72 FY 2018 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION

FINANCIAL SECTION | REQUIRED SUPPLEMENTARY STEWARDSHIP INFORMATION (UNAUDITED)

REQUIRED SUPPLEMENTARY STEWARDSHIP 

INFORMATION (UNAUDITED)

OMB requires each federal agency to report on 

its stewardship over various resources entrusted 

to it and certain responsibilities assumed by 

it that cannot be measured and conveyed through 

traditional financial reports. These elements do not 

meet the criteria for assets and liabilities required in the 

preparation of the Department’s financial statements and 

accompanying footnotes, but are nonetheless important 

to understanding the agency’s financial condition, 

strategic goals, and related program outcomes.

STEWARDSHIP EXPENSES

Stewardship expenses are substantial investments made by 

the federal government for the long-term benefit of the 

nation. Because costs of stewardship resources are treated 

as expenses in the financial statements in the year the costs 

are incurred, they are reported as Required Supplementary 

Stewardship Information to highlight their benefit and to 

demonstrate accountability for their use.

In the United States, the structure of education finance 

is such that state and local governments play a much 

greater overall role than the federal government. Of the 

estimated more than $1 trillion spent nationally on all 

levels of education, the majority of funding comes from 

state, local, and private sources. In the area of elementary 

and secondary education, nearly 90 percent of resources 

come from nonfederal sources. These funds serve over 50 

million students enrolled in public, public charter, and 

private schools in the United States and its territories, 

according to the National Center for Education Statistics. 

With its relatively small role in total education funding, 

the Department strives to create the greatest number of 

favorable program outcomes with a limited amount of 

taxpayer-provided resources. This is accomplished by 

targeting areas in which funds will go the furthest in 

doing the most good. Accordingly, federal funding is used 

to provide grant, loan, loan-forgiveness, work-study, and 

other assistance to more than 20 million postsecondary 

students. The majority of the Department’s $298.6 

billion in gross outlays during FY 2018 was attributable 

to Direct Loan disbursements administered by FSA. 

Grant-based activity under discretionary, formula, 

and need-based formats primarily accounted for the 

remainder of the outlays. 

Discretionary grants, such as the Federal TRIO 

Programs and the Teacher Incentive Fund, are awarded 

on a competitive basis. When funds for these grants are 

exhausted, they cease to be funded. The Department 

reviews discretionary grant applications using:

 a formal review process for selection,

 both legislative and regulatory requirements, and

 published selection criteria established for 

individual programs.

Formula grants, such as Title I and Title III of the 

Elementary and Secondary Education Act, are not 

competitive. The majority go to school districts, as often 

as annually, on a formula basis, and they:

 provide funds as dictated by a law, and

 allocate funds to districts on a per-student basis. 

Need-based grants, including the Pell Grant, Federal 

Work Study, and the Federal Supplemental Educational 

Opportunity Grant, are based on family income and 

economic eligibility. While there are many state, 

institutionally (college or school), and privately sourced 

need-based grants, most need-based grants are funded by 

the federal government where the financial aid formula is 

determined by a combination of factors, including:

 family income and discretionary assets,

 expected family contribution, and

 dependency status of the student and other members 

of their family.

Further details on financial figures and program-level 

goals can be viewed in the Department’s 2018 

Budget Summary.
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REQUIRED SUPPLEMENTARY STEWARDSHIP INFORMATION (UNAUDITED) | FINANCIAL SECTION

INVESTMENT IN HUMAN CAPITAL

Human capital investments are defined similarly by 

OMB, in Circular A-136, and the Statement of Federal 

Financial Accounting Standards No. 8, Supplementary 

Stewardship Reporting. These investments are expenses 

included in net cost for education and training programs 

intended to increase or maintain national economic 

productive capacity and produce outputs and outcomes 

that provide evidence of maintaining or increasing 

national productive capacity.

Supplementing state and local government funding, 

the Department utilizes its annual appropriations and 

outlay authority to foster human capital improvements 

across the nation by supporting programs along the 

entire spectrum of education. Direct loans, guaranteed 

loans, grants, and technical program assistance are 

administered and monitored by FSA and numerous 

other program-aimed components of the Department. 

The Institute of Education Sciences is the independent 

nonpartisan research arm of the Department that aims to 

present scientific evidence to ground education practice 

and policy while providing useful information to all 

stakeholders in the arena of American education. Further 

details of the major offices/programs applicable to this 

section are described below:

Federal Student Aid. Federal Student Aid is the part of 

the Department that administers need-based financial 

assistance programs for students pursuing postsecondary 

education and makes federal grants, direct loans, 

guaranteed loans, and work-study funding available to 

eligible undergraduate and graduate students. 

Federal Student Aid’s programs link the overall 

initiatives of the Department in enhancing education—a 

fundamental stepping-stone to higher living standards for 

American citizens. While education is vital to national 

economic growth, education’s contribution is more than 

increased productivity and incomes. Education improves 

health, promotes social change, and opens doors to a 

better future for children and adults.

Direct Loan Subsidy. The William D. Ford Federal 

Direct Loan (Direct Loan) program is a direct-lending 

program in which loan capital is provided to students 

by the federal government through borrowings from the 

United States (U.S.) Department of Treasury.

Federal Family Education Loan (FFEL) Program 

Subsidy. The FFEL Loan program has originated no 

new loans since June 30, 2010; however, its permanent 

budget authority allows it to continue to operate with 

state and private nonprofit guaranty agencies to honor 

loan guarantees and for the Department to pay interest 

supplements on outstanding loans by private lenders 

to eligible students. The FFEL Loan program expenses 

include the Loan Participation Purchase, Loan Purchase 

Commitment, and ABCP Conduit expenses.

