oversight

Guaranty Agenicies' Oversight of Federal Family Education Loan (FFEL) Program Loans Disbursed Directly to Borrowers for Attendance at Foreign Schools.

Published by the Department of Education, Office of Inspector General on 2005-08-09.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

                        UNITED STATES DEPARTMENT OF EDUCATION
                                           OFFICE OF THE INSPECTOR GENERAL




                                                     August 9, 2005


                                                                              Control Number ED-OIG/A05-E0028


Theresa S. Shaw, Chief Operating Officer
Federal Student Aid
U.S. Department of Education
830 First Street, NE, Union Center Plaza, Room 112G1
Washington, D.C. 20202

Sally L. Stroup, Assistant Secretary
Office of Postsecondary Education
U.S. Department of Education
1990 K Street, NW, Room 7115
Washington, D.C. 20006

Dear Ms. Shaw and Ms. Stroup:

This Final Audit Report presents the results of our audit of guaranty agencies’ oversight of
Federal Family Education Loan (FFEL) program loans disbursed directly to borrowers for
attendance at foreign schools during the period January 1, 2004, through September 30, 2004.
Our objective was to determine if guaranty agencies established policies and procedures that
provided reasonable assurance they complied with the requirements of Dear Colleague Letter
(DCL) G-03-348 for ensuring FFEL program funds are disbursed only to eligible borrowers
accepted for attendance at eligible foreign schools.

Two guaranty agencies that guaranteed approximately 79 percent of all foreign school loans
during the first six months of 2004 did not have policies and procedures that provided reasonable
assurance they fully complied with the requirements of DCL G-03-348. Therefore, we
concluded that policies and procedures are generally not in place to ensure that FFEL loans for
attendance at foreign schools are disbursed in accordance with the requirements of DCL G-03-
348. The two guaranty agencies did not perform the verification procedures set forth in DCL G-
03-348 for every disbursement their lenders made directly to borrowers for attendance at foreign
schools because lenders did not always adhere to the guaranty agencies’ policies of notifying
them when borrowers requested their FFEL foreign school loan disbursements be sent directly to
them.

In response to the draft of this report (see ATTACHMENT), you concurred with two of the three
recommendations and stated you are taking appropriate action, but you did not concur with the
third recommendation (strengthen DCL G-03-348, specifically the section on lender
                                400 MARYLAND AVE., S.W. WASHINGTON, D.C 20202-1510
                                                           www.ed.gov


          Our mission is to ensure equal access to education and to promote educational excellence throughout the Nation.
Final Audit Report
ED-OIG/A05E0028                                                                    Page 2 of 8


requirements). You commented that the requirements in DCL G-03-348 are clear and do not
need to be strengthened.

Though we agree that the requirements set forth in DCL G-03-348 are written in a clear manner,
our audit work showed that at least four lenders have failed to adhere to those requirements and
their guaranty agencies’ policies. Because DCL G-03-348 focuses on the responsibilities of
guaranty agencies, the letter should be strengthened to emphasize to lenders that their
compliance is a condition for their loan guarantees. Therefore, we revised recommendation 1.3
to more clearly reflect the actions that are necessary to protect the FFEL programs.

                                       BACKGROUND

In August 2003, the U.S. Department of Education (Department), Office of Postsecondary
Education (OPE), issued DCL G-03-348, informing guaranty agencies of actions required to
assist in the oversight of FFEL program funds for borrowers attending foreign schools. The
letter outlined the requirements guaranty agencies must follow to ensure FFEL program loans are
made only to eligible borrowers at eligible foreign schools. Guaranty agencies must (1)
reconfirm that the institution is eligible to participate in the FFEL program before FFEL program
funds are disbursed directly to a borrower for attendance at a foreign school, (2) verify that the
borrower is accepted for enrollment at the foreign institution indicated on the loan application
before FFEL program funds are disbursed directly to a borrower for attendance at a foreign
school, (3) continue sending paper Student Status Confirmation Reports to institutions that are
unable to connect with the Department’s National Student Loan Data System, and (4) perform
program reviews of foreign schools as appropriate. The Department expected the guaranty
agencies to implement these additional procedures no later than three months from the
publication of the DCL.

