FY 2023 AGENCY FINANCIAL REPORT 24 U.S. DEPARTMENT OF EDUCATION

Management’s Discussion and Analysis (Unaudited)

Financial Highlights

Introduction

This section provides summarized information and analyses about the Department’s 

assets, liabilities, net position, sources and uses of funds, program costs, and related trend 

data. It also provides a high-level perspective of the detailed information contained in 

the financial statements and related notes. A summary of significant changes in financial 

statement line-item balances is provided in Table 1.

The Department’s financial statements and notes are prepared in accordance with 

accounting principles generally accepted in the United States for federal agencies issued by 

the Federal Accounting Standards Advisory Board and the format and content specified 

by Office of Management and Budget (OMB) Circular No. A-136, Financial Reporting 

Requirements. An independent accounting firm with oversight provided by the OIG was 

engaged to audit the consolidated balance sheet, related notes, and underlying business 

processes, systems and controls. The Consolidated Balance Sheet and related notes for FY 

2023 are presented in the Financial Section. The Consolidated Statement of Net Cost, 

Consolidated Statement of Changes in Net Position, the Combined Statement of Budgetary 

Resources, and related notes for FY 2023 are presented in the Other Information section. 

Table 1. Key Financial Statement Changes

(Dollars in Billions)

Financial Statement Lines 

with Significant Changes

Amount Total Changes Changes Due to COVID-19

 FY 2023 FY 2022 Amount Percentage Amount Percentage

Balance Sheets

Fund Balance with Treasury $ 244.0 $ 317.0 $ (73.0) -23.0% $ (66.1) -20.9%

Loan Receivables, Net – Direct Loan Program 1,030.9 816.5 214.4 26.3% 294.4 36.1%

Debt Associated with Loans – Direct

Loan Program 1,127.0 837.4 289.6 34.6% 325.3 38.8%

Debt Associated with Loans – FFEL Program 60.9 67.0 (6.1) -9.1% 13.9 20.7%

Subsidy Due to Treasury 1.6 27.0 (25.4) -94.1% - 0.0%

Statements of Net Cost (Net Program Costs)

Promote Equity for Prekindergarten through Grade 

12 Students with Access to Educational Resources, 

Opportunities, and Inclusive Environments

 100.0 90.8 9.2 10.1% (14.0) -15.4%

Increase Postsecondary Value by Focusing on 

Equity Strategies to Address Access to Affordability, 

Completion, and Post-Enrollment Success

 (58.6) 472.6 (531.2) -112.4% (733.3) -155.2%

Statements of Budgetary Resources

Unobligated Balance from Prior Year Budget Authority 

(Net) 52.3 65.3 (13.0) -19.9% (18.0) -27.6%

Appropriations (Discretionary and Mandatory) 254.7 597.2 (342.5) -57.4% (424.1) -71.0%

Borrowing Authority (Discretionary and Mandatory) 472.7 178.7 294.0 164.5% 339.3 189.9%

Spending Authority from Offsetting Collections 

(Discretionary and Mandatory) 70.5 60.7 9.8 16.1% - 0.0%

New Obligations and Upward Adjustments (Total) 776.9 813.7 (36.8) -4.5% (442.0) -54.3%

Unobligated Balance, End of Year (Total) 73.3 88.3 (15.0) -17.0% (0.1) -0.1%

Outlays, Net 306.5 668.5 (362.0) -54.2% (438.6) -65.6%

Distributed Offsetting Receipts (347.6) (29.1) (318.5) 1,094.5% (333.1) 1,144.7%
FY 2023 AGENCY FINANCIAL REPORT 25 U.S. DEPARTMENT OF EDUCATION

Management’s Discussion and Analysis (Unaudited)

The Consolidated Balance Sheet and related notes for FY 2023 are on pages 80–99, the

Independent Auditors’ Report begins on page 100, and the Other Information section 

begins on page 115.

The financial statements are prepared to report the financial position and results of 

operations of the reporting entity, consistent with the requirements of 31 U.S.C. § 

3515(b). The statements are prepared from the Department’s books and records in 

accordance with generally accepted accounting principles for federal entities and the 

formats prescribed by OMB. Reports used to monitor and control budgetary resources are 

prepared from the same books and records. The financial statements should be read with 

the understanding that they are for a component of the U.S. government.

Financial Statement Impacts of Debt Relief Actions 

During FY 2022 and FY 2023, the Department announced significant actions to 

provide relief to federal student loan borrowers, including extensions to the student loan 

repayment pause through August 31, 2023, and several additional debt relief actions. 

Targeted debt relief actions announced or taken during FY 2023 include:

• Fixing historical inaccuracies in the Income Driven Repayment (IDR) count system

for borrowers who earned forgiveness. These fixes, which were first announced by the

Biden-Harris Administration in April 2022, are part of the Department’s commitment

to address historical failures in the federal

student loan program. Borrowers are eligible

for forgiveness if they have accumulated

the equivalent of either 20 or 25 years of 

qualifying months.

