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entitled 'Proprietary Schools: Improved Department of Education 
Oversight Needed to Help Ensure Only Eligible Students Receive Federal 
Student Aid' which was released on October 14, 2009. 

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Testimony: 

Before the Subcommittee on Higher Education, Lifelong Learning and 
Competitiveness, Committee on Education and Labor, House of 
Representatives: 

United States Government Accountability Office: 
GAO: 

For Release on Delivery: 
Expected at 10:00 a.m. EDT:
Wednesday, October 14, 2009: 

Proprietary Schools: 

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

Statement of George A. Scott, Director: 
Education, Workforce, and Income Security: 

GAO-10-127T: 

[End of section] 

Mr. Chairman and Members of the Subcommittee: 

I am pleased to be here today to discuss the Department of Education's 
oversight of student eligibility for federal aid at private for-profit 
schools, also known as proprietary schools. Education's monitoring of 
eligibility requirements is part of a larger oversight structure 
governing federal aid to students at all schools. For example, in order 
to receive federal aid, students must attend schools that are legally 
authorized to operate in a state, accredited by reliable authorities to 
help ensure education programs meet acceptable levels of quality, and 
certified by Education to participate in federal student aid programs. 
[Footnote 1] In addition, students attending proprietary, public, or 
private non-profit schools are also required to demonstrate that they 
are ready for higher education. Generally, students who do not have a 
high school diploma or general equivalency diploma (GED) are required 
to pass an "ability to benefit" (ATB) test of basic math and English 
skills in order to be eligible for loans, grants, and campus-based aid 
under Title IV of the Higher Education Act of 1965, as amended. 
[Footnote 2] Education's monitoring of ATB tests and high school 
diploma requirements is critical to protecting students and guarding 
against potential fraud and abuse of federal student aid funds. When 
students who do not have the skills needed to succeed in school are 
fraudulently given passing scores on the ATB test or directed to 
diploma mills for fake high school degrees, they are at greater risk of 
dropping out of school, incurring substantial debt, and defaulting on 
their federal loans. When this happens, students' credit records are 
tarnished and their long-term financial well-being is jeopardized. In 
addition, taxpayers and the government, which guarantees the loans, 
bear the risks associated with federal loans when a student defaults. 

Today I will discuss the extent to which Education's policies and 
procedures for monitoring eligibility requirements for federal aid at 
proprietary schools protect students and the investment of Title IV 
funds. This testimony is based on a GAO report that we released on 
September 21, 2009, titled Proprietary Schools: Stronger Department of 
Education Oversight Needed to Help Ensure Only Eligible Students 
Receive Federal Student Aid.[Footnote 3] To address Education's 
monitoring of federal aid eligibility requirements, we reviewed 
Education's policies and procedures for overseeing the administration 
of ATB tests and for enforcing high school diploma requirements; 
reviewed relevant Department of Education program reviews and 
independent audits; and reviewed enforcement actions taken against 
schools. We reviewed relevant federal laws and regulations, conducted 
interviews with officials from Education, state education licensing 
agencies and higher education associations; and gathered information 
during school site visits. In addition, GAO anonymously tested 
institution compliance with ATB test requirements by sending, on two 
separate occasions, analysts posing as prospective students to take and 
purposely fail ATB tests at a proprietary institution. We supplemented 
this work with a review of investigations conducted by Education's 
Office of Inspector General (OIG) and the New York Department of 
Education. A more detailed explanation of our methodology is available 
in our full report. We conducted our work from October 2007 to August 
2009, in accordance with generally accepted government auditing 
standards. Those standards require that we plan and perform the audit 
to obtain sufficient, appropriate evidence to provide a reasonable 
basis for our findings and conclusions based on our audit objectives. 
We believe that the evidence obtained provides a reasonable basis for 
our findings and conclusions based on our audit objectives. 