According to National Student Loan Data System data, the guaranty agencies guaranteeing the
largest percentage of loans to borrowers for attendance at foreign schools for the period January
1, 2004, through June 30, 2004, were United Student Aid Funds, Inc. (USAF) with 59 percent,
Great Lakes Higher Education Corporation (GLHEC) with 20 percent, and the Pennsylvania
Higher Education Assistance Agency with 8 percent. We selected the two largest guaranty
agencies (by foreign school loan volume) for this audit. According to USAF and GLHEC data,
during the period January 1, 2004, through September 30, 2004, USAF guaranteed 26,732
foreign school loan disbursements totaling $127,015,990, and GLHEC guaranteed 9,251 foreign
school loan disbursements totaling $40,376,195.

                                      AUDIT RESULTS

Finding 	      Stronger Control Needed over FFEL Program Loans Disbursed Directly to
               Borrowers for Attendance at Foreign Schools

USAF and GLHEC continued sending paper Student Status Confirmation Reports to institutions
that were unable to connect with the Department’s National Student Loan Data System. In
addition, the guaranty agencies had policies to perform program reviews of foreign schools if
they deemed such a review was appropriate. However, the guaranty agencies did not have
Final Audit Report
ED-OIG/A05E0028                                                                              Page 3 of 8


policies and procedures that provided reasonable assurance they fully complied with the
requirements of DCL G-03-348. USAF and GLHEC guaranteed approximately 79 percent of
FFELP loans disbursed for attendance at foreign schools during the first six months of 2004.
Therefore, we concluded that policies and procedures are generally not in place to ensure that
FFELP loans for attendance at foreign schools are disbursed in accordance with the requirements
of DCL G-03-048.

The guaranty agencies’ policies required lenders to notify them when FFEL program funds were
to be disbursed directly to a borrower for attendance at a foreign school. When notified, the
guaranty agencies reconfirmed that the foreign institution was eligible to participate in the FFEL
program before FFEL program funds were disbursed directly to a borrower for attendance at a
foreign school and verified that the borrower was accepted for enrollment at the foreign
institution indicated on the loan application. However, lenders did not always notify the
guaranty agencies when borrowers requested direct disbursements; therefore, the guaranty
agencies did not always perform the DCL verification procedures.

• 	 Three of USAF’s lenders (Citibank, N.A.; Bank of America; and Educaid), generating 15
    percent of USAF’s foreign school loan volume during the audit period, did not follow
    USAF’s policy and notify USAF when borrowers requested FFEL disbursements be sent
    directly to them. USAF disseminated its policy to its lenders and stated the process was
    effective November 25, 2003. The policy requires lenders or disbursing agents, via e-mail,
    to ask USAF to verify that the foreign school is eligible to receive FFEL funds and that the
    borrower is enrolled at the foreign school. The lenders and disbursing agents are not to
    disburse funds until receiving USAF’s approval.
• 	 During a recent review,1 USAF reviewed a random sample of 100 foreign school loan
    disbursements made by Citibank and determined that 25 borrowers requested disbursements
    be sent directly to them. For all 25 borrowers, Citibank did not notify USAF of the
    borrower’s request. As a result, USAF asked Citibank to identify and provide USAF a
    listing of all the loans that were disbursed to borrowers for the period November 1, 2003,
    through September 30, 2004. Citibank identified an additional 91 borrowers. In total, USAF
    tested 116 (25+91) borrowers and found one ineligible borrower received FFEL funds. For
    the ineligible borrower, USAF canceled the loan’s insurance.
• 	 We could not test Bank of America or Educaid borrowers because USAF’s computer system
    lacked sufficient information. Unless Sallie Mae was the disbursing agent, USAF’s system
    did not contain information indicating whether disbursements were sent to the foreign
    schools or directly to the borrowers.
• 	 Northstar, a lender with a blanket certificate of guaranty with GLHEC, did not follow
    GLHEC’s policy. GLHEC’s policy required Northstar to notify it prior to disbursement if a
    disbursement would be sent directly to the borrower. GLHEC would then perform DCL
    verification procedures. GLHEC’s Director of Internal Audit told us that GLHEC does not
    have documentation of notifications from Northstar or documentation that anyone performed
    the required verification procedures.