• Creating the most affordable payment plan

ever—the Saving on a Valuable Education

(SAVE) plan. The SAVE plan cuts payments on

undergraduate loans in half compared to other

IDR plans, ensures that borrowers never see

their balance grow as long as they keep up with

their required payments, and protects more of

a borrower’s income for basic needs. A single

borrower who makes less than $15 an hour will

not have to make any payments. Borrowers

earning above that amount will save more than

$1,000 a year on their payments compared to

other IDR plans.

• Making improvements to the Public Service 

Loan Forgiveness (PSLF) program, including

helping borrowers earn progress toward 

PSLF, simplifying criteria to help borrowers 

certify qualifying employment, and providing 

opportunities for borrowers to get help correcting PSLF account problems. Borrowers 

with Direct Loans who work in public service are also likely to benefit from the onetime account adjustment announced by the Department last year, allowing borrowers 

to get credit for past periods of repayment on loans that would not otherwise qualify 

for PSLF.

Of the debt relief actions announced 

by the Biden-Harris Administration, as 

of September 29, 2023, 3.4 million 

borrowers have already had their debt relief 

approved, including:

• 1.3 million borrowers who were taken

advantage of by their school, saw their

school precipitously close, or are covered by

related court settlements.

•	More than 800,000 borrowers who

qualified for relief because of fixes to IDR 

plans implemented by the Biden-Harris 

Administration.

• More than 650,000 borrowers through

improvements to the PSLF program.

• Almost 500,000 borrowers who have a total

and permanent disability.
FY 2023 AGENCY FINANCIAL REPORT 26 U.S. DEPARTMENT OF EDUCATION

Management’s Discussion and Analysis (Unaudited)

• Approving borrower defense and school closure discharges for borrowers whose 

institutions took advantage of them, including borrowers who attended Coloradobased locations of CollegeAmerica, Ashford University, and the University of Phoenix.

• Instituting a 12-month “on-ramp” to repayment, running from October 1, 2023, 

to September 30, 2024, so that financially vulnerable borrowers who miss monthly 

payments during this period are not considered delinquent, reported to credit bureaus, 

placed in default, or referred to debt collection agencies.

• Providing additional pathways for borrowers who have a total and permanent 

disability to receive a discharge. This includes allowing borrowers who receive 

additional types of disability review codes from the Social Security Administration 

(SSA) to qualify for a discharge. This also includes borrowers who later aged into 

retirement benefits and are no longer classified by one of these codes. Borrowers who 

have an established onset date of their disability determined by SSA to be at least 5 

years in the past can also establish eligibility.

Although forgiveness of loan principal and interest associated with some of these actions 

will not occur until future fiscal years, these actions have already resulted in significant 

increases in cancellations of loan principal and interest for loans held by the Department. 

As shown in Figure 1, cancellations of loan principal and interest increased 222.3 percent 

during FY 2023, primarily for the Direct Loan Program. A large portion of cancellations 

of loan principal and interest during FY 2023 were associated with the PSLF and 

IDR programs, as they made up 39.7 percent and 41.6 percent of total cancellations, 

respectively. Other notable types of cancellation activity include borrower defense 

discharges, cancellations of loan principal and interest for loans in default status, and 

discharges for total and permanent disability.

Figure 1. Loan Cancellations

(Dollars in Billions)

FY 2023 Loan Cancellations

(Dollars in Millions)

FY 2023

Direct Loan 

Program FFEL Program

Loan 

Cancellation Type Principal Interest Principal Interest Fees Other Total

Discharges for 

closed schools $ 36 $ 2 $ 6 $ 1 $ - $ - $ 45 

Discharges due 

to death of the 

borrower

 619 47 41 5 - - 712 

Discharges 

for total and 

permanent 

disability

 2,799 228 458 99 - 1 3,585 

Public service loan 

forgiveness 35,789 1,563 4 - - 1 37,357 

Borrower defense 

discharges 7,210 1 2,362 66 - - 9,639 

Discharges for 

income driven 

repayment plans

 34,601 3,066 1,478 49 - - 39,194 

Cancellation of 

defaulted loans 

held by guaranty 

agencies or the 

defaulted loan 

servicer

 2,525 76 618 73 41 48 3,381 

Other 210 7 3 - - 10 230 

Total Loan 

Cancellations $ 83,789 $ 4,990 $ 4,970 $ 293 $ 41 $ 60 $ 94,143 
FY 2023 AGENCY FINANCIAL REPORT 27 U.S. DEPARTMENT OF EDUCATION

Financial Statement Impacts of COVID-19 Activities 

Many of the significant changes to the Department’s financial statements resulted 

from the impacts due to coronavirus disease 2019 (COVID-19) activities. Congress 

passed multiple COVID-19 relief bills in FY 2020 and FY 2021, including the 

following that provided a total of $282.5 billion of direct appropriation funding for 

educational purposes:

• Coronavirus Aid, Relief, and Economic Security Act of 2020 (CARES Act) $31.0 billion

• Coronavirus Response and Relief Supplemental Appropriations Act of 2021 (CRRSAA)

$82.0 billion

• American Rescue Plan Act of 2021 (ARP) $169.5 billion

These appropriations funded a variety of programs administered primarily through grant 

programs. The largest component of the education funding provided by the COVID-19 

relief appropriations established the Education Stabilization Fund which included (1) the 

Elementary and Secondary School Emergency Relief Fund, (2) the Higher Education 

Emergency Relief Fund, (3) the Governor’s Emergency Education Relief Fund, and (4) 

funds for outlying areas. 

