Proprietary Schools:

Stronger Department of Education Oversight Needed to Help Ensure Only Eligible Students Receive Federal Student Aid

GAO-09-600: Published: Aug 17, 2009. Publicly Released: Sep 21, 2009.

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For-profit schools-also known as proprietary schools-received over $16 billion in federal loans, grants, and campus-based aid under Title IV of the Higher Education Act in 2007/08. GAO was asked to determine (1) how the student loan default profile of proprietary schools compares with that of other types of schools and (2) the extent to which Education's policies and procedures for monitoring student eligibility requirements for federal aid at proprietary schools protect students and the investment of Title IV funds. To address these objectives, GAO analyzed data and records from Education, examined Education's policies and procedures, reviewed relevant research studies, conducted site visits and undercover investigations at proprietary schools, and interviewed officials from Education, higher education associations, and state oversight agencies.

The Department of Education makes loans available to students to help them pay for higher education at public, private non-profit, and proprietary schools, and the students who attend proprietary schools are most likely to default on these loans, according to analysis of recent student loan data. Students from proprietary schools have higher default rates than students from other schools at 2, 3, and 4 years into repayment. Academic researchers have found that higher default rates at proprietary schools are linked to the characteristics of the students who attend these schools. Specifically, students who come from low income backgrounds and from families who lack higher education are more likely to default on their loans, and data show that students from proprietary schools are more likely to come from low income families and have parents who do not hold a college degree. Borrowers who are not successful in school and drop out also have high default rates. Ultimately, when student loan defaults occur, both taxpayers and the government, which guarantees the loans, are left with the costs. Although students must meet certain eligibility requirements to demonstrate that they have the ability to succeed in school before they receive federal loans, weaknesses in Education's oversight of these requirements place students and federal funds at risk of potential fraud and abuse at proprietary schools. Students are required to pass a test of basic math and English skills or have a high school diploma or GED to qualify for federal student aid. Yet, GAO and others have found violations of these requirements. For example, when GAO analysts posing as prospective students took the basic skills test at a local proprietary school, the independent test administrator gave out answers to some of the test questions. In addition, the analysts' test forms were tampered with-their actual answers were crossed out and changed-to ensure the individuals passed the test. GAO also identified cases in which officials at two proprietary schools helped prospective students obtain invalid high school diplomas from diploma mills in order to gain access to federal loans. GAO's findings do not represent nor imply widespread problems at all proprietary schools. However, GAO's work has identified significant vulnerabilities in Education's oversight. Education's inadequate monitoring of basic skills tests and lack of guidance on valid high school diplomas enables unqualified students to gain access to federal student aid. Unqualified students are at greater risk of dropping out of school, incurring substantial debt, and defaulting on federal loans.

Recommendations for Executive Action

  1. Status: Closed - Implemented

    Comments: According to the Department of Education's June 16, 2011 response to our recommendations, Education revised its regulations to establish new requirements under which test publishers must provide descriptions of processes for identifying and handling test score abnormalities, and certifying and decertifying test administrators.

    Recommendation: In order to help ensure that only eligible students receive Title IV funds, the Secretary of Education should revise regulations to strengthen controls over the ATB testing process. For example, under its authority to regulate the administration of tests, Education should consider: (1) requiring test publishers to conduct an interim or mid-point analysis-a supplement to the 3-year test score analysis and submission requirement-to provide a preliminary review of potential testing problems, and submit a copy of their results to the Secretary; or (2) requiring test publishers to have a process to follow-up on identified test score irregularities, take action to decertify test administrators if test irregularities suggest improper test administration, report actions taken as a result of test score analyses to the Secretary and prohibit test publishers from using ATB test administrators who have been decertified by any test publisher.

    Agency Affected: Department of Education

  2. Status: Closed - Implemented

    Comments: According to the Department of Education's response dated July 20, 2012, Federal Student Aid (FSA) has processes in place to obtain data from test publishers on schools where test administrators improperly administered tests and were later decertified to target schools for further review. In its May 2011 program review procedures, which went into effect July 1, 2011, FSA included requirements for test publishers to report to the Secretary the names of any test administrators they decertify and any other action taken as a result of test score analyses. FSA has received data from one test publisher on test administrators subject to decertification based on irregularity detection indices, along with a list of schools at which they administered ability to benefit (ATB) tests. This information will help the agency better target schools for further review.

    Recommendation: In order to help ensure the eligibility of Title IV recipients, the Secretary of Education should should strengthen the department's process for monitoring the ATB program. Education should: (1) conduct regular follow-up of (ATB) test analyses submissions to ensure federally approved test publishers provide complete submissions as required; and (2) use data provided by test publishers on schools where test administrators improperly administered tests and were later decertified to target schools for further review.

    Agency Affected: Department of Education

  3. Status: Closed - Implemented

    Comments: According to the Department of Education's June 16, 2011 response to our report recommendations, the agency revised its regulations to ensure that students who receive federal student aid have a valid high school diploma. New regulations require schools to develop and follow procedures to evaluate a student's high school completion if the school or the department believes the high school diploma did not come from a legitimate high school. Its regulations note the provision of a drop down list for the 2011-2012 Free Application for Federal Student Aid, which will provide the names of legitimate public and private high schools.

    Recommendation: In order to protect against the use of high school diplomas from diploma mills to obtain Title IV eligibility and help ensure that only students with the ability to benefit from higher education receive federal aid, the Secretary of Education should: (1) create guidance, using information gathered from public hearings or other forums regarding the definition of a high school diploma, to clearly communicate to Education staff, schools, and independent auditors the department's position that diplomas from high school diploma mills cannot be used for Title IV eligibility purposes. For example, Education could provide this guidance through regulation or the Federal Student Aid Handbook; and (2) establish a cost-effective and readily available source of information that the department's program review staff, schools, and independent auditors can use to help them determine whether a high school diploma is from a diploma mill. For example, Education could obtain existing lists of state-approved high schools and make them available on the department's student financial aid Web site.

    Agency Affected: Department of Education


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