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 
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 

Country 

Number of 

schools

Average number of 

students per school Loan volume

Dominica 1 1776 $35,235,509

Grenada 1 1528 $30,666,842

Mexico 11 138 $27,003,357

England 182 9 $25,405,722

Dominican Republic 6 177 $20,653,159

 Source: GAO analysis of FSA data. 

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.

Recent events have increased 

concerns about the potential for 

fraud in Education’s student loan 

programs related to loans for U.S. 

residents attending foreign schools. 

In 2002, GAO’s Office of Special 

Investigations created a fictitious 

foreign school that Education 

subsequently certified as eligible to 

participate in the student loan 

program. GAO investigators 

subsequently successfully obtained 

approval for student loans totaling 

$55,000 on behalf of three fictitious 

students. Over the past decade, 

Education’s Inspector General has 

investigated many instances of 

suspected student loan fraud 

involving individuals applying for 

loans for purported attendance at 

foreign schools. The conference 

report accompanying the 2001 

Labor, Health and Human Services, 

and Education Appropriations Act 

mandated that GAO examine and 

report on fraud, waste, and abuse 

with respect to student loans for 

Americans attending foreign 

schools. 

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. 

Highlights of GAO-03-647, a report to 

Congressional Addressees 

July 2003

STUDENT LOANS AND FOREIGN 

SCHOOLS 

Assessing Risks Could Help Education 

Reduce Program Vulnerability 
Page i GAO-03-647 Student Loans and Foreign Schools 

Letter 1

Results in Brief 3

Background 5

FFELP is Vulnerable to Fraud, Waste, and Abuse in Several Ways 

with Respect to U.S. Residents Attending Foreign Schools 12

Education Has Taken Limited Steps to Reduce the Vulnerability of 

FFELP to Fraud, Waste, and Abuse but FFELP Remains 

Vulnerable 18

Additional Actions to Reduce Program Vulnerability Will Require 

Balancing Competing Goals 23

Conclusions 27

Recommendations for Executive Action 28

Agency Comments 28

Appendix I Characteristics of Foreign Schools Participating in 

FFELP, by Country 30 

Appendix II Comments from the Department of Education 32 

Tables 

Table 1: Education Oversight Components for Foreign Schools 10

Table 2: Status of Foreign Schools’ Submission of Audited 

Financial Statements for Fiscal Year 2001 16

Table 3: Status of Foreign Schools’ Submission of Program 

Compliance Audit Reports for Fiscal Year 2001 17

Table 4: Information in COACH Not Applicable to Foreign Schools 21

Figure 

Figure 1: Countries with Schools Eligible to Participate in FFELP 

and Top 10 Foreign Schools by Loan Volume for 

Academic Year 2000-01 8

Contents 
Page ii GAO-03-647 Student Loans and Foreign Schools 

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 

This is a work of the U.S. Government and is not subject to copyright protection in the 

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permission from GAO. It may contain copyrighted graphics, images or other materials. 

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Page 1 GAO-03-647 Student Loans and Foreign Schools 

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.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 

 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. 

United States General Accounting Office 

Washington, DC 20548 
Page 2 GAO-03-647 Student Loans and Foreign Schools 

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. 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.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. 

 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. 
Page 3 GAO-03-647 Student Loans and Foreign Schools 

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 

Results in Brief 
Page 4 GAO-03-647 Student Loans and Foreign Schools 

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 onsite 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 tradeoffs 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 
Page 5 GAO-03-647 Student Loans and Foreign Schools 

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. 

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.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, forprofit 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 

 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. 

Background 
Page 6 GAO-03-647 Student Loans and Foreign Schools 

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. 
Page 7 GAO-03-647 Student Loans and Foreign Schools 
Page 8 GAO-03-647 Student Loans and Foreign Schools 

Figure 1: Countries with Schools Eligible to Participate in FFELP and Top 10 Foreign Schools by Loan Volume for Academic 

Year 2000-01 

McGill U.

Canada

U. Iberoamericana

Dominican Republic

U. Central del Este

Dominican Republic

 American U. of the

 Caribbean School

 of Medicine

St. Maarten

Ross U. School of 

Veterinary Medicine

St. Kitts

 Ross U. School of

 Medicine

Dominica

St. George's U. 

School of Medicine

Grenada 

 U. Autonoma de

 Guadalajara

Mexico

Participating countries

Source: GAO analysis of FSA data.
Page 9 GAO-03-647 Student Loans and Foreign Schools 

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 

Tel Aviv U.-

Sackler School of

Medicine

Israel

U. of LondonLondon School of

Economics and 

Political Science

England
Page 10 GAO-03-647 Student Loans and Foreign Schools 

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 Purpose 

Audited financial statements Provides Education with information to evaluate a school’s 

financial condition. 

