ies owed to the Government are largely ineffective and practically nonexistent.

These weaknesses create an opportunity for unscrupulous individuals and institutions to exploit the Pell Grant program, thereby causing the Federal Government to expend tens of millions of dollars in unwarranted or improper payments. In fact, our preliminary investigation so far has found indications that such exploitation is not only taking place, but maybe long standing and widespread.

The Pell Grant program is one of several federally funded student financial assistance programs administered by the Department of Education. First incorporated into the Higher Education Act in 1972 as the Basic Educational Opportunity Grant Program, the program was renamed in 1980 in honor of its original sponsor, Senator Claiborne Pell. The purpose behind the program was to help equalize educational opportunity by providing grants to help eligible undergraduate students from low income families finance their postsecondary education. The program was intended to bring both greater uniformity and greater equity to the delivery of student financial aid through the use of a federally established needs analysis.

Expenditures for the Pell Grant program have increased 100 fold in the program's 20 years. Today, the Pell Grant program receives more Federal funds than any other student financial assistance program authorized under Title IV of the Higher Education Act. We have a chart 1 which shows the total expenditures for the Pell Grant program for the years 1973 through 1992. As you can see, the growth has been rather large in the 20 years that the program has been in existence.

A student who receives a Pell Grant award may use it to attend any one of over 6,000 postsecondary institutions determined by the Secretary of Education to be eligible for participation in the Pell Grant program. These institutions include, among others, nonprofit 2- and 4-year colleges and universities, postsecondary vocational, technical schools and proprietary schools. Our second chart here shows the breakdown between these various types of schools and the amount of Pell Grant funding.

In order to be approved for participation in the Pell Grant program, an institution, among other things, must meet the following three criteria which are set forth in the Higher Education Act. One, it must be legally authorized to offer a program of postsecondary education in the State in which it is located. Two, it must be accredited by a nationally recognized accrediting agency which has been approved by the Secretary of Education. And three, it must be certified and determined to be eligible by the Department of Education.

These standards are designed to serve a gatekeeping function. That is, they are meant to allow only qualified schools to gain access to the program while keeping out those schools that are unqualified. Unfortunately, as the Subcommittee found in its investigation of the loan program, this gatekeeping function has too often failed to meet its intended purpose of protecting the integrity of the Federal Government's financial aid programs.

1 See Appendix A to Staff statement, page 183.

With respect to the Pell Grant program, the same is true once again. As a result, it appears that numerous ineligible schools have gained access to the program and have used that access to abuse, and in some cases, possibly to defraud the system.

Our investigation of the Pell Grant program to date has focused on a subset of Pell Grant participants. Namely, certain Judaic Studies and Immigrant Culture programs being operated in the Greater New York area. The courses offered in the Judaic Studies programs generally consist of Hebrew language training and the study of various religious texts. The Immigrant Culture programs, which primarily enroll newly arrived Russian immigrants, consist of English language, Hebrew language, and Judaic Studies courses. Our focus on these specific types of schools rests on information which leads the Staff to believe that there may be particularly egregious abuses going on in some of these schools and that an examination of the activities of these schools may reveal broader systemic weaknesses within the Pell Grant program as a whole. The Staff wishes to stress that our investigation of these schools is not meant to imply that they are the only abusers of the Pell Grant program. We are aware that other types of institutions, including proprietary trade schools and nonprofit 4-year universities, have engaged in what might be considered inappropriate, and in some cases, improper activities involving Pell Grant funds.

While it thus appears that Pell Grant abuse may be widespread, we believe that a review of the participation of the Judaic Studies and Immigrant Culture programs is particularly warranted given the serious allegations received by the Subcommittee and will provide the Subcommittee with the most instructive case study. On the basis of our investigation so far, it appears that abuse of the Pell Grant program continues to exist among schools offering Judaic Studies and Immigrant Culture programs. While these schools purport to offer standard credit hour courses leading to a certificate, the Staff is dubious of the programs actually being operated in many instances. These programs do not offer vocational training and in fact a number of them admit in their catalogs that their programs are not designed to lead to any type of employment or placement opportunities.