The COVID-19 relief legislation and administrative actions also provided support 

during FY 2023 for student loan borrowers by suspending nearly all federal student 

loan payments through August 31, 2023, interest free. Additionally, support for student 

loan borrowers was provided in previous fiscal years by the following COVID-19 relief 

legislative and administrative actions.

• Authorizing Guaranty Agencies to reimburse themselves from the Federal Student

Loan Reserve Fund for lost revenue that resulted from student loan repayment

deferrals. This reimbursement covers the share of what a guaranty agency might have

reasonably collected during the pandemic, but for the suspension.

• Making temporary changes to the PSLF program through a Limited PSLF Waiver

to allow student borrowers to get credit for payments made while working for a

qualifying employer, regardless of loan type or repayment plan.

• Addressing issues with IDR payment counting by allowing any borrower who made

IDR-qualifying payments to count toward IDR, regardless of repayment plan.

Funding for each of these actions was provided through indefinite appropriations. Cost 

impacts of the COVID-19 loan modifications were recorded as loan modifications and 

are a component of subsidy expense, which reduced the overall loan receivable balances 

for the student loan programs. Detailed explanations of the COVID-19 Direct Loan 

Program loan modifications are provided in the Analysis of Direct Loan Program Subsidy 

Expense section beginning on page 36 and in Note 13 in the Other Information section 

beginning on page 127.

The direct and indirect funding stemming from the combined COVID-19 relief legislative

and administrative actions is summarized in Figure 2. Obligated and unobligated

COVID-19 funds remaining to be disbursed as of September 30, 2023, totaled

$75.3 billion. Most of the undisbursed funds are for the Elementary and Secondary School

Emergency Relief (ESSER) Fund. While states may have made subawards for all of their

Management’s Discussion and Analysis (Unaudited)
FY 2023 AGENCY FINANCIAL REPORT 28 U.S. DEPARTMENT OF EDUCATION

Management’s Discussion and Analysis (Unaudited)

ESSER funding, subawardees may still be in the process of completing their obligations and 

requesting reimbursement from the states who will then in turn draw down the remaining 

undisbursed funds.

Figure 2. COVID-19 Funding Flow

(Dollars in Billions)

Elementary and Secondary School Emergency Relief (ESSER) Fund—Funds 

provided for state educational agencies (SEAs) and local educational agencies (LEAs) to 

support continued learning for K-12 students whose educations have been disrupted by 

COVID-19, and grants for the specific needs of homeless children and youth to address 

the challenges of COVID-19.

Higher Education Emergency Relief Fund (HEERF)—Funds provided for institutions 

of higher education (IHEs) to address needs directly related to COVID-19, including 

transitioning courses to distance education and granting aid to students for educational 

costs such as food, housing, course materials, health care, and childcare. 

Governor’s Emergency Education Relief (GEER) Fund—Grants provided to state 

governors to ensure education continues for students of all ages impacted by the 

COVID-19 national emergency. 

Outlying Areas, Bureau of Indian Education (BIE), and Discretionary Grants—

Funds provided for outlying areas and discretionary grants to states with the highest 

COVID-19 burdens. 
FY 2023 AGENCY FINANCIAL REPORT 29 U.S. DEPARTMENT OF EDUCATION

Balance Sheet

The consolidated balance sheet presents, as of a specific point in time (the end of the fiscal 

year), the Department’s total assets, total liabilities, and net position.

The Department’s assets totaled $1,318.0 billion as of September 30, 2023. As shown 

in Figure 3, most assets relate to loans receivables, $1,073.0 billion, which comprised 

81.4 percent of all assets. Direct loans comprise the largest share of these receivables. 

Analysis of the net change in Direct Loan Program receivable balances begins on page 30. 

All other assets totaled $245.0 billion, most of which was Fund Balance with Treasury, 

$244.0 billion, which decreased by $73.0 billion during FY 2023, largely due to a 

decrease in undisbursed COVID-19 funds as of September 30, 2023.

The Department’s liabilities totaled $1,213.7 billion as of September 30, 2023. As 

shown in Figure 4, most of the Department’s liabilities are also associated with loan 

programs, primarily amounts borrowed from the U.S. Department of the Treasury 

(Treasury) to fund student loans. Debt associated with the Direct Loan Program totaled 

$1,127.0 billion as of September 30, 2023. Analysis of debt associated with the Direct 

Loan Program begins on page 33.

