Potential
damage arising from such threats could include, among other things, the
disclosure of sensitive information, disruption of critical services,
the interruption of services and benefits, and the corruption of
federal data and reports. Therefore, Education needs to carefully weigh
the benefits and risks of providing such access to foreign school
administrators.
Risk Assessments Can Help Agencies Balance Competing Goals Inherent in
Addressing Program Vulnerability:
We have found that conducting a risk assessment is one of several
critical steps that agencies need to undertake to identify and address
major performance challenges and areas that are at risk for fraud,
waste, and abuse. We have also developed tools to assist agencies in
undertaking such assessments. These tools provide a framework for
identifying areas at greatest risk as well as various reports which can
assist agencies in evaluating internal controls and addressing improper
payments resulting from fraud, waste, and abuse.[Footnote 9] These
tools could be useful to Education in weighing the advantages and
disadvantages of various ways of overseeing and assisting foreign
schools. Among other things, these tools highlight the importance of
conducting risk assessments--comprehensive reviews and analyses of
program operations to determine the nature and extent of program risks-
-and identifying cost-effective control activities to address
identified risks.
Conclusions:
Foreign schools' ability to participate in FFELP supports wide-ranging
educational opportunities for U.S. residents and ensures that these
students have a variety of options in pursuing postsecondary education.
In light of recent events highlighting the vulnerability of FFELP with
respect to U.S. residents attending foreign schools, Education has
taken some important steps, and could take additional steps, both
immediate and longer term, to decrease the vulnerability of the
program. Ensuring that foreign school officials know how to properly
administer the program, especially what steps they need to take to
ensure that students are eligible to receive federal funds, is critical
to reducing the program's vulnerability to fraud, waste, and abuse.
Education has taken steps to provide school officials with additional
information concerning their responsibilities yet as we have shown,
foreign school officials may need more information. Training that is
convenient and specifically designed for foreign school officials could
help bridge this information gap. Education is also considering what
regulatory flexibilities it might extend to some foreign schools while
also considering stricter enforcement of current statutory and
regulatory provisions. The use of a risk assessment could help ensure
that Education appropriately identifies the risks involved in the
program and how best to balance the objectives of providing U.S.
residents with access to foreign schools while protecting the
taxpayers' investment intended to help provide that access. In taking
such actions, Education might identify alternative regulatory and
oversight methods that would strike such a balance.
Recommendations for Executive Action:
* To help ensure that foreign school officials have the knowledge
necessary to properly administer FFELP, we recommend that the Secretary
of Education develop on-line training resources specifically designed
for foreign school officials.
* To better ensure that Education is adequately overseeing foreign
schools participating in FFELP, we recommend that the Secretary of
Education undertake a risk assessment to determine how best to ensure
accountability while considering costs, burden to schools and students,
and the desire to maintain student access to a variety of postsecondary
educational opportunities. Further, after completing the risk
assessment, if Education determines that legislative and/or regulatory
changes are justified, we recommend that the Secretary seek any
necessary legislative authority and/or implement any necessary
regulatory changes.
Agency Comments:
In written comments on our draft report, Education agreed with our
reported findings and recommendations and, among other things, said
that it has begun to reengineer its process for determining the
eligibility of foreign schools to participate in FFELP. Education also
provided technical clarification, which we incorporated where
appropriate. Education's written comments appear in appendix II.
We are sending copies of this report to the Secretary of Education,
appropriate congressional committees, and other interested parties. In
addition, the report will also be available at no charge on GAO's Web
site at http://www.gao.gov.
If you or your staffs have any questions about his report, please
contact me on (202) 512-8403 or Jeff Appel on (202) 512-9915. Gillian
Martin and Cara Jackson made significant contributions to this report.