The Staff has been unable to determine how these schools meet the requirements of an institution of higher education as defined in the Higher Education Act. And so far no one at the Department of Education has been able to explain it either.

The types of abuses which we have seen in our investigation raise serious questions as to how these schools were able to gain access to the Pell Grant program at the outset and how they have managed since that time to remain in the program. It appears from our preliminary work that the Department has been inefficient and ineffective in carrying out its responsibilities under the Pell Grant program. Indeed, it appears to the Staff that with respect to the Pell Grant program, the Department has been much more effective at giving out money than it has been at ensuring that those to whom the money is given are appropriate recipients.

One of the areas in which the Department has been ineffective has been its gatekeeping functions with respect to institutional participation. One of our major findings from our 1990 investigation

of the loan program was that the triad of State licensure, independent accreditation, and Departmental certification was not effective at screening out institutions which did not belong as participants in that program. Three years later, it appears that the same findings hold true with almost equal force to the Pell Grant program. Once an institution has been granted access to the Pell Grant program, it is the responsibility of the Department's program review staff to ensure that the institution continues to comply with the program's statutory and regulatory requirements. This review process thus serves an important function in maintaining the integrity of the program. Our review to date, however, has revealed that the review function has been rendered ineffective, due to a lack of manpower, resources and training.

For example, the Department's New York regional office, under whose jurisdiction most of the Judaic Studies programs participating in the program fall, has 11 program compliance employees who are responsible for a total of 850 schools in 3 States, the Virgin Islands, and Puerto Rico. As the chart 1 at the right shows, New York and Puerto Rico schools are in the top four jurisdictions for Pell Grant awards.

Chairman NUNN. How many is that per staff member?

Mr. EDELMAN. 850 schools, 11 employees, so each of them have 80 schools, close to 80 schools.

Chairman NUNN. What are they supposed to do? What is that chart of in terms of reviewing those schools?

Mr. BUCKLEY. Senator, they are actually supposed to go out and assure that the schools are complying with not only the law, but the very complex regulations that implement the law. They go through some student files at the institution and make sure that the students were actually eligible to participate.

Chairman NUNN. How often are they supposed to go out? Are they suppose to visit every school every year?

Mr. BUCKLEY. Absolutely not. They have no hope in accomplishing that goal. They actually have now developed a computer run in Washington that sends out a priority list to the regional offices. And on that priority list, they are supposed to hit the top level and a few within the remaining list of schools in their jurisdiction. They get around to schools every 4 or 5 years. Some schools, large universities, they never get around to visiting, because so much of their effort is concentrated on proprietary schools, 2-year colleges. Mr. EDELMAN. In addition to being understaffed the program review specialists apparently are woefully undertrained. In the Subcommittee's 1991 report on the student loan program, it was noted that the Department's program review staff often did not recognize potential fraud or other criminal misconduct, because of a lack of any criminal investigative training. The Subcommittee ommended that the Department recognize the propensity for fraud and abuse by its program participants and provide its program compliance staff with criminal training.

Our interviews with Department personnel, however, revealed that this recommendation has not been acted upon and the program review staff still rely heavily on Inspector General personnel

1 See Appendix C to Staff statement, page 185.

for fraud detection. At the same time, interviews with officials from the Inspector General's office revealed that that office remains overburdened. The Inspector General himself told the Staff, "There are a lot of things out there that I know in my heart are wrong, but we have not been able to look at them." The Inspector General specifically cited the Pell Grant program as one of those areas where more work was needed, especially because of the limited amount of checks and balances on the outflow of money from that program, as compared to other student financial assistance programs.