Figure 3. Assets by TypeFigure 4. Liabilities by Type

Management’s Discussion and Analysis (Unaudited)
FY 2023 AGENCY FINANCIAL REPORT 30 U.S. DEPARTMENT OF EDUCATION

Management’s Discussion and Analysis (Unaudited)

Analysis of Direct Loan Program Receivables, Net

Figure 5 shows the changes in the Direct Loan Program receivable components over the 

past five years. The principal amount grew each year since 2019, except 2023, which saw 

a slight decrease. Although total principal has increased during these years, the rate of 

increase in principal slowed as enrollment stagnated and sometimes declined. Even so, 

new loan disbursements continued to exceed overall loan principal repayments—student 

loan borrowers have many options to stretch out their repayment terms and reduce their 

monthly payments, and student loan repayment deferrals were implemented in response to 

COVID-19. Accrued interest amounts have decreased in recent years due to COVID-19 

relief actions to temporarily set borrower interest rates to zero percent until August 31, 2023. 

In accordance with the Federal Credit Reform 

Act of 1990, the Department’s financial 

statements report the value of direct loans 

(credit program receivables) at the net present 

value of their future cash flows, discounted 

at a fixed rate established based on Treasury 

securities. The difference between the recorded 

principal and interest balance and the net 

present value of the loans is referred to as the 

“allowance for subsidy,” which can be positive 

or negative.

A negative allowance for subsidy balance 

means that the present value of funds expected 

to be recovered is less than the principal 

outstanding. The increase in the negative 

allowance from FY 2019 through FY 2022 is 

due primarily to higher subsidy costs, the main 

causes being high participation in IDR plans 

and the COVID-19 deferrals of student loan 

repayments. In addition to these factors, the 

increase in the negative allowance for subsidy 

during FY 2022 was also due to higher subsidy 

costs due to debt relief actions announced 

during the FY. The decrease in the negative 

allowance for subsidy during FY 2023 was 

largely due to a downward modification to 

reverse the inclusion of student loan debt 

relief from the baseline subsidy cost as a result 

of the Supreme Court’s ruling on Biden v. 

Nebraska on June 30, 2023 (see discussion in 

the Analysis of Direct Loan Program Subsidy 

Expense section on page 36).

 

Figure 5. Components of Direct Loan Receivables, Net

(Dollars in Billions)

Direct Loan 

Component

(Dollars in 

Billions)

Fiscal Year

2019 2020 2021 2022 2023

Principal $ 1,164.9 $ 1,224.8 $ 1,292.2 $ 1,341.8 $ 1,336.2 

Rate of 

Increase 

in 

Principal

7.5% 5.1% 5.5% 3.8% -0.4%

Accrued 

Interest $ 83.3 $ 92.1 $ 86.5 $ 86.7 $ $83.4 

Allowance 

for 

Subsidy

 $ (124.4) $ (216.4) $ (273.9) $ (611.9) $ (388.7)

Total No. 

of Direct 

Loan 

Recipients 

(in Millions)

35.1 35.9 37.0 37.1 38.1 
FY 2023 AGENCY FINANCIAL REPORT 31 U.S. DEPARTMENT OF EDUCATION

Table 2. Payment Status of Direct Loan Principal and Interest Balance

(Dollars in Billions)

Loan Status FY 2019 FY 2020** FY 2021** FY 2022** FY 2023**

Total No. of Direct Loan Recipients (in Millions) 35.1 35.9 37.0 37.1 38.1

Total Dollar Amount of Direct Loans Outstanding $ 1,248.1 $ 1,316.9 $ 1,378.7 $ 1,428.5 $ 1,419.6

Current Repayment1 $ 594.7 $ 14.2 $ 16.2 $ 11.8 $ 999.4

% Current Repayment 47.6% 1.1% 1.2% 0.8% 70.4%

In School, Grace Period, and Education Deferments $ 294.8 $ 282.8 $ 271.9 $ 259.5 $ 255.4

% In School, Grace Period, and Education Deferments 23.6% 21.5% 19.7% 18.2% 18.0%

Forbearance and Noneducation Deferments $ 133.2 $ 887.5 $ 967.8 $ 1,039.7 $ 57.4

% Forbearance and Noneducation Deferments 10.7% 67.4% 70.2% 72.8% 4.0%

Delinquent (Past Due 31–360 Days) $ 90.8 $ 0.5 $ 0.0 $ 0.0 $ 0.0

% Delinquent (Past Due 31–360 Days) 7.3% 0.0% 0.0% 0.0% 0.0%

Default/Bankruptcy/Other* $ 134.6 $ 131.9 $ 122.8 $ 117.5 $ 107.4

% Default/Bankruptcy/Other* 10.8% 10.0% 8.9% 8.2% 7.6%

1

 Loans in Current Repayment status include loans that are being repaid on-time. However, these on-time loans can include loans for which the amount of interest accruing is higher 

than payments that are being made, which can occur in the case of loans on income-driven repayment plans.

*Adjusted to eliminate differences between NSLDS and FSA Total Reported DL Portfolio (principal and interest).

