Student Loans and Foreign Schools:

Assessing Risks Could Help Education Reduce Program Vulnerability

GAO-03-647: Published: Jul 25, 2003. Publicly Released: Jul 25, 2003.

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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.

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.

Recommendations for Executive Action

  1. Status: Closed - Implemented

    Comments: Education has developed an online training program especially designed for foreign school officials. Called "FSA COACH," the online program contains 23 lessons designed specifically for staff at non-U.S. schools who administer Federal Family Education Loan Program (FFELP) loans used by U.S. students at participating foreign schools. While the initial iteration of this program in 2004 was a good first step toward providing the information foreign schools officials need to properly administer the FFELP, it still did not adequately cover certain critical administrative responsibilities of foreign school officials. The most recent version of the training program (FSA Coach for Foreign Schools: 2005-2006) includes additional information that had been previously lacking and helps ensure that the training program, in conjunction with other tools, provides foreign school officials with the knowledge necessary to properly administer the FFELP.

    Recommendation: To help ensure that foreign school officials have the knowledge necessary to properly administer FFELP, the Secretary of Education should develop on-line training resources specifically designed for foreign school officials.

    Agency Affected: Department of Education

  2. Status: Closed - Implemented

    Comments: Education conducted a risk assessment to determine how best to ensure accountability of foreign school officials. As a result of the risk assessment, Education developed a list of legislative and regulatory changes needed that would allow the Department to more effectively oversee foreign schools' participation in the FFELP. One of its proposals is included as part of a pending Senate bill and a responsible FSA official believes that it is highly probable that the legislation will pass. The bill, as written, would give the Secretary of Education leeway that the Department feels is necessary to ensure accountability while considering costs, burden to schools and students, and student access to a variety of postsecondary educational opportunities.

    Recommendation: To better ensure that Education is adequately overseeing foreign schools participating in FFELP, the Secretary of Education should 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, the Secretary should seek any necessary legislative authority and/or implement any necessary regulatory changes.

    Agency Affected: Department of Education

 

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