Cornelia M. Ashby
Director, Education, Workforce and Income Security Issues:
Signed by Cornelia M. Ashby:
List of Congressional Addressees:
The Honorable Judd Gregg,
Chairman
The Honorable Edward M. Kennedy,
Ranking Minority Member
Committee on Health, Education, Labor and Pensions
United States Senate:
The Honorable Arlen Specter,
Chairman
The Honorable Tom Harkin,
Ranking Minority Member
Subcommittee on Labor, Health and Human Services, and Education
Committee on Appropriations
United States Senate:
The Honorable Ralph Regula,
Chairman
The Honorable David Obey,
Ranking Minority Member
Subcommittee on Labor, Health and Human Services, and Education, and
Related Agencies
Committee on Appropriations
House of Representatives:
The Honorable John Boehner,
Chairman
The Honorable George Miller,
Ranking Minority Member
Committee on Education and the Workforce
House of Representatives:
The Honorable Jeff Sessions
United States Senate:
[End of section]
Appendix I: Characteristics of Foreign Schools Participating in FFELP,
by Country:
Country: Australia; Number of schools: 35; FFELP loan volume academic
year 2000-01: $5,021,718; Number of students participating in FFELP
across schools[A]: 0 to 49.
Country: Austria; Number of schools: 2; FFELP loan volume academic year
2000-01: $122,872; Number of students participating in FFELP across
schools[A]: 0 to 12.
Country: Belgium; Number of schools: 3; FFELP loan volume academic year
2000-01: $243,650; Number of students participating in FFELP across
schools[A]: 0 to 18.
Country: Bulgaria; Number of schools: 1; FFELP loan volume academic
year 2000-01: $0; Number of students participating in FFELP across
schools[A]: 0.
Country: Canada; Number of schools: 108; FFELP loan volume academic
year 2000-01: $15,825,894; Number of students participating in FFELP
across schools[A]: 0 to 356.
Country: Chile; Number of schools: 1; FFELP loan volume academic year
2000-01: $0; Number of students participating in FFELP across
schools[A]: 0.
Country: China; Number of schools: 1; FFELP loan volume academic year
2000-01: $0; Number of students participating in FFELP across
schools[A]: 0.
Country: Colombia; Number of schools: 1; FFELP loan volume academic
year 2000-01: $0; Number of students participating in FFELP across
schools[A]: 0.
Country: Costa Rica; Number of schools: 3; FFELP loan volume academic
year 2000-01: $541,437; Number of students participating in FFELP
across schools[A]: 0 to 34.
Country: Czech Republic; Number of schools: 6; FFELP loan volume
academic year 2000-01: $424,969; Number of students participating in
FFELP across schools[A]: 0 to 12.
Country: Denmark; Number of schools: 4; FFELP loan volume academic year
2000-01: $65,000; Number of students participating in FFELP across
schools[A]: 0 to 6.
Country: Dom. Republic; Number of schools: 6; FFELP loan volume
academic year 2000-01: $20,653,159; Number of students participating in
FFELP across schools[A]: 1 to 469.
Country: Dominica; Number of schools: 1; FFELP loan volume academic
year 2000-01: $35,235,509; Number of students participating in FFELP
across schools[A]: 1776.
Country: Egypt; Number of schools: 1; FFELP loan volume academic year
2000-01: $450,133; Number of students participating in FFELP across
schools[A]: 33.
Country: England; Number of schools: 182; FFELP loan volume academic
year 2000-01: $25,405,722; Number of students participating in FFELP
across schools[A]: 0 to 191.
Country: Finland; Number of schools: 3; FFELP loan volume academic year
2000-01: $110,000; Number of students participating in FFELP across
schools[A]: 0 to 5.
Country: France; Number of schools: 13; FFELP loan volume academic year
2000-01: $1,234,416; Number of students participating in FFELP across
schools[A]: 0 to 82.
Country: Grenada; Number of schools: 1; FFELP loan volume academic year
2000-01: $30,666,842; Number of students participating in FFELP across
schools[A]: 1528.
Country: Hungary; Number of schools: 5; FFELP loan volume academic year
2000-01: $3,035,655; Number of students participating in FFELP across
schools[A]: 3 to 92.
Country: India; Number of schools: 2; FFELP loan volume academic year
2000-01: $354,125; Number of students participating in FFELP across
schools[A]: 1 to 21.
Country: Ireland; Number of schools: 9; FFELP loan volume academic year
2000-01: $5,868,032; Number of students participating in FFELP across
schools[A]: 0 to 105.
Country: Israel; Number of schools: 12; FFELP loan volume academic year
2000-01: $7,176,498; Number of students participating in FFELP across
schools[A]: 0 to 214.
Country: Italy; Number of schools: 5; FFELP loan volume academic year
2000-01: $820,092; Number of students participating in FFELP across
schools[A]: 1 to 23.
