WASHINGTON – The Y’Hica Institute for the Visual Arts in London appeared to have all the credentials for certification in a student loan program administered by the U.S. Department of Education – a Web site, a school president, a consulting firm and students who needed financial help.

Unknown to federal officials who certified Y’Hica, the school didn’t exist.

But this wasn’t just another fraud on the government. This school was an undercover sting operation by congressional investigators, who wanted to learn how closely education officials monitored aid applications from foreign schools.

The investigators from Congress’ General Accounting Office had little trouble gaining U.S. certification of the school and obtaining loan approvals for three students from two of three lending institutions contacted.

The undercover agents even tried to leave a clue to unravel the scheme, identifying one of the “students” as Susan M. Collins.

Sen. Susan M. Collins, R-Maine, was the lawmaker who asked for the investigation. She is now chairman of the Senate Governmental Affairs Committee, and was its ranking minority member when the inquiry began.

Terri Shaw, chief operating officer for the Education Department’s Federal Student Aid Office, acknowledged that officials should have verified the school’s existence. In this case, the officials “did not completely follow every step of the procedure which resulted in Y’Hica obtaining preliminary approval for one year.”

Shaw maintained that officials would have caught the scheme before money actually was loaned out, because one lender noticed irregularities in the student applications and notified the department.

The department now is conducting on-site visits of all foreign schools applying for eligibility in loan programs, and also is working with the State Department to verify a school’s existence.

Nearly 14,000 U.S. students receive federal aid to pursue studies at more than 500 colleges and universities in 41 countries, Shaw said, adding that the department believes study abroad prepares Americans for leadership roles.

The fictitious Susan Collins and the two other “students” each were approved by two institutions for $55,000 in loans under the Federal Family Education Loan Program. The investigators had the payments stopped before any money was sent.

The investigators went through a series of steps to create the school, including submission of counterfeit documents.

A school catalogue was printed. Certified financial statements were created for fiscal years 1998 and 1999, signed by a nonexistent accountant residing at a phony London address. A fake letter indicated a real university in the United Kingdom validated Y’Hica’s academic program. And a fictitious letter from educational authorities in England stated the school was a nonprofit institution with degree-granting authority.

After the school was certified, the investigators created identities, addresses and telephone numbers for the applicants. They logged on to the Education Department’s Web site to obtain Personal Identification Numbers and online applications were completed.

The applications for $18,500 per student then were submitted to Nellie Mae Student Lending Inc., the Sallie Mae Servicing Corp. and Bank of America. Only Bank of America became suspicious and rejected the application.