Perkins Loans, Pell and Other Grants. Perkins Loan 

and Grant programs include the Pell Grant program that 

awards direct grants through participating institutions to 

undergraduate students with financial need. Participating 

institutions either credit the appropriated funds to the 

student’s school account or pay the student directly once 

per term.

The Teacher Education Assistance for College and 

Higher Education (TEACH) Grant Program. The 

TEACH Grant program awards annual grants to students 

who agree to teach in a high-need subject area in a public 

or private elementary or secondary school that serves 

low-income students. If the students do not satisfy their 

agreement to serve, the grants are converted to Direct 

Unsubsidized Loans.

Office of Elementary and Secondary Education 

(OESE). OESE promotes academic excellence, enhances 

educational opportunities and equity for all of America’s 

children and families, and improves quality of teaching 

and learning by providing leadership, technical assistance, 

and financial support. 

Office of Special Education and Rehabilitative Services 

(OSERS). OSERS is committed to the broad values of 

Inclusion, Equity and Opportunity for infants, toddlers, 

children, youth, and adults with disabilities to actively 

participate in all aspects of life. OSERS promotes 

inclusion, ensures equity and creates opportunity as it 

strives to improve results and outcomes for children and 

adults with disabilities. By providing funding to programs 

that serve infants, toddlers, children, and adults with 

disabilities, OSERS works to ensure that these individuals 

are fully included in school, in employment, and in 

life. OSERS also provides funds to programs that offer 

information and technical assistance to parents of infants, 

toddlers and children with disabilities, as well as members 

of the learning community who serve these individuals.

The following table illustrates the Department’s expenses 

paid for bolstering the nation’s human capital, broken out 

by the nature of the expense, for the last five years.
74 FY 2018 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION

FINANCIAL SECTION | REQUIRED SUPPLEMENTARY STEWARDSHIP INFORMATION (UNAUDITED)

PROGRAM OUTCOMES 

Favorable results in the various programs administered 

by the Department can be interpreted in many ways. 

Accordingly, the effectiveness of the Department’s 

investments in human capital can be gauged by changes 

in the number of students who fully complete the 

requirements for earning a bachelor’s or associate’s degree. 

This often final stepping stone in one’s educational career 

correlates strongly with wage and/or salary increases due 

to the high-level skills expected by employers of graduates 

entering the labor force. Attaining a degree has proven 

to increase an individual’s job opportunity outlook for 

2018 2017 2016 2015 2014

FEDERAL STUDENT AID EXPENSE

 Direct Loan Subsidy $ 4,369 $ 5,329 $ 16,119 $ (892) $ 8,126

 Federal Family Education Loan Program Subsidy 1,228 3,411 10,234 (3,856) (6,585)

 Perkins Loans, Pell and Other Grants 28,512 28,770 30,671 31,400 33,098

 Program Operational Costs 246 224 308 242 206

 Subtotal 34,355 37,734 57,332 26,894 34,845

DEPARTMENTAL PROGRAMS

 Elementary and Secondary Education 20,625 22,420 22,155 22,146 22,832 

 Special Education and Rehabilitative Services 16,548 16,294 15,944 15,751 15,948

 Other Departmental Programs 6,367 6,565 6,349 6,494 6,938

 Program Operational Costs 459 419 625 511 667

 Subtotal 43,999 45,698 45,073 44,902 46,385

Grand Total $ 78,354 $ 83,432 $ 102,405 $ 71,796 $ 81,230

Table 2. Summary of Human Capital Expenses

(Dollars in Millions)

life, making them less susceptible to general economic 

downturns and allowing them to afford living expenses 

more comfortably; make debt payments, including 

student loans; and avoid delinquency and credit 

problems. Increased employability makes Americans 

more competitive in the global labor market, yielding 

lower unemployment, higher economic well-being, and 

greater national security.

One important method used in the area of analyzing 

student loan programs, borrower activity, and institution 

participation is the monitoring of default statistics. 

Each year, substantial stewardship expenses incurred 
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by the Department are aimed at lowering the number 

of defaulted loans, defaulted borrowers, and disbursed 

dollars going into default. This is done because every 

default—when a loan payment is missed for multiple 

months—results in loan funds that are not replenished, 

missed opportunities to invest in other degree-seeking 

human capital and additional resources used by the 

government in attempting to collect its money. Each 

aspect of a default costs American taxpayers, affects the 

federal budget, decreases economic well-being, and harms 

borrowers’ credit scores.

Although a direct and proven linkage does not exist 

between the two variables, the Department feels 

strongly about its ability to mitigate the risk of default 

through various efforts. Stewardship expenses for this 

postsecondary goal include those incurred to increase 

borrower awareness of repayment options, encouraging 

third-party loan servicers to work more effectively 

in helping students avoid default by devising viable 

repayment plans, and by working with financial aid 

offices around the country to help them improve the loan 

counseling provided to students who have yet to graduate 

or enter repayment.

 

 

Default statistics for the FY 2015 cohort of borrowers 

entering repayment were released at the end of FY 2018. 

Of the 4.9 million borrowers entering repayment from 

October 1, 2014, to September 30, 2015, 532,000 

defaulted on their loan before September 30, 2017. This 

borrower default rate of 10.8 percent across all institution 

types showed a decrease from the prior year rate of 11.5 

percent for the 2014 cohort. It is important to note that 

this metric is unadjusted for loan program facets, such as 

consolidations and forbearance.

Trends in default rates, among other indicating metrics 

monitored at the Department, continue to support proof 

of favorable outcomes within programs at all levels.