1
 USAF began its review of Citibank on September 1, 2004. USAF reviewed Citibank’s foreign school loans for the
period November 1, 2003, through June 30, 2004.
Final Audit Report
ED-OIG/A05E0028                                                                   Page 4 of 8


Guaranty Agencies Must Confirm Eligibility Prior to Loan Disbursement
According to DCL G-03-348, issued in August 2003, guaranty agencies must (1) reconfirm that
the foreign institution is eligible to participate in the FFEL program before FFEL program funds
are disbursed directly to a borrower for attendance at a foreign school, (2) verify that the
borrower is accepted for enrollment at the foreign institution indicated on the loan application
before FFEL program funds are disbursed directly to a borrower for attendance at a foreign
school, (3) continue sending paper Student Status Confirmation Reports to institutions that are
unable to connect with the Department’s National Student Loan Data System, and (4) perform
program reviews of foreign schools as appropriate. The Department expected the guaranty
agencies to implement these additional procedures no later than three months from the
publication of the DCL.

Guaranty Agencies Need to Strengthen Their Control over Foreign School Loans
USAF and GLHEC did not monitor lenders to ensure they adhered to their policies. Bank of
America’s Vice President of Operations told us that Bank of America did not notify USAF when
a borrower requested that a disbursement be sent directly to him or her. Instead, Bank of
America sent USAF an electronic transmission of its foreign school loan disbursements and
considered the transmission as sufficient notice to USAF. We told USAF’s compliance officials
about Bank of America’s procedures. The compliance officials told us that Bank of America’s
electronic transmission would not have sufficient information for USAF to know which
borrowers requested disbursements be sent directly to them because some of the required
information would not be known until after preparation of the notices of guarantee.

Educaid’s Loan Processing Supervisor told us Educaid did not notify USAF or have USAF
perform the DCL verification procedures. The Loan Processing Supervisor said that Educaid
performs the DCL verifications prior to making a disbursement of FFEL funds directly to a
borrower for attendance at a foreign school. Educaid would ask the guarantor or the Department
to determine foreign school eligibility (Educaid does not have access to the Postsecondary
Education Participant System, or PEPS); Educaid would then maintain a record of the
verification work it performed. We told USAF’s Supervisor of Compliance and one of USAF’s
internal auditors about Educaid’s policy, and they appeared surprised because they were unaware
of Educaid’s procedures, speculating that Educaid may have more than one policy in this area.

GLHEC did not realize it did not perform any DCL verifications on Northstar borrowers until
our audit. GLHEC’s Director of Internal Audit told us that Northstar and GLHEC established
procedures in November 2003 for foreign school disbursements that are sent directly to
borrowers. The procedures specified that Northstar would, via e-mail, notify GLHEC about the
disbursement. GLHEC then would perform the required verification procedures and let
Northstar know if the borrower or foreign school was ineligible. However, GLHEC did not keep
copies of any e-mails received from Northstar or any documentation supporting verification of
foreign school eligibility or borrower enrollment. We asked Northstar’s Operations Manager if
Northstar maintained the e-mail verifications sent to GLHEC during the audit period. The
official told us that Northstar did not keep those e-mails.
Final Audit Report
ED-OIG/A05E0028                                                                      Page 5 of 8