In separate investigations at proprietary schools, we, along with other 
federal and state investigative agencies, found test administrators or 
school officials violated rules intended to ensure prospective students 
without high school diplomas pass required ATB tests before obtaining 
access to Title IV financial aid. For example, when GAO analysts posing 
as prospective students took the ATB test at a proprietary school, the 
independent test administrator gave them and all the test takers in the 
room--about 20 people in total--answers to some of the test questions. 
In addition, the analysts' test forms were tampered with: their 
intentionally incorrect answers were crossed out and changed to correct 
answers to ensure the individuals passed the test. Our work confirmed 
similar findings by Education's OIG and New York state investigators. 

These problems result, in part, from key weaknesses in Education's 
oversight of ATB testing. Under the ATB test program, Education is 
responsible for overseeing test publishers who, in turn, are 
responsible for certifying and monitoring test administrators who give 
the ATB tests to prospective students at schools. Regulations governing 
the test process require test administrators to be independent of the 
school where they administer the test and to submit test answer sheets 
directly to the test publisher for official scoring. The test 
publishers, in turn, are responsible for analyzing test scores and 
submitting an analysis of these test scores to Education every 3 years 
to help identify improper testing (see figure 1). 

Figure 1: ATB Test Process: 

[Refer to PDF for image: illustration] 

Department of Education: 
* Approves tests submitted by test publishers for ATB use. 

Test publishers: 
* Send test score analysis to Education every 3 years to identify test 
score irregularities suggesting improper test administration; 
* Certify independent test administrators; decertify test 
administrators who improperly administer tests. 

Independent test administrators (ITAs): 
* Send test answer sheets to test publisher for official scoring; 
* Administer ATB test to prospective students at the school; 

Prospective students: 
* Take ATB test at school. 

Sources: GAO analysis; images, Art Explosion. 

[End of figure] 

Nevertheless, we found that Education had not followed up with test 
publishers to ensure that all comply with these requirements. For 
example, as of early 2009, one of the four approved test publishers had 
yet to submit test score analyses due in April 2005 and in April 2008 
for two of its approved tests. Education officials told us the employee 
responsible for test publisher oversight and review of test submissions 
had retired in 2008 and no one at Education had followed up with test 
publishers to obtain unsubmitted test score analyses until March 2009, 
in response to our review. We also learned from OIG and Education 
officials that while one test publisher provides thorough analyses that 
have led to the identification of possible violations, other test 
publishers provide only cursory analyses of test scores. In addition to 
problems with Education's monitoring of test publishers, Education 
regulations do not allow for the timely identification of improper test 
administration. For example, as noted earlier, regulations require test 
score analyses to be conducted every 3 years, which may leave improper 
testing undetected for years. Furthermore, regulations do not require 
test publishers to follow up when irregularities are identified, or to 
report corrective actions to Education. Given the risks of potential 
fraud and abuse associated with ATB testing, such weaknesses in 
Education's monitoring and oversight leave the ATB test program 
vulnerable to future violations. 

We also identified cases in which recruiters at two separate publicly 
traded proprietary schools helped prospective students obtain invalid 
high school diplomas from diploma mills--entities that provide invalid 
diplomas, usually for a fee and little academic work--so that students 
could gain access to federal loans. In one case, representatives of a 
student interest group told us a student who dropped out of high school 
in the 9th grade was guided by the proprietary school to take an online 
test to receive a high school diploma. In another case, a student told 
us during a site visit that he was flunking out of high school when a 
recruiter at the proprietary school directed him to a place where he 
could pay a fee to take a test and obtain a high school diploma. Based 
on further review, we confirmed that state and county government 
agencies had determined these entities to be diploma mills. Our 
findings also confirmed similar problems identified by Education, and 
Education regional officials told us the problem may be more widespread 
than is known. 