Program compliance audit 

reports 

Provides information about schools’ compliance with HEA 

and related Education regulations. 

On-site program reviews Assesses schools’ ability to administer FFELP. 

Initial certification and 

recertification process 

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. 

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 
Page 11 GAO-03-647 Student Loans and Foreign Schools 

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.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. 

 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. 
Page 12 GAO-03-647 Student Loans and Foreign Schools 

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. 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. 

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 

FFELP is Vulnerable 

to Fraud, Waste, and 

Abuse in Several Ways 

with Respect to U.S. 

Residents Attending 

Foreign Schools 

Some Foreign School 

Officials Are Not Properly 

Determining and 

Documenting Student 

Eligibility for Loans 
Page 13 GAO-03-647 Student Loans and Foreign Schools 

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 
Page 14 GAO-03-647 Student Loans and Foreign Schools 

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 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. 

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 

Education Has Not 

Recently Conducted OnSite Program Reviews, 

Which Could Help Ensure 

Program Integrity 

Loan Disbursement 

Processes for Foreign 

Schools May Exacerbate 

Potential Loss of FFELP 

Funds 
Page 15 GAO-03-647 Student Loans and Foreign Schools 

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 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.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 onethird 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.) 

 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. 

Many Foreign Schools Fail 

to Submit Required Annual 

Audit Reports That Could 

Help Education Monitor 

for and Detect Fraud, 

Waste, and Abuse 
Page 16 GAO-03-647 Student Loans and Foreign Schools 

Table 2: Status of Foreign Schools’ Submission of Audited Financial Statements for 

Fiscal Year 2001 

FFELP loan 

volume 

Number 

of 

schools

Number of 

schools that 

did not submit 

audited 

financial 

statements

Volume of FFELP 

loans certified by 

schools not 

submitting 

audited financial 

statements

Number of 

schools 

submitting 

audited 

financial 

statements in 

U.S. GAAP

$0-249,999 419 257 $11.9 million Not applicable

$250,000-499,999 39 19 6.2 million Not applicable

$500,000 + 52 16 20.1 million 16

Total 510 292 $38.2 million

Source: GAO analysis of FSA data. 

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.) 
Page 17 GAO-03-647 Student Loans and Foreign Schools 

Table 3: Status of Foreign Schools’ Submission of Program Compliance Audit 

Reports for Fiscal Year 2001 

Dollars in millions 

FFELP loan 

volume 

Number of 

schools

Number of schools 

that did not submit 

program 

compliance audit 

reports 

Volume of FFELP loans 

certified by schools not 

submitting program 

compliance audit reports

$0-249,999 419 419 $21.6 

$250,000-499,999 39 34 11.8

$500,000 + 52 23 25.9

Total 510 476 $59.3

Source: GAO analysis of FSA data. 

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. 

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, degreegranting 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 

Some Foreign Schools Do 

Not Provide Loan 

Counseling for Student 

Borrowers 

No On-Site Visits 

Conducted to Verify 

Existence of Foreign 

Schools 
Page 18 GAO-03-647 Student Loans and Foreign Schools 

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—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. 

Education Has Taken 

Limited Steps to 

Reduce the 

Vulnerability of 

FFELP to Fraud, 

Waste, and Abuse but 

FFELP Remains 

Vulnerable 
Page 19 GAO-03-647 Student Loans and Foreign Schools 

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,

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 

 7

Computer-Based Orientation to Aid Concepts and How-tos. 

Reference Handbook and 

Training Provided to 

Foreign School Officials, 

Yet Some Officials Remain 

Unaware of How to 

Properly Administer 

FFELP 
Page 20 GAO-03-647 Student Loans and Foreign Schools 

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 online 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.) 
Page 21 GAO-03-647 Student Loans and Foreign Schools 

Table 4: Information in COACH Not Applicable to Foreign Schools 

Type of information COACH statement Reason not applicable to foreign schools 

FAFSA verification process 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). 

Education regulations exempt foreign schools from 

verifying information that students report on the 

FAFSA. 

Electronic systems 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. 

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. 

Loan disbursement procedures 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. 

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. 

SSCR information received online Schools must complete and return 

SSCRs to Education’s NSLDS. 

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. 

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. 
Page 22 GAO-03-647 Student Loans and Foreign Schools 

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. 