**Student loan payment pause in effect from March 2020 through August 2023.

Table 2 shows the payment status of the direct loan principal and interest balances outstanding 

over the past five years. The Current Repayment category consists of loans that are being paid 

back on time, including the current portion of loans being repaid pursuant to IDR plans. Loans 

in the Delinquent category are past due anywhere from 31 to 360 days. Default/Bankruptcy/

Other includes loans that are more than 360 days delinquent (default status), loans in a 

nondefaulted bankruptcy status, and loans in disability status. 

While technical default is 271 days delinquent, default is defined as 361 days delinquent for 

reporting purposes.

COVID-19 student loan repayment deferrals were in effect from March 2020 through August 

2023, resulting in significantly lower reported balances for Current Repayment and Delinquent 

in FY 2020–2022. The COVID-19 student loan repayment deferrals placed loans in forbearance 

and subsequently cured delinquencies. As a result of the COVID-19 student loan repayment 

deferrals, the delinquent balances have been zero for FY 2021–2023. 

While the COVID-19 student loan repayment deferrals suspended payments for federally 

owned student loans, some borrowers elected to continue to make student loan payments. In 

addition to improving borrowers’ overall financial health, factors that may have influenced 

borrowers to continue making payments on their student loans during forbearance include 

the following:

• Borrower flexibility to make payments or suspend payments as their financial circumstances

permitted without notification to the loan servicer.

Management’s Discussion and Analysis (Unaudited)
FY 2023 AGENCY FINANCIAL REPORT 32 U.S. DEPARTMENT OF EDUCATION

Management’s Discussion and Analysis (Unaudited)

• Potential earlier loan payoff.

• Lower total cost of a loan over time to the borrower due to the zero percent interest 

rate. (Before the pause, an average of two-thirds of each dollar paid went to principal. 

During the pause, this quickly increased to above 90 percent, and now an average of 

95 percent of each dollar goes toward principal.)

• Potentially improving the borrower’s credit rating by reducing the student debt 

balance. The relative strength of FSA borrower payment activity has been driven, in 

part, by efforts of borrowers to improve their credit stance to purchase homes during 

the period of forbearance. During the pandemic, the U.S. Department of Housing 

and Urban Development and Federal Housing Authority implemented nontemporary 

policy changes to improve the underwriting stance of federal student loan borrowers.

• Potentially improved overall borrower financial health and reduced financial stress by 

reducing student debt.
FY 2023 AGENCY FINANCIAL REPORT 33 U.S. DEPARTMENT OF EDUCATION

Analysis of Debt Associated with Loans, Direct Loan Program 

The Department borrows funds to disburse new loans and pay credit program outlays and 

related costs. The Department repays Treasury after consideration of cash position and the 

liability for future cash outflows. 

The Department’s total debt associated with the Direct Loan Program was $1,127.0 

billion as of September 30, 2023, which was a $289.6 billion increase from FY 2022. 

Total debt increased largely because of new borrowings from Treasury during FY 2023 to 

fund the disbursement of new loans and downward modifications.

Figure 6 shows the Direct Loan Program 

cumulative borrowing and repayment 

activity that resulted in the debt amount on 

the balance sheet. A diagram depicting the 

Direct Loan Program financing process is 

displayed with related trend data as Figure 7 

on page 34 of this report.

 

Figure 6. Direct Loan Program Cumulative 

Financing Activity

(Dollars in Billions)

Management’s Discussion and Analysis (Unaudited)
FY 2023 AGENCY FINANCIAL REPORT 34 U.S. DEPARTMENT OF EDUCATION

Management’s Discussion and Analysis (Unaudited)

Treasury Financing and Subsidy Cost of Direct Loans (Dollars in Billions)*

Fiscal Year 2019 2020 2021 2022 2023

Net Borrowing $ 41.5 $ (32.0) $ (17.9) $ (304.8) $ 289.5 

Borrowing from Treasury 137.6 116.9 120.0 162.8 445.0 

Debt Repayments to Treasury (96.1) (148.9) (137.9) (467.6) (155.5)

Interest Expense to Treasury (33.8) (34.7) (33.0) (30.6) (28.2)

Interest Earned from Treasury 4.1 4.8 4.2 7.6 6.3 

Cumulative Taxpayer Cost / (Savings) 124.4 216.4 273.9 611.9 388.7 

Current Subsidy Expense / (Revenue) 61.5 100.9 93.9 385.4 (116.5)

Direct Loan Program Cash Transactions with Borrowers (Dollars in Billions)*

Fiscal Year 2019 2020** 2021** 2022** 2023**

Loan Disbursements $ 130.7 $ 117.4 $ 104.8 $ 120.4 $ 122.3 

Stafford Subsidized 20.0 19.1 18.3 15.7 15.7 

Stafford Unsubsidized 48.1 46.1 44.1 45.5 44.9 

Parent Loan for Undergraduate Students (PLUS) 22.7 21.7 20.8 22.2 23.9 

Consolidation1 39.8 30.4 21.5 36.9 37.8 

Loan Collections2 91.3 69.9 37.2 45.5 45.9 

Principal 67.0 55.3 33.3 41.3 42.1 

Interest 22.4 12.9 2.3 2.6 2.1 

Fees 1.9 1.7 1.6 1.6 1.7 

* Numbers may not add due to rounding.