Problems with the use of invalid high school diplomas to gain access to 
federal student aid are partly attributed to key weaknesses in 
Education's policies governing high school diploma requirements, and 
the lack of information and guidance on valid high school diplomas. For 
example, while senior Education officials told us it is the 
department's official policy that high school diplomas from diploma 
mills are not acceptable for federal aid eligibility, Education has not 
communicated this position in clearly written policies. Without written 
and clear communication of its policy, Education staff and external 
parties, including schools and independent auditors, lack important 
information regarding eligibility and compliance requirements under 
Title IV rules.[Footnote 4] Education officials have acknowledged that 
the use of high school diploma mills is a problem and that more 
guidance would be helpful. In May 2009, Education announced plans to 
convene public forums to help inform negotiated rulemaking sessions on, 
among other matters, the definition of a high school diploma as a 
condition of receiving federal student aid. We also found that 
Education provides limited guidance and tools that Education staff, 
schools, and independent auditors can use to help identify high school 
diploma mills. In its Federal Student Aid Handbook, Education advises 
officials to contact state education agencies if they question the 
validity of a high school diploma.[Footnote 5] Yet, Education officials 
told us that Education staff have no other guidance to help them judge 
whether there is a potential problem with a diploma. In addition, 
Education officials told us a list of recognized high schools could 
help its staff and schools better identify diplomas from diploma mills. 
Several states already provide lists of recognized high schools and 
make them available to the public on their Web sites. Yet, Education 
provides little information on these already available resources. In 
contrast, Education does offer information and resources on its Web 
site to help individuals identify and avoid higher education diploma 
mills by listing colleges and universities that are eligible to 
participate in federal student aid programs.[Footnote 6] 

Our findings do not represent nor imply widespread problems at all 
proprietary schools. Many proprietary schools play an important role in 
providing a range of students, including non-traditional and 
disadvantaged students, with an opportunity to obtain the education 
they need to increase their work skills and find jobs. However, our 
work has identified potential fraud at a few proprietary schools and 
significant vulnerabilities in Education's oversight of a key aspect of 
the federal student financial aid program. In our recently issued 
report, we recommended that Education strengthen its monitoring and 
oversight of federal aid eligibility requirements to (1) improve its 
monitoring of ATB tests and target schools that fail to follow testing 
regulations for further review; (2) revise regulations to strengthen 
controls over ATB tests; and (3) provide information and guidance on 
valid high school diplomas for use in gaining access to federal student 
aid. After reviewing the draft report, Education provided comments and 
noted the steps it would take to address GAO's recommendations. A 
complete discussion of our recommendations, Education's comments, and 
our evaluation are provided in the recently issued report. 

Mr. Chairman, this concludes my prepared remarks. I would be happy to 
answer any questions that you or other members of the subcommittee may 
have. 

For further information regarding this testimony, please contact George 
A. Scott (202) 512-7215 or ScottG@gao.gov. Contact points for our 
Office of Congressional Relations and Public Affairs may be found on 
the last page of this statement. Individuals who made key contributions 
to this testimony include Melissa Emrey-Arras (Assistant Director), 
Claudine Pauselli, Jessica Botsford, Susan Aschoff, Mimi Nguyen, and 
Paul Desaulniers. 

[End of section] 

Footnotes: 

[1] In addition to these requirements for all schools, proprietary 
schools must also comply with the 90/10 rule, which provides that these 
schools may not receive more than 90 percent of their revenue from 
federal student aid grants and loans. 

[2] While there are other ways a student without a high school diploma 
or GED can establish eligibility, for the purposes of our testimony we 
focus on whether a student has passed an independently administered ATB 
test. 

[3] [hyperlink, http://www.gao.gov/products/GAO-09-600] (Washington, 
D.C.: August 17, 2009). 

[4] Education is responsible for overseeing schools' compliance with 
Title IV laws and regulations including their role in ensuring that 
only eligible students receive federal student aid. As part of its 
compliance monitoring, Education relies on department employees and 
independent auditors of schools to conduct program reviews and audits 
of schools to monitor compliance with eligibility requirements for 
Title IV. 

[5] The Federal Student Aid Handbook provides guidance to Education 
staff, schools, and lenders that offer federal student assistance to 
students and borrowers. 

[6] The Higher Education Opportunity Act, which reauthorized and 
amended the Higher Education Act of 1965, provides that the Secretary 
shall maintain information and resources on the Department's Web site 
to assist students, families, and employers in understanding what a 
college diploma mill is and how to identify and avoid such diploma 
mills. Pub. L. No. 110-315, § 109. 

[End of section] 

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