No Assurances FFEL Loans Were Disbursed to Eligible Borrowers
Because the guaranty agencies did not perform the DCL verification procedures for every
disbursement made directly to a borrower, the Department does not have reasonable assurance
that FFEL foreign school loans were disbursed only to eligible borrowers. For example, USAF
does not have any record of DCL verification procedures being performed for Citibank, Bank of
America, or Educaid borrowers. The three lenders made 3,953 foreign school loan
disbursements during the audit period. For Bank of America (561) and Educaid (976) loan
disbursements, the information was not available for us to determine the number of borrowers
who requested disbursements be sent directly to them and for whom USAF did not perform the
verification procedures. In addition, USAF did not perform the verification procedures for 116
Citibank borrowers until it began a review of Citibank in September 2004, after the loans had
been disbursed. Citibank disbursed one FFEL loan to an ineligible borrower.

In addition, after our exit conference, GLHEC’s Director of Internal Audit told us GLHEC asked
Northstar to provide a list of all foreign school loans disbursed directly to borrowers during our
audit period. Of the 40 Northstar borrowers, 8 had their disbursements sent directly to them
without any evidence of the DCL verification procedures being performed.

Recommendations

We recommend that the Chief Operating Officer for Federal Student Aid, in conjunction with the
Assistant Secretary for Postsecondary Education:

1.1 Require guaranty agencies to establish and implement policies and procedures for
    monitoring, on a regular basis, lenders’ compliance with the guaranty agencies’ verification
    policies and DCL G-03-348.

1.2 Require guaranty agencies to test all disbursements made to borrowers for attendance at
    foreign schools, for all lenders that did not submit notifications during the period January 1,
    2004, through September 30, 2004, and cancel the loan guaranty for all ineligible loans
    identified.

1.3 Send DCL G-03-348 to all lenders and highlight the section on lender requirements.
    Emphasize that, in order to qualify for a loan guaranty, lenders must follow their guaranty
    agencies’ policies prior to disbursing loans directly to borrowers for attendance at foreign
    schools.

                       OBJECTIVE, SCOPE, AND METHODOLOGY

The objective of the audit was to determine if guaranty agencies had established policies and
procedures that provided reasonable assurance they were complying with the requirements of
DCL G-03-348. Our audit covered FFEL program loans disbursed directly to borrowers for
attendance at foreign schools and disbursed during the period January 1, 2004, through
September 30, 2004.
Final Audit Report
ED-OIG/A05E0028                                                                                  Page 6 of 8


To achieve our objective, we –

     • 	 Interviewed USAF and GLHEC officials and staff;
     • 	 Reviewed USAF’s and GLHEC’s written policies and procedures for verifying school
         eligibility and borrower enrollment prior to disbursements of FFEL funds directly to
         students for attendance at foreign schools;
     • 	 Reviewed USAF’s and GLHEC’s policies and procedures for (1) sending paper Student
         Status Confirmation Reports to institutions that were unable to connect with the
         Department’s National Student Loan Data System and (2) performing program reviews
         of foreign schools as appropriate;
     • 	 Interviewed various lender officials; and
     • 	 Tested a sample of borrowers and reviewed borrower comment screens on both USAF’s
         and GLHEC’s systems, imaged information (PEPS printouts), and Sallie Mae’s LFM
         and CLASS systems to ensure USAF and GLHEC performed the DCL verification
         procedures.

We used statistical random sampling techniques to select borrowers for our review of USAF’s
adherence to the DCL verification procedures. We randomly selected 500 of 3,074 borrowers
from 4 of USAF’s 5 largest disbursing agents (Sallie Mae-LFM, Bank of America, Educaid, and
Sallie Mae-CLASS)2 but could test only 422 borrowers. For the LFM and CLASS disbursing
agents, we randomly selected and tested 200 borrowers from each group (LFM universe was
1,173, and CLASS universe was 1,286). For Bank of America and Educaid, we randomly
selected 50 borrowers from each (Bank of America universe was 300 and Educaid universe was
315). We tested only 10 Bank of America borrowers and 12 Educaid borrowers because USAF’s
EAGLE II system did not contain sufficient information to determine if the disbursement was
sent to the school or directly to the borrower.