Country: Japan; Number of schools: 3; FFELP loan volume academic year
2000-01: $67,598; Number of students participating in FFELP across
schools[A]: 0 to 3.
Country: Korea; Number of schools: 1; FFELP loan volume academic year
2000-01: $29,000; Number of students participating in FFELP across
schools[A]: 1.
Country: Lebanon; Number of schools: 1; FFELP loan volume academic year
2000-01: $37,000; Number of students participating in FFELP across
schools[A]: 2.
Country: Liechtenstein; Number of schools: 1; FFELP loan volume
academic year 2000-01: $16,500; Number of students participating in
FFELP across schools[A]: 2.
Country: Mexico; Number of schools: 11; FFELP loan volume academic year
2000-01: $27,003,357; Number of students participating in FFELP across
schools[A]: 0 to 1214.
Country: Netherlands; Number of schools: 12; FFELP loan volume academic
year 2000-01: $1,249,679; Number of students participating in FFELP
across schools[A]: 0 to 46.
Country: N. Zealand; Number of schools: 6; FFELP loan volume academic
year 2000-01: $279,130; Number of students participating in FFELP
across schools[A]: 0 to 8.
Country: Nicaragua; Number of schools: 1; FFELP loan volume academic
year 2000-01: $0; Number of students participating in FFELP across
schools[A]: 0.
Country: N. Ireland; Number of schools: 2; FFELP loan volume academic
year 2000-01: $222,165; Number of students participating in FFELP
across schools[A]: 7 to 10.
Country: Norway; Number of schools: 5; FFELP loan volume academic year
2000-01: $56,125; Number of students participating in FFELP across
schools[A]: 0 to 2.
Country: Philippines; Number of schools: 4; FFELP loan volume academic
year 2000-01: $311,666; Number of students participating in FFELP
across schools[A]: 0 to 13.
Country: Poland; Number of schools: 8; FFELP loan volume academic year
2000-01: $5,429,140; Number of students participating in FFELP across
schools[A]: 0 to 106.
Country: Scotland; Number of schools: 14; FFELP loan volume academic
year 2000-01: $4,183,953; Number of students participating in FFELP
across schools[A]: 0 to 90.
Country: S. Africa; Number of schools: 2; FFELP loan volume academic
year 2000-01: $76,000; Number of students participating in FFELP across
schools[A]: 0 to 5.
Country: Spain; Number of schools: 6; FFELP loan volume academic year
2000-01: $483,308; Number of students participating in FFELP across
schools[A]: 0 to 17.
Country: St. Kitts; Number of schools: 2; FFELP loan volume academic
year 2000-01: $14,086,736; Number of students participating in FFELP
across schools[A]: 91 to 609.
Country: St. Maarten; Number of schools: 1; FFELP loan volume academic
year 2000-01: $16,500,071; Number of students participating in FFELP
across schools[A]: 774.
Country: Sweden; Number of schools: 5; FFELP loan volume academic year
2000-01: $152,800; Number of students participating in FFELP across
schools[A]: 0 to 7.
Country: Switzerland; Number of schools: 6; FFELP loan volume academic
year 2000-01: $701,103; Number of students participating in FFELP
across schools[A]: 1 to 39.
Country: Vatican; Number of schools: 3; FFELP loan volume academic year
2000-01: $202,646; Number of students participating in FFELP across
schools[A]: 3 to 10.
Country: Wales; Number of schools: 8; FFELP loan volume academic year
2000-01: $654,187; Number of students participating in FFELP across
schools[A]: 0 to 18.
Source: GAO analysis of FSA data.
[A] Foreign schools may be eligible to participate in FFELP but not
enroll U.S. residents in a given year and thus report zero enrollments.
[End of table]
[End of section]
Appendix II: Comments from the Department of Education:
FEDERAL STUDENT AID:
We Help Put America Through School:
CHIEF OPERATING OFFICER:
July 22, 2003:
Ms. Cornelia M. Ashby:
Director, Education, Workforce, and Income Security Issues United
States General Accounting Office:
Washington, D.C. 20548:
Dear Ms. Ashby:
Thank you for the opportunity to respond to your draft audit report
entitled, "Student Loans and Foreign Schools - Assessing Risks Could
Help Education Reduce Program Vulnerability" (GAO-03-647). I am
responding on behalf of the Department of Education.
