In 2002, the Department of Education received an application to certify the student loan participation of the Y'Hica Institute in London, England. After approving the certification, the department received and approved student loan applications from three Y'Hica students and disbursed $55,000.
The education Department administrators overlooked one problem: Neither the Y'Hica Institute nor the three students who received the $55,000 existed. The fictitious college and students were created (on paper) by congressional investigators to test the Department of Education's verification procedures. All of the documents were faked, right down to naming one of the fictional loan student applicants "Susan M. Collins," after the Senator requesting the investigation.
Such carelessness helps to explain why federal student loan programs routinely receive poor management reviews from government auditors. At last count, $21.8 billion worth of student loans are in default, and too many cases of fraud are left undetected. Tracking students across federal programs, verifying loan application data with IRS income data, and implementing controls to prevent the disbursement of loans to fraudulent applicants could save taxpayers billions of dollars.
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