** Student loan payment pause in effect from March 2020 through August 2023.

1

 Consolidation amounts stem from a number of loan programs, including most notably the FFEL program, in addition to Direct Loans.

2

 Loan collections include prepayments, including prepayments in full due to consolidation of underlying Direct Loans. 

Figure 7. William D. Ford Federal Direct Loan Program: Follow the Funding

 

 
FY 2023 AGENCY FINANCIAL REPORT 35 U.S. DEPARTMENT OF EDUCATION

Statements of Net Cost

The consolidated statements of net cost report the Department’s components of the 

net cost of operations for a given fiscal year. Net cost of operations consists of the gross 

costs incurred less any exchange (i.e., 

earned) revenue from activities. Gross 

costs are composed of the cost of credit 

and grant programs, and operating costs. 

Exchange revenue is primarily interest 

earned on credit program loans. Figure 8 

shows the Department’s gross costs and 

earned revenue over the past five years. As 

discussed in more detail below, significant 

changes in the Department’s net costs 

for FY 2023 were primarily due to loan 

modifications and re-estimates (subsidy 

expense) and grant expenses related to 

COVID-19 activities. 

 

 

Figure 8. Gross Costs & Earned Revenue

(Dollars in Billions)

Gross Costs and Earned Revenue by Type 

As shown in Figure 9, the Department’s gross costs and earned revenue include three primary components:

• Credit program interest expense offset by credit program interest revenue and administrative fees as the result of

subsidy amortization.

• Credit program subsidy expense. (See Analysis of Direct Loan Program Subsidy Expense below)

• Grant expenses. (See Figure 11)

 

Figure 9. Primary Components of Gross Costs and Earned Revenue 

(Dollars in Billions)

Management’s Discussion and Analysis (Unaudited)
FY 2023 AGENCY FINANCIAL REPORT 36 U.S. DEPARTMENT OF EDUCATION

Management’s Discussion and Analysis (Unaudited)

Analysis of Direct Loan Program Subsidy Expense 

The Department’s gross costs can fluctuate significantly each year as a result of changes 

in estimated subsidy expenses—primarily subsidy expenses for direct loans. The 

primary components of subsidy expenses include year-end subsidy re-estimates and 

loan modifications. 

Subsidy expenses are estimates of the present value cost of providing direct loans but 

exclude the administrative costs of issuing and servicing the loans. The Department 

estimates subsidy expenses using a set of econometric and financial models as well as cash 

flow models. 

The Department estimates subsidy expenses annually for new loans disbursed in the current

year and updates the previous cost estimates for outstanding loans disbursed in prior years

based on various updated assumptions (subsidy re-estimates). The Department also updates

subsidy expenses due to changes to terms of existing loans (subsidy modifications). Figure

10 shows these three components of the Direct Loan Program subsidy expense for the past

five years. Factors such as interest rates charged to the borrower, interest rates on Treasury

debt, default rates, fees and other costs, and assumptions concerning borrowers’ selection

of repayment plans impact the estimated cost calculation and determine whether the

individual components and overall subsidy expense are positive or negative.

The Direct Loan Program subsidy expense for new loans disbursed was negative in FY 2019

primarily because lending interest rates charged were greater than the historically low rates at

which the Department borrowed from Treasury. In practical terms, a negative subsidy occurs

when the interest and/or fees charged to the borrower are more than sufficient to cover

the interest on Treasury borrowings and the costs of borrower default. Subsidy expense for

new loans disbursed since FY 2020 has been positive due in large part to rising enrollment

in IDR plans, which contributes to a higher expected cost to the government for issuing

student loans by reducing the amount that many borrowers will repay over the life of their

loans and/or creating a student loan forgiveness benefit for amounts remaining after 20 or

25 years, particularly common among high-debt borrowers.

The Department updates it subsidy cost estimates each year for outstanding loans disbursed

in prior years using a process referred to as a subsidy re-estimate. The total of Direct Loan

subsidy re-estimates during FY 2023 was a net $71.4 billion upward subsidy re-estimate.

The components of the Direct Loan Program subsidy re-estimates are summarized in

Figure 10.

The Department also updates previous cost estimates based on any new legislation or

other government actions that change the terms of existing loans and alter the estimated

subsidy cost. This process is referred to as a modification. During FY 2023, the Department

recorded a total of $204.2 billion net downward modifications. The modifications that were

recorded in FY 2023 are summarized in Figure 10. More detail about these modifications

and components of re-estimated subsidy cost can be found in the notes to the financial 

statements beginning on page 122.