We used statistical random sampling techniques to select borrowers for our review of GLHEC’s
adherence to the DCL verification procedures. We randomly selected 70 borrowers from a
universe of 336 but could test only 60 borrowers. We divided our universe into two groups:
GLHEC-disbursed and non-GLHEC-disbursed loans. For the GLHEC-disbursed loans, we
randomly selected and tested 50 borrowers from a universe of 283. For the non-GLHEC-
disbursed loans, we randomly selected 20 borrowers from a universe of 53 . However, we could
not test 15 of the 20 selected borrowers because (1) 14 were Northstar borrowers, and (2)
GLHEC did not guarantee the one other borrower’s disbursement. We could not test Northstar
borrowers because GLHEC did not have data to support the performance of the DCL verification
procedures. Therefore, we tested only the 5 Sallie Mae borrowers from our randomly selected
sample and all 5 additional Sallie Mae borrowers from the non-GLHEC-disbursed universe.

We also relied, in part, on computer-processed data contained in USAF’s and GLHEC’s
guarantor systems. The data consisted of all the FFEL foreign school loans USAF and GLHEC

2
 Citibank is one of USAF’s larger disbursing agents. However, USAF officials told us that, during the audit period,
Citibank did not notify USAF of any disbursements to be sent directly to borrowers. We excluded Citibank
borrowers from our sampling because USAF initiated its own review. USAF identified one ineligible borrower and
canceled the loan’s insurance.
Final Audit Report
ED-OIG/A05E0028                                                                    Page 7 of 8


guaranteed for the period January 1, 2004, through September 30, 2004. We tested the
reasonableness of the data by comparing it to the borrower comment history screens and hard
copy documents (imaged copies and Sallie Mae printouts). Based on these tests, we concluded
the data was sufficiently reliable to be used in meeting the audit objective.

We conducted our audit work at USAF’s office in Indianapolis, Indiana; GLHEC’s office in
Madison, Wisconsin; and our office in Chicago, Illinois, from October 2004, through April 2005.
We conducted the audit in accordance with generally accepted government auditing standards
appropriate to the scope of the audit described above.

                         STATEMENT ON INTERNAL CONTROL

We made a study and evaluation of the internal control system over foreign school loan
disbursements of USAF and GLHEC guaranteed loans in effect during the period January 1,
2004, through September 30, 2004. For the purpose of this report, we classified significant
internal control procedures into the following categories:

   • 	 USAF’s foreign school loan disbursements sent directly to borrowers
   • 	 GLHEC’s GLHEC Servicing and Sallie Mae foreign school loan disbursements sent
       directly to borrowers
   • 	 GLHEC’s BCG Lenders’ foreign school loan disbursements sent directly to borrowers

To perform our assessment of USAF’s and GLHEC’s systems of internal control, we assessed
risk exposure for USAF's and GLHEC’s foreign school loans process, identified and documented
USAF's and GLHEC’s procedures for guaranteeing FFEL funds disbursed to borrowers for
attendance at foreign schools, and determined if that control provided reasonable assurance of
compliance with DCL G-03-348.

USAF and GLHEC are responsible for establishing and maintaining systems of internal control.
In fulfilling this responsibility, estimates and judgments by management are required to assess
the expected benefits and related costs of control procedures. The objectives of the system are to
provide management with reasonable, but not absolute, assurance that assets are safeguarded
against loss from unauthorized use or disposition and that the transactions are executed in
accordance with management's authorization and are recorded properly so as to permit effective
and efficient operations.