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 

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 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 
Page 23 GAO-03-647 Student Loans and Foreign Schools 

school or its owners, Education would consider conducting an on-site 

program review. 

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. 

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 

Additional Actions to 

Reduce Program 

Vulnerability Will 

Require Balancing 

Competing Goals

Stricter Enforcement of 

School Audit 

Requirements Would 

Provide Education More 

Data to Assess 

Vulnerability, but May 

Reduce Student Access 
Page 24 GAO-03-647 Student Loans and Foreign Schools 

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. 
Page 25 GAO-03-647 Student Loans and Foreign Schools 

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 

Changing Loan 

Disbursement Procedures 

Would Reduce Exposure to 

Fraud, Waste, and Abuse, 

but Decrease Lender, 

School, and Student 

Flexibility
Page 26 GAO-03-647 Student Loans and Foreign Schools 

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 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.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. 

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 

 8

U.S. General Accounting Office, Major Management Challenges and Program Risks: A 

Governmentwide Perspective, GAO-03-95 (Washington, D.C.: Jan. 2003). 

Providing Schools 

Electronic Access to 

Education Data Could 

Improve Eligibility 

Determinations but 

Increases Information 

Security Risks 

Risk Assessments Can 

Help Agencies Balance 

Competing Goals Inherent 

in Addressing Program 

Vulnerability 
Page 27 GAO-03-647 Student Loans and Foreign Schools 

from fraud, waste, and abuse.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. 

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. 

 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). 

Conclusions 
Page 28 GAO-03-647 Student Loans and Foreign Schools 

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. 

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 

Recommendations for 

Executive Action 

Agency Comments 
Page 29 GAO-03-647 Student Loans and Foreign Schools 

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
Appendix I: Characteristics of Foreign 

Schools Participating in FFELP, by Country 

Page 30 GAO-03-647 Student Loans and Foreign Schools 

Country Number of schools

FFELP loan volume 

academic year 2000-01

Number of students participating in 

FFELP across schoolsa

Australia 35 $5,021,718 0 to 49

Austria 2 $122,872 0 to 12

Belgium 3 $243,650 0 to 18

Bulgaria 1 $0 0

Canada 108 $15,825,894 0 to 356

Chile 1 $0 0

China 1 $0 0

Colombia 1 $0 0

Costa Rica 3 $541,437 0 to 34

Czech Republic 6 $424,969 0 to 12

Denmark 4 $65,000 0 to 6

Dom. Republic 6 $20,653,159 1 to 469

Dominica 1 $35,235,509 1776

Egypt 1 $450,133 33

England 182 $25,405,722 0 to 191

Finland 3 $110,000 0 to 5

France 13 $1,234,416 0 to 82

Grenada 1 $30,666,842 1528

Hungary 5 $3,035,655 3 to 92

India 2 $354,125 1 to 21

Ireland 9 $5,868,032 0 to 105

Israel 12 $7,176,498 0 to 214

Italy 5 $820,092 1 to 23

Japan 3 $67,598 0 to 3

Korea 1 $29,000 1

Lebanon 1 $37,000 2

Liechtenstein 1 $16,500 2

Mexico 11 $27,003,357 0 to 1214

Netherlands 12 $1,249,679 0 to 46

N. Zealand 6 $279,130 0 to 8

Nicaragua 1 $0 0

N. Ireland 2 $222,165 7 to 10

Norway 5 $56,125 0 to 2

Philippines 4 $311,666 0 to 13

Poland 8 $5,429,140 0 to 106

Scotland 14 $4,183,953 0 to 90

Appendix I: Characteristics of Foreign 

Schools Participating in FFELP, by Country 
Appendix I: Characteristics of Foreign 

Schools Participating in FFELP, by Country 

Page 31 GAO-03-647 Student Loans and Foreign Schools 

Country Number of schools

FFELP loan volume 

academic year 2000-01

Number of students participating in 

FFELP across schoolsa

S. Africa 2 $76,000 0 to 5

Spain 6 $483,308 0 to 17

St. Kitts 2 $14,086,736 91 to 609

St. Maarten 1 $16,500,071 774

Sweden 5 $152,800 0 to 7

Switzerland 6 $701,103 1 to 39

Vatican 3 $202,646 3 to 10

Wales 8 $654,187 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. 
Appendix II: Comments from the Department 

of Education 

Page 32 GAO-03-647 Student Loans and Foreign Schools 

Appendix II: Comments from the Department 

of Education 
Appendix II: Comments from the Department 

of Education 

Page 33 GAO-03-647 Student Loans and Foreign Schools (130149) 
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