This is the accessible text file for GAO report number GAO-03-268R
entitled 'Department of Education: Guaranteed Student Loan Program
Vulnerabilities' which was released on November 21, 2002. 

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United States General Accounting Office: 

November 21, 2002: 

The Honorable Susan M. Collins: 
Ranking Minority Member: 
Permanent Subcommittee on Investigations: 
Committee on Governmental Affairs: 
United States Senate: 

Subject: Department of Education: Guaranteed Student Loan Program

Dear Senator Collins: 

This report responds to your request and subsequent conversations with 
your staff, that we investigate weaknesses in the Department of 
Education’s administration of student loans for postsecondary education 
under the Federal Family Education Loan (FFEL) Program. [Footnote 1] 
Specifically, you asked that the Office of Special Investigations,
acting in an undercover capacity, examine weaknesses in Education’s 
procedures for certifying foreign schools to participate in the FFEL 
Program and to determine whether student loans can be obtained by 
fictitious students purportedly attending a foreign school. We briefed 
your office on our investigative findings. This report summarizes those 
findings and includes documents we referenced in that briefing. 

As a result of our undercover investigation, we exposed vulnerabilities 
in Education’s administration of the FFEL Program. With relative ease, 
we created Y’Hica Institute for the Visual Arts, a fictitious graduate-
level foreign school purportedly located in London, England. After 
creating Y’Hica, we obtained certification from Education for the 
school to participate in the FFEL Program. Finally, we sought and 
obtained approval for student loans totaling $55,500 on behalf of three 
fictitious students purportedly attending Y’Hica. After completing our 
investigation, we contacted Education officials and briefed them about 
our findings. As set forth below, we are making recommendations aimed 
at preventing fictitious foreign schools from participating in the FFEL 
Program and preventing fictitious students from obtaining student 

We conducted our investigation from January 25, 2001, through May 8, 
2002, in accordance with investigative standards established by the 
President’s Council on Integrity and Efficiency. To assist us in 
creating a foreign school and qualifying to participate in the FFEL 
Program, we had numerous discussions, in an undercover capacity, with 
Education’s Foreign Schools Team and reviewed the procedures that a 
foreign school must follow. We then submitted false and counterfeit 
documentation to support our application for institutional eligibility 
and certification to participate in the FFEL Program. We also submitted 
false and counterfeit documentation in order to obtain student loans 
for fictitious students. 

Creating Y’Hica, a Fictitious Foreign School: 

Adhering to Education procedures, we successfully created Y’Hica 
Institute for the Visual Arts, a fictitious foreign school purportedly 
located in London, England. We first created a consulting firm called 
Weinstein & Associates to pose as Y’Hica’s U.S. representative and the 
principal point of contact with Education. We also created identities 
for the President of Y’Hica and the President and Executive Director of 
the consulting firm. In addition, we created Web sites for Y’Hica and 
the consulting firm as well as telephone numbers and addresses for 
Y’Hica and the consulting firm. Finally, we obtained an international 
Dun and Bradstreet number and an Education personal identification 
number (PIN) on behalf of Y’Hica. Education then recognized that Y’Hica 
could apply to participate in the FFEL Program. 

Obtaining Approval for Participation in the FFEL Program: 

Subsequently, we created and provided Education with documents that are 
required for approval to participate in the FFEL Program. Specifically, 
we provided the following counterfeit documents on behalf of Y’Hica: 
(1) a school catalog purportedly describing Y’Hica’s mission (a cover 
page of which is reprinted in enc. I), (2) certified financial 
statements of Y’Hica for fiscal years 1998 and 1999, signed by a 
fictional accountant residing at a fictional address in London, (3) a 
letter indicating that John Moores University—an education entity in 
the United Kingdom—validated Y’Hica’s academic program, and (4) a 
letter from educational authorities in the United Kingdom stating that 
Y’Hica is a nonprofit institution with degree-granting authority. In 
response to requests from Education for additional information to 
complete the FFEL application, we created false documentation 
indicating that Web sites of the British Department for Education and 
Employment and the Charity Commission for England and Wales recognize 
Y’Hica as a nonprofit, postsecondary institution. Based on these 
documents, Education certified Y’Hica to participate in the FFEL 

Obtaining Student Loans for Fictitious Students under the FFEL Program: 

