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entitled 'Student Loans and Foreign Schools: Assessing Risks Could Help 
Education Reduce Program Vulnerability' which was released on July 25, 
2003.

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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 
Educationís student loan programs related to loans for U.S. residents 
attending foreign schools. In 2002, GAOís 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, Educationís 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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