The FY 2023 year-end subsidy re-estimates also resulted in a $25.4 billion decrease in the 

Subsidy Due to Treasury shown in Table 1 on page 24 of this report. This represents the 

amount of accrued downward re-estimates of subsidy expense that will be transferred to 

Treasury in the succeeding fiscal year upon receipt of authority from OMB. More detail 

on Subsidy Due to Treasury can be found in the notes to the Consolidated Balance Sheet 

beginning on page 81.
FY 2023 AGENCY FINANCIAL REPORT 37 U.S. DEPARTMENT OF EDUCATION

Figure 10. Direct Loan Program Subsidy

(Dollars in Billions)

FY 2019 FY 2020 FY 2021 FY 2022 FY 2023

Subsidy Expense for New Loans 

Disbursed in the Current Year $ (3.0) $ 5.1 $ 1.6 $ 7.3 $ 16.3 

Subsidy Re-Estimates 64.5 56.1 24.0 (21.9) 71.4 

Loan Modifications - 39.7 68.3 400.0 (204.2)

Total Subsidy Expense $ 61.5 $ 100.9 $ 93.9 $ 385.4 $ (116.5)

Subsidy Re-estimate Components FY 2023 FY 2022

Income-Driven Repayment (IDR) 

Model Changes $ 26.5 $ (24.0)

Prior Year’s Cohort Assumption Changes 0.2 7.7 

Interest on the Re-Estimate 16.8 (0.4)

Default (0.6) 3.0 

Repayment Plan Selection 4.2 (3.0)

Discount Rates 0.8 (16.6)

Non-IDR Discharges 29.9 2.9 

Deferment and Forbearance (2.3) 2.6 

Collections 16.4 (1.7)

Interactive Effects (18.2) 7.4 

Other Assumptions (2.3) 0.2 

Total Direct Loan Program Subsidy 

Re-Estimates $ 71.4 $ (21.9)

Modification Costs

Loan Modification Components FY 2023 FY 2022

Student Loan Repayment Deferrals $ 23.3 $ 48.6 

Broad-Based Debt Relief - 337.3

Shift to Business Process Operations - (9.1)

PSLF Waiver 4.1 9.1

IDR Waiver - 14.1

Total and Permanent Disability Discharges 4.4 -

Interest Capitalization 3.5 - 

Closed School Discharges 3.7 - 

Borrower Defense to Repayment & Arbitration 4.1 - 

IDR SAVE Regulation 70.4 -

Broad-Based Debt Relief Reversal (319.9) - 

Fresh Start/On Ramp 2.2 - 

Total Direct Loan Program 

Loan Modifications $(204.2) $400.0 

Management’s Discussion and Analysis (Unaudited)
FY 2023 AGENCY FINANCIAL REPORT 38 U.S. DEPARTMENT OF EDUCATION

Management’s Discussion and Analysis (Unaudited)

Grant Expenses

As shown in Figure 11, overall grant expenses changed primarily because of COVID-19

grants. More detail concerning COVID-19 grants can be found in Note 16 in the 

Other Information section beginning on page 142. In addition to COVID-19 funded 

grants, the Department has more than 100 other grant programs. The three largest of 

these grant program areas are:

• Pell Grants—Provides need-based grants to students to promote access to

postsecondary education. Grant amounts are dependent on the student’s expected

family contribution, the cost of attendance (as determined by the institution), the

student’s enrollment status (full-time or part-time), and whether the student attends

for a full academic year or less. Pell Grants are the single largest source of grant aid for

postsecondary education.

• Education for the Disadvantaged—Primarily consists of grants that provide financial

assistance through SEAs to LEAs and public schools with high numbers or percentages

of poor children to help ensure that all children meet challenging state academic

content and student academic achievement standards. The program also provides

funds to states to support educational services to children of migratory farmworkers

and fishers and to neglected or delinquent children and youth in state-run institutions,

attending community day programs, or in correctional facilities.

• Special Education—Primarily consists of Individuals with Disabilities Education

Act grants that provide funds by formula to states to assist them in providing a free

appropriate public education in the least restrictive environment for children with

disabilities ages 3 through 21 and assist states in providing early intervention services

for infants and toddlers from birth through age 2 and their families. Also provides

discretionary grants to IHEs and other nonprofit organizations to support research,

demonstrations, technical assistance and dissemination, technology, personnel

development and parent training, and information centers.

The Department also offers other discretionary grants under a variety of authorizing 

legislation, with approximately 90 percent of nonstudent aid funds awarded by formula 

and 10 percent through competitive processes.

Figure 11. Grant Expenses by Program Areas

(Dollars in Billions)

 

 

COVID-19 Grant Expenses

(Dollars in Millions)

COVID-19 Grants FY 2023 FY 2022

Education Stabilization Fund:

Elementary and Secondary School 

Emergency Relief Fund $ 52,832 $ 48,502 

Higher Education Emergency 

Relief Fund 7,238 25,976 

Governor’s Emergency Education 

Relief Fund 2,354 2,654 

Outlying Areas & Discretionary Grants 406 312 

Total Education Stabilization Fund 62,830 77,444 

Other COVID-19 Grants 1,451 865 

Total COVID-19 Grants $ 64,281 $ 78,309 
FY 2023 AGENCY FINANCIAL REPORT 39 U.S. DEPARTMENT OF EDUCATION

Statements of Changes in Net Position

The consolidated statements of changes in net position report the beginning net position, 

the summary effect of transactions that affect net position during the fiscal year, and the 

ending net position. Net position is the residual difference between assets and liabilities 

and consists of unexpended appropriations and cumulative results of operations. 