Because of inherent limitations in any system of internal control, errors or irregularities may
occur and not be detected. Also, projection of any evaluation of the system to future periods is
subject to the risk that procedures may become inadequate because of changes in conditions or
that the degree of compliance with the procedures may deteriorate.

Our assessment disclosed a significant weakness in the guaranty agencies’ systems of internal
control over foreign school loan disbursements in effect during the period January 1, 2004,
through September 30, 2004, that, in our opinion, results in more than a relatively low risk that
errors or irregularities that could be material may occur and not be detected within a timely
period. Guaranty agencies did not have monitoring procedures in place for ensuring that lenders
Final Audit Report
ED-OIG/A05E0028                                                                    Page 8 of8


followed their verification policies. Guaranty agencies have infonned their lenders of the DCL
requirements, including sending lenders their policies. However, as a practice, guaranty agencies
relied on lenders to notify them when borrowers requested loan disbursements be sent directly to
them. See the Audit Results section of this report.             .

                               ADMINISTRATIVE MATTERS

Statements that managerial practices need improvement, as well as -other conclusions and
recommendations presented in this report, represent the opinions of the Office ofInspector
General. Detenninations of corrective actions to be taken will be made by the appropriate U.S.
Department of Education officials.

Corrective actions proposed (resolution phase) and implemented (closure phase) by your offices
will be monitored and tracked through the Department's Audit Accountability and Resolution
Tracking System (AARTS). The Department's policy requires that you develop a corrective
action plan (CAP) for our review in the automated system within 30 days of the issuance ofthis
report. The CAP sho~.tld set forth the specific action items and targeted completion dates
necessary to implement final corrective actions on the finding and recommendations contained in
this final audit report.

In accordance. with the Inspector General Act of 1978) as amended, the Office of Inspector
General is required to report to Congress twice a year on the audits that remain unresolved after
six months from the date of issuance.

In accordance with the Freedom ofInfonnation Act (5 U.S.C. § 552), reports issued by the
Office of Inspector General are available to members of the press and general public to the extent
infonnation contained therein is not subject to exemptions in the Act.

We appreciate your timely response to the draft of this report. If you have any questions, please
call Richard J. Dowd or Gary D. Whitman, Assistant Regional Inspector General for Audit, at
312-886-6503.                                          ~


                                                     Sincerely,


                                                    1Ie1tt-W
                                                     Helen Lew
                                                     Assistant Inspector General for Audit


ATTACHMENT
                                                                                                         ATTACHMENT 

                                                                                                             Page 1 of 2





                                      UNITED STATES DEPARTMENT OF EDUCATION

                                                    WASHINGTON, D.C, 20202· _ _

                                                              12 m
                                                          JL 12m
                                                          J.l


                 TO:             Richard Dowd
                                 Regional Inspector General for Audit
                                 Office of Inspector General

                 FROM::
                 FROM                       Sha~DI LJ
                                 Theresa S. Shaw-dn. u
                                 ChiefOperatin~' 6~
                                 ChiefOperaling
                                 Federal Student Aid

                                 Sally L SU"oup -t')
                                         StrouP-.l\
                                           SecretaiY
                                 ASSIStant Secre6;Y
                                 Assistant
                                 Office of Postsecondary Education

                SUBJECf:
                SUBJECT:         Comments on the Draft Audit Repon of the Guaranty Agencies' Oversight of
                                 FFEL Program Loans Disbursed Directly to  BOlTQwers for Attendance at Foreign
                                                                        \0 Borrowers                   Foreib'll
                                 Schools
                                 ACN: ED-OIG/AOS·EOO28
                                       ED-OIG/AOS-EOO28

                Thank you for providing Federal Student Aid (FSA) and the Office of Postsecondary Education
                (OPE) with an opportunity 10 to comment on the Office of lnspe<:lor           (OIG) Draft Audit
                                                                         Inspector General's (DIG)
                Report on the guaranty agencies' oversight of
                                                            ofFFEL
                                                               FFEL loans disbw-sed
                                                                           disbursed to borrowers for attendance
                at foreign schools. The following
                                        fo llowing are FSA's
                                                       FSA 's and OPE's comments 10 to the findings and
                recommendations:
                reconunendalions:

                 Finding - Stronger Controls Net'ded
                                             Needed over
                                                     ove r FFEL Program
                                                                Prog ram Loans Disbursed Directly
                                                                                         Di rectly to
                                                      ~ hools.
                               Attendance at Foreign Schools.
                 Borrowers for Attendauce

                Recommendation
                Recommendatiou 1.1 - Require guaranty agencies to establish lind  and implement
                                                                                       Implement polides
                                                                                                  policies and
                                                                                                           a nd
                procedures for
                            ror monitoring, on aII regul
                                                   regnlar
                                                         ar basis, lenders' compliance with the guaranty
                ageucles' verification
                agencies' verifiClition policies and DCL G..()3-348.
                                                           G-03-348.

                FSA concurs wIth the OIG's recommendation and is taking appropriate action. Financial Partners
                Services (FPS) will issue a letter by July 29.
                                                            29, 2005, infonning guaranty agencies (GAs) of the
                requirement that policies and procedures be implemented to regularly monitor lender compliance
                with the GAs verification
                              veri fication policies and DCL G.o3   -348. GAs will be instructed \0
                                                               G-03 ·348.                        \0 submit their
                                                                                                           thei r
                policies and procedures 10to their FPS assigned regional office for review by August 15, 2005.
                This process has a planned completion date of
                lbis                                           ofOctobcr
                                                                  October 30,
                                                                          30. 2005.

                Recommendation 1.2 - Require gua         ra nty agencies to test all disbursements
                                                     guaranty                        disbursemeuts made to
                borro we rs for llttendance
                borrowers       2u endance at foreign schools, for alllcnders
                                                                      atllenders that
                                                                                   thai did Dot submit notificlltions
                                                                                                        notifications
                during th e period Jllnuary
                                     Janua ry 1,
                                               I, 2004, through September 30, 2004, and  2nd cancclthe
                                                                                             cancel th e loau
                                                                                                         loan
                gUllrllnty for all ineUgible
                guaranty           ineligible loans
                                              IOllns identified.
                                                     Identified.




,-
1-
                           400 MARYLAND AVE., S.W. WASHINGTON, D.C 20202-1510 

                                                       www.ed.gov



     Our mission is to ensure equal access to education and to promote educational excellence throughout the Nation.
                                                                                         ATTACHMENT 

                                                                                             Page 2 of 2





Page 2 - ACN: ED-OIGfA05- E0028
              ED-OIG/A05-E0028

FSA concurs with the OIG's recommendation and is laking appropriate action. action, FPS will nOlify
                                                                                             notify
all GAs by letter, no later than July 29, 2005, that they must test all disbursements made to
borrowers for attendance at foreign schools, for lenders that did not submit notifications during
the period January I, 2004, through September 30, 2004, and cancel the loan guaranty for all
ineligible loans identified. GAs will be instructed to submit all documentation to their assigned
FPS regional office for review. This process has a planned completion date of March 31,  31 , 2006.

Recommendation 1.3 - Strengthen DeL       DCL G-03-348, spedficaUy the  th e section on lender
req uirements, to make it  It dear
                              clear th at, in order to qualiCy
                                                       qualify for a loan gua ranty, lenders must
follow their
       thei r guaranty
              guarlln ty agencies'
                         age nci es' policies prior to disb ursing loans directly to borrowers for
                                                       disbursing
attendance
attenda nce at foreign schools.
                         sc hools.

      and OPE do not concur with recommendation 1.3 because we believe that the requirements
FSA 9nd
as arti culated in the OCL are clear and do not need to be strengthened. If you would like to
   articulated
discuss the response in more detail, please cootact
                                             contact David Bergeron at 202-502-7815.