After requesting and obtaining a federal school code from Education, we 
created identities, addresses, and telephone numbers for three 
students, one of which was Susan M. Collins, purportedly attending 
Y’Hica. We also accessed Education’s Free Application for Federal 
Student Aid Web site and completed PIN applications for each of the 
students. Upon receipt of PINs for the fictitious students, we completed
on-line financial aid applications on their behalf. After obtaining 
Student Aid Reports from Education establishing financial aid 
eligibility and authorization to proceed with the student loan 
application process, we submitted student loan applications to three 
lenders on behalf of Ms. Collins and the other two purported students. 
Nellie Mae Student Lending, Inc. and Sallie Mae Servicing Corporation, 
acting as the guarantor for Nellie Mae, sent letters to the students 
(an example of which is reprinted in enc. II) advising them that their 
student loans had been approved for $18,500 each (totaling $ 55,500). 
[Footnote 2] However, Bank of America, the third lender, did not 
approve the loans. 

Recommendation for Executive Action: 

We recommend that the Secretary of Education 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, we recommend that Education 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. In addition, we recommend that the 
Secretary of Education review the process for certifying student loans 
and develop controls to prevent fictitious students from obtaining 
student loans. 

Agency Comments: 

We provided a briefing to administrators of Education’s Foreign Schools 
Team who agreed that our investigation disclosed weaknesses in 
connection with the certification of foreign schools seeking 
participation in the FFEL Program. As a result, Education advised us 
that it has taken actions based on our recommendation. In this regard, 
the Foreign Schools Team has developed a list of education ministries 
in each country in which certified foreign schools purportedly exist 
and has verified that each school properly received certification to 
participate in the FFEL Program. In addition, the team has implemented 
a procedure by which its staff is responsible for contacting the 
respective education ministry each time a school applies for 
certification or recertification to ensure that the school exists and 
has been recognized by the appropriate educational entity as a 
nonprofit, degree-granting institution. The Foreign Service Team also 
advised us that there are other actions that it plans to take based on 
our investigative findings and recommendation. Those actions include, 
among others, (1) revising the internal certification checklist so that
the source of the validation is noted and (2) providing technical 
assistance to foreign schools on financial aid requirements, such as 
certifying loan applications, ensuring students are accepted for 
enrollment prior to disbursement, and reporting enrollment status 

As arranged with your office, unless you announce its contents earlier, 
we plan no further distribution of this report until 30 days after its 
date. At that time, we will send copies of this report to the Secretary 
of Education and interested congressional committees. The report will 
also be available at no charge on the GAO Web site at [hyperlink,]. If you have questions about the investigation, 
please contact Acting Assistant Director Andrew O’Connell at (202) 512-
7449 or Senior Special Agent Robyn D. Stewart at (202) 512-7475. 

Sincerely yours, 

Signed by: 

Robert J. Cramer: 
Managing Director: 
Office of Special Investigations: 


[End of section] 

Enclosure I: 

[See PDF for image] 

This figure is an illustration of a brochure cover for the fictitious 
Y'Hica Institute for the Visual Arts. 

[End of figure] 

[End of enclosure] 

Enclosure II: 

SallieMae Corporation: 
Killien, TX. 

Nellie Mae, FMBC as Trustee: 

Susan M. Collins: 
4201 Wilson Blvd. 
Arlington, VA 22203-1859: 

Account Number: 007-023155-1: 

Dear Susan M. Collins: 

Congratulations. We are disbursing the funds for your Family Federal 
Education Loan according to the accompanying disclosure statement. 
Please allow time for the funds to be made available to you at your 

Remember that this is a loan that must be repaid. Make sure you have 
investigated all other options for financial aid such as grants and 
scholarships before you accept these funds. The accompanying Plain 
Language Disclosure describes key rights and responsibilities. A 
comprehensive list in included in your Master Promissory Note and 
Rights and Responsibilities statement. 

To assist you in estimating your repayment amount, we are providing a 
chart entitled, "Repaying My Loans", or you may use the repayment 
calculators featured at You can also check the 
status of your loans. 

We wish you the best as you continue your education. 

Loan Origination Department: 


Interim Disclosure Statement: 
Plain Language Disclosure: 
Loan Repayment Estimate Chart: 

SallieMae Corporation: 
Nellie Mae, FMBC as Trustee: 

Federal Interim Disclosure Statement: 

This is a loan that must be repaid. 

