Department of Education:

Guaranteed Student Loan Program Vulnerabilities

GAO-03-268R: Published: Nov 21, 2002. Publicly Released: Jan 17, 2003.

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Congress requested that GAO investigate weaknesses in the Department of Education's administration of student loans for postsecondary education under the Federal Family Education Loan (FFEL) Program. As a result of the undercover investigation, GAO exposed vulnerabilities in the administration of the FFEL Program. GAO set up a fictitious school and sought and obtained approval for student loans totaling $55,500 on behalf of three fictitious students purportedly attending the school.

Status Legend:

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  • Review Pending-GAO has not yet assessed implementation status.
  • Open-Actions to satisfy the intent of the recommendation have not been taken or are being planned, or actions that partially satisfy the intent of the recommendation have been taken.
  • Closed-implemented-Actions that satisfy the intent of the recommendation have been taken.
  • Closed-not implemented-While the intent of the recommendation has not been satisfied, time or circumstances have rendered the recommendation invalid.
    • Review Pending
    • Open
    • Closed - implemented
    • Closed - not implemented

    Recommendations for Executive Action

    Recommendation: The Secretary of Education should implement a verification process to ensure that a foreign school applying to participate in the FFEL Program actually exists and is recognized by an appropriate educational entity. Specifically, the Secretary should enter into a relationship with an organization such as the Department of State, which would verify the existence of a foreign school that applies for certification to participate in the FFEL Program through site visits to the school and verification of its accreditation by local educational authorities.

    Agency Affected: Department of Education

    Status: Closed - Implemented

    Comments: The Senate Permanent Subcommittee on Investigations requested that GAO investigate control weaknesses in the administration of student loans for postsecondary education under the Federal Family Education Loan (FFEL) Program. GAO conducted an undercover investigation that exposed vulnerabilities in the administration of the FFEL Program. Agents set up a fictitious school and obtained approval for student loans totaling $55,500 on behalf of three fictitious students purportedly attending the school. Based on GAO's findings, the Department of Education 1) provided additional training to its Foreign Schools team on institutional eligibility requirements and certification procedures; (2) revised its internal certification checklist used to document validation of certification information; (3) ordered validation of all country approvals for all 761 schools in 41 foreign countries that participate in the FFEL Program; and (4) no longer accepts a post office box address as the official location of a school or a third-party servicer of a school. Education also took additional steps to strengthen internal controls, including development of a federal student financial aid handbook specifically for foreign schools, providing technical assistance to foreign schools on current Title IV program requirements to improve compliance, and enhancing coordination with the National Committee for Foreign Medical Education Accreditation.

    Recommendation: The Secretary of Education should review the process for certifying student loans and develop controls to prevent fictitious students from obtaining student loans.

    Agency Affected: Department of Education

    Status: Closed - Implemented

    Comments: In response to GAO's recommendation, the Department of Education has taken steps to improve the administration of student loans for postsecondary education under the Federal Family Education Loan (FFEL) program. Specifically, Education published two "Dear Colleague" letters in August 2003. The first letter, which was addressed to guaranty agencies and lenders, provided guidance on new requirements intended to assist Education in the oversight of the FFEL program for students in foreign schools and institutions. The letter stated that before disbursing payments to students directly for attendance at foreign schools or institutions, guaranty agencies and lenders will now be required to (1) reconfirm that the foreign school or institution is eligible to participate in FFEL, (2) verify that the students are accepted for enrollment at the foreign schools or institutions indicated on the loan application. Further, the letter stated that guaranty agencies and lenders are expected to (1) continue sending paper Student Status Confirmation Reports (SSCRs) to schools or institutions that are unable to connect with Education's National Student Loan Data System (NSLDS) and (2) perform program reviews of foreign schools as appropriate. The letter further stated that Education expected guaranty agencies to implement these procedures no later than 3 months from the publication date of the letter for loans disbursed on or after that implementation date. Education's second letter, which was addressed to foreign schools that participate in FFEL, reiterated the requirements that schools must follow under FFEL. Specifically, the letter reaffirmed that foreign schools participating in FFEL must (1) submit a yearly compliance audit and audited financial statements to Education; (2) review information on SSCRs, make any necessary changes, and return SSCRs with changes to the guaranty agency that sent them; (3) obtain a Student Aid Report (SAR) before completing the processing of the FFEL loan; (4) ensure that at least one capable individual at the school/institution can administer the FFEL program, which includes being able to respond to requests for information from guaranty agencies and lenders; (5) submit appropriate recertification documents in a timely manner for renewal of Education's certification that the school/institution may continue to participate in FFEL; and (6) refer any suspected fraudulent submissions of information by students or other criminal misconduct related to FFEL funds to Education's Office of Inspector General.

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