	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. About 9,000 of these students attend foreign medical schools  and account for about three-quarters of the total loan volume. 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. Education evaluates the application and accompanying documentation to  determine whether a school is eligible to participate. FFELP is Vulnerable to Fraud, Waste, and Abuse in Several Ways with Respect to U.S. 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. As a result, FFELP funds may be  provided to students who should not be receiving them. 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. 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. For fiscal  year 2001, about 57 percent of foreign schools failed to submit audited  financial statements. 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. 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. 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. 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. For instance, two foreign school administrators  indicated that they had not received the Handbook from Education. However, any steps that Education  takes will likely involve trade-offs that may affect access, accountability,  and burden for various participants in FFELP.
Why GAO Did This Study

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.

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. 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.