This disclosure statement identifies for you the particular terms of 
your loan. Laws and regulations governing the program may have changed 
since you completed your Promissory Note or since you obtained your 
last loan. Any changes appear on the following page of this disclosure 
statement and become part of the terms and conditions of your loan. 

Date: 02/19/02: 

Account Number: 007-023155-1: 

Student Name: Susan M. Collins: 

Student SSN: 007-02-3155-1: 

Interest Rate: 5.390: 

School: Y'Hica Institute for the Visual Arts: 

Anticipated graduation date: 06/30/04: 

Grace Period: 6 months: 

Repayment Begin Date: 12/31/04: 
For FFLE loan, first payment is due after the final disbursement. 

Lender: Nellie Mae, FMBC as Trustee. 

Lender ED Code: 829076: 

Disbursement Information: 

If your funds are disbursed by check, we will send the check(s) to your 
school. Your school will notify you when they receive your check(s). 
The school will apply your check to your bill at the school and issue a 
check to you for any remaining balance on your loan. If you do not want 
your funds, do not endorse the check(s), but return it to us 
immediately (or have the school return it to us). If your funds are 
disbursed by EFT, we will wire the fund to your school. Your school 
will deposit the funds into your account at the school and issue a 
check to you for any remaining balance on your loan. If you do not want 
your funds, notify us or your school immediately. 

Loan Program: STAF - UNSUB: 
Scheduled Disbursement Date: 02/19/02; 
Principal Loan Amount: $9,250.00; 
Origination Fee: $277.50; 
Guarantee Fee: 0; 
Net Disbursement Amount: $8,972.50. 

Loan Program: STAF - UNSUB: 
Scheduled Disbursement Date: 05/30/02; 
Principal Loan Amount: $9,250.00; 
Origination Fee: $277.50; 
Guarantee Fee: 0; 
Net Disbursement Amount: $8,972.50. 

Loan Program: Total: 
Principal Loan Amount: $18,500.00; 
Origination Fee: $555.00; 
Guarantee Fee: 0; 
Net Disbursement Amount: $17,945.00. 

Dates are estimated and subject to your continued eligibility. Interest 
begins to accrue on PLUS and unsubsidized Stafford loans on the 
disbursement date. 

Fees have been subtracted from your principal loan amount. 

Unsubsidized Interest Payments: 

The estimated interest that will accrue each quarter on your 
unsubsidized Stafford loan is listed below. All unpaid interest will be 
capitalized (added to the principal) when you begin repayment. If you 
wish to pay the interest, write your social security number on your 
check, note "unsub interest" on the memo line, and send to our payment 

03/31/02: $55.97; 
06/30/02: $167.90. 

PO B0x 4700
Wilkes-Barre, PA. 18773-4700. 

Total Cumulative Debt: 

The information below lists your cumulative Federal Stafford 
(subsidized and unsubsidized), SLS and PLUS loan debt, including the 
total principal loan amount listed above and the outstanding principal 
on any previous loans. This summarizes only the loans owned by us and 
serviced by the Sallie Mae Servicing Corporation. It does not include 
amounts you may owe through other lending institutions. 

Loan Program: Stafford, Subsidized: 
Loan Principal Amount: $0. 

Loan Program: Stafford, Unsubsidized: 
Loan Principal Amount: $18,500.00; 

Loan Program: SLS:
Loan Principal Amount: $0; 

Loan Program: PLUS; 
Loan Principal Amount: $0; 

Loan Program: Total; 
Loan Principal Amount: $18,500. 

Please see the following page for important information about your 

[End of enclosure] 


[1] The FFEL program is a loan program for postsecondary students that 
the government supports under Title IV of the Higher Education Act. 
Previously, GAO identified vulnerabilities in the Guaranteed Student 
Loan Program. (See U.S. General Accounting Office, High-Risk Series: 
Guaranteed Student Loans, GAO/HR-93-2 (Washington, D.C.: December 
1992), and High-Risk Series: Student Financial Aid, GAO/HR-95-10 
(Washington, D.C.: February 1995). 

[2] We contacted the financial institutions to explain that we had 
applied for the loans as a part of our investigation and requested that 
the financial institutions stop payment on the disbursement checks. 

[End of section] 

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