Unexpended appropriations include undelivered orders and unobligated balances for 

grant and administrative operations. Cumulative results of operations represent the net 

difference since inception between (1) expenses and (2) revenues and financing sources.

Statements of Budgetary Resources

The combined statements of budgetary resources present information on how budgetary 

resources were made available and their status at the end of the fiscal year. Information in 

the statements is based on budgetary transactions as prescribed by OMB and Treasury.

Figure 12 shows the components of the Department’s budgetary resources, which 

totaled $850.2 billion for FY 2023, decreasing from $902.0 billion, or 5.7 percent, 

from the prior year. This decrease was primarily due to a net $342.5 billion decrease 

in appropriations received, of which $337.7 billion was for a decrease in Direct Loan 

Program appropriations for subsidy re-estimates and modifications. The decrease in 

appropriations was offset by a new $293.9 billion increase in borrowing authority, 

primarily for the Direct Loan Program, which increased by $281.4 billion.

Other significant changes to the Department’s combined statement of budgetary resources 

compared to the prior year include the following:

• Unobligated Balances from Prior Year

Budget Authority (Net) decreased by

$13.0 billion, or 19.9 percent. Of this

decrease, ($18.0) billion was due to

COVID-19 funded balances.

• New Obligations and Upward

Adjustments (Total) decreased by $36.8

billion, or 4.5 percent, primarily due to a

net $20.1 billion decrease for the Direct

Loan program. The change in the Direct

Loan program includes the combined

effect of differences in subsidy cost reestimates and modifications that were

executed during the two fiscal years.

• Unobligated Balance, End of

Year decreased by $15.0 billion,

or 17.0 percent. This decrease

was largely due to a $13.6 billion

decrease in unobligated balances for

the FFEL guaranteed loan program

financing account.

 

Figure 12. Components of Budgetary Resources

(Dollars in Billions)

Management’s Discussion and Analysis (Unaudited)
FY 2023 AGENCY FINANCIAL REPORT 40 U.S. DEPARTMENT OF EDUCATION

Management’s Discussion and Analysis (Unaudited)

The combined statements of budgetary resources also present the Department’s summary 

disbursement and collection amounts shown in Table 3.

Table 3. Outlays, Distributed Offsetting Receipts, and Disbursements, Net

(Dollars in Billions)

FY 2023 FY 2022

Outlays, Net

Credit Programs $ 155.6 $ 510.0 

Grants 147.6 155.3 

Contractual Services 2.5 2.5 

Personnel Compensation and Benefits 0.8 0.7 

Total Outlays, Net $ 306.5 $ 668.5 

Distributed Offsetting Receipts

Negative Subsidies and Downward Re-Estimates of Subsidies (346.7) (28.2)

Repayment of Perkins Loans and Capital Contributions (0.5) (0.7)

Other (0.4) (0.2)

Total Distributed Offsetting Receipts $ (347.6) $ (29.1)

Disbursements, Net

Direct Loan Program

Gross Disbursements $ 483.0 $ 177.6 

Offsetting Collections (195.5) (526.6)

Total Direct Loan Program Disbursements, Net 287.5 (349.0)

FFEL Program

Gross Disbursements 26.0 10.3 

Offsetting Collections (16.9) (43.6)

Total FFEL Program Disbursements, Net 9.1 (33.3)

Other Loan Programs

Gross Disbursements 0.3 0.5 

Offsetting Collections (0.2) (0.5)

Total Other Loan Program Disbursements, Net 0.1 - 

Total Disbursements, Net $ 296.7 $ (382.3)

Outlays, Net is comprised of gross outlays and offsetting collections in the Department’s 

budgetary funds. Outlays, Net decreased $362.0 billion (54.2 percent) due primarily 

to a decrease of $330.1 billion in Direct Loan Program outlays, including upward loan 

modifications and re-estimates. 

Distributed Offsetting Receipts primarily represents amounts paid from the Direct 

Loan Program and FFEL Program financing accounts to Treasury General Fund 

receipt accounts for downward current fiscal year executed subsidy re-estimates and 

modifications, and negative subsidies. Of the $318.5 billion net decrease in FY 2023 

versus FY 2022, $304.7 billion was attributed to the Direct Loan Program. 

Disbursements, Net is comprised of gross outlays and offsetting collections in the 

Department’s credit program nonbudgetary financing funds. Of the $679.0 billion net 

increase in FY 2023 versus FY 2022, $636.5 billion was attributed to the Direct Loan 

Program and primarily attributed to changes in the subsidy re-estimates and modifications 

during the fiscal years.