One of the problems we noted in our examination of proprietary school participation in the student loan program, was the fact that many of these schools terminated operations in mid-year and walked off with loan and grant monies which should have been refunded to the students and the Federal Government. The Subcommittee recommended that the Department improve its procedures so that it moves quickly to audit these closed schools in order to determine potential losses and attempt to collect monies owed. It appeared, however, that the same systemic weaknesses and lack of staff, training and resources which has hindered the Department's effectiveness in its gatekeeping and compliance functions, are also hindering the Department's ability to effectively audit schools which have closed. Indeed, according to one official at the Department of Education, the lack of closed school procedures has allowed the responsible parties to walk away with hundreds of thousands, if not millions of dollars in Pell Grant money with virtual impunity.

Despite the negative tone of our testimony so far, there is some hope that the Federal Government is at least on track to correct some of these abuses. Following the Subcommittee's 1990 hearings, the Office of Student Financial Assistance Programs was reorganized, creating an Institutional Participation and Oversight Service which for the first time now coordinates the certification and eligibility of accreditation and State licensing, program review and compliance operations within the Department.

The Guarantor and Lender Oversight staff and the Accounting and Financial Management Service are focusing on improved monitoring and systems development in their areas. The Staff notes with much optimism that there seems to be a renewed outlook by both upper management and the career employees regarding their charge to protect Federal funds from fraud and abuse. We all recognize, however, that much work remains to be done to prevent the continuation of the kinds of abuses which have led to today's hearings.

At this point, Mr. Chairman, we would like to give you a few case examples of the types of abuse which we have seen in particular schools.

Chairman NUNN. Before you do that, you mentioned and I think this is part of your testimony that you did not go through, you mentioned a distinction between the Pell Grant program and student loan programs, both in terms of student behavior, in terms of alarm signals that would alert policy makers and managers that there are problems, and also in terms of the quality of education. Could you give us a brief summary of that? What is the distinction

between the Pell Grant program in terms of both students and in terms of managers and the student loan program?

Mr. EDELMAN. The first and probably most important distinction is the fact that the Pell Grant program because of its very nature as a grant program means that the students who receive these grants have no obligation to repay them in any way once they have completed their education. It is money which is given to the students to use toward their education without any obligations on their part in terms of service or repayment, unlike the student loan program in which a student is obligated upon completion of his education to repay the loan. That repayment aspect is in itself a useful check on the system, because as we saw in the student loan program, the high default rates which were noticed at a number of schools, often were the alarm bells to serious problems in the management by those schools of the loan program itself.

When you have a program that is purely a grant program with no obligations to repay, you obviously have no defaults and therefore there is no early warning system, so to speak, that you may be having problems in the administration of that program. Also, the fact that a student has to repay his or her student loan, in a sense gives the student himself some sort of stake in the quality of the education that he is supposed to be receiving in return for that loan. If a student knows that he has to repay his loan, he will be more concerned that the education he is getting is, indeed, a worthwhile education that will benefit him in some way in his future. And many times in the student loan program we found that it was complaints by students themselves, that again served as sort of an early warning system that there may be problem schools out there in the loan program.

When you have a grant program, the student does not have that personal stake in his education as he does with a loan. He is getting the money; he does not have to repay it. If he goes to classes, that is fine, and learns something, that is fine. If not, well he has not lost anything because he does not ultimately have to repay it. So again, in the grant situation, you do not have those types of complaints coming from the students about the quality of the education that is being received in exchange for their grants.

Chairman NUNN. That would be particularly true in cases where the students were receiving, in effect, a stipend for going to school. In other words, they were getting paid as a part of their education? Mr. EDELMAN. That is correct. In many of the instances, we found the schools actually paying the students to attend, rather than vice versa, and so obviously the student will attend for the mere fact that he is being paid to do so, and in many of the cases that was the primary, if not the sole motivating factor for a lot of these students to enroll in and attend these programs.

Chairman NUNN. Thank you.

Mr. EDELMAN. The first specific school that we would like to address at this point is a school called Bais Fruma. Bais Fruma is located in the Boro Park section of Brooklyn and is a nonprofit, religious corporation which offers a 5-year, postsecondary certificate program in Judaic Studies. Begun in 1980, it is affiliated with the Munkacser Hasidic Movement, a branch of Hasidic Judaism which has its roots in Hungary. The school itself is named after the moth