The Federal Student Aid programs (authorized by Title IV of the Higher
Education Act of 1965) play an important part in assisting millions of
Americans each year in attaining their higher education goals. The
integrity of these programs is a critical goal of the Department. To do
this, we must ensure that only eligible students attending eligible
schools with eligible programs receive federal student aid funds.
As stated in your draft report, foreign schools offer unique
educational opportunities for Americans and help ensure that our
students have a wide range of options in pursuing postsecondary
education. It is noteworthy that only 26,591 U.S. students received
$255,940,029 in FFELP loans in fiscal year 2002 to attend postsecondary
education institutions located outside the U.S. It is also important to
note that the average cohort default rate for students that attended
these institutions was only 2.6 percent in FY 2000 --nearly half the
rate for students that attend institutions in the U.S.
The Department takes its oversight role extremely seriously and has
begun to reengineer its process for determining the eligibility of
foreign schools. The reengineered process will rely on a more rigorous
analysis of relevant student data pertinent to institutional
eligibility. Data on foreign schools will be a part of a new risk
analysis system currently under development. Until this system is
available, we will continue to perform ad hoc analyses of the data. We
agree with your recommendations that we should enhance training for our
foreign school partners and undertake a risk assessment to measure
costs, burden, and access issues.
Again, thank you for the opportunity to comment on the draft report. If
you have any questions, please contact Ms. Kay Jacks at (202) 377-4288.
Sincerely,
Theresa S. Shaw:
Signed by Theresa S. Shaw:
[End of section]
FOOTNOTES
[1] A foreign school is a school that is located outside of the United
States of America, its territories, the Commonwealth of Puerto Rico,
the Freely Associated States of Micronesia, the Republic of the
Marshall Islands, and the Republic of Palau. Students attending foreign
schools are eligible for loans only under the Federal Family Education
Loan Program. The program consists of subsidized and unsubsidized
Stafford Loans, Federal PLUS loans, and Federal Consolidation loans.
Subsidized Stafford Loans are provided to students who have
demonstrated financial need and the federal government pays the
interest costs on the loan while the student is in school. Unsubsidized
Stafford Loans are provided to students regardless of financial need,
but the federal government does not pay the interest costs on the loans
while the student is in school. Students are therefore responsible for
all interest costs. PLUS loans are loans made to parents of dependent
undergraduate students; borrowers are responsible for paying all
interest on the loan. Consolidation loans allow borrowers to combine
one or more of their U.S. education loans into one new loan.
[2] See U.S. General Accounting Office, Department of Education:
Guaranteed Loan Program Vulnerabilities, GAO-03-268R (Washington,
D.C.: Nov. 21, 2002).
[3] In addition to reviewing the files at the four schools we visited,
we also reviewed the files of four additional foreign schools;
administrators mailed the relevant materials to us.
[4] From fiscal years 1999-2002, 51 percent of loans to students
attending foreign schools were subsidized Stafford Loans, 47 percent
were unsubsidized Stafford Loans, and less than 2 percent were PLUS
loans.
[5] Alternatively, according to Education, it allows guaranty agencies
to perform this function on behalf of foreign school administrators;
Education notes that, in particular, the guaranty agencies for
Massachusetts and Nebraska engage in this practice.
[6] While we verified submission of audited financial statements for
schools receiving over $500,000 in FFELP funds, we relied on
spreadsheets summarizing data from PEPS regarding the submission of
audited financial statements from schools receiving less than $500,000.
[7] Computer-Based Orientation to Aid Concepts and How-tos.
[8] U.S. General Accounting Office, Major Management Challenges and
Program Risks: A Governmentwide Perspective, GAO-03-95 (Washington,
D.C.: Jan. 2003).
[9] U.S. General Accounting Office, Standards for Internal Control in
the Federal Government, GAO/AIMD-00-21.3.1 (Washington, D.C.:
Nov.1999), Strategies to Manage Improper Payments: Learning from Public
and Private Sector Organizations, GAO-02-69G (Washington, D.C.: Oct.
2001); and Internal Control Management and Evaluation Tool,
GAO-01-1008G (Washington, D.C.: Aug. 2001).
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