38 FY 2017 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION

NOTES TO THE FINANCIAL STATEMENTS FOR THE 

YEARS ENDED SEPTEMBER 30, 2017 AND 2016

NOTE 1. Summary of Significant 

Accounting Policies

REPORTING ENTITY AND PROGRAMS

The U.S. Department of Education (the Department), 

a cabinet-level agency of the executive branch of the 

U.S. government, was established by Congress under the 

Department of Education Organization Act (Public Law 96-

88), which became effective on May 4, 1980. The mission 

of the Department is to promote student achievement 

and preparation for global competitiveness by fostering 

educational excellence and ensuring equal access. 

The Department is primarily responsible for 

administering federal student loan and grant programs 

and provides technical assistance to loan and grant 

recipients and other state and local partners. The largest 

portions of the Department’s financial activities relate 

to the execution of loan and grant programs which are 

discussed below.

Federal Student Loan Programs. The Department 

administers direct loan, loan guarantee, and other student 

aid programs to help students and their families finance 

the cost of postsecondary education. These include the 

William D. Ford Federal Direct Loan (Direct Loan) 

program and the Federal Family Education Loan 

(FFEL) program.

The Direct Loan program, added to the Higher Education 

Act of 1965 (HEA) in 1993 by the Student Loan Reform 

Act of 1993, authorizes the Department to make loans 

through participating schools to eligible undergraduate 

and graduate students and their parents. The Direct Loan 

program offers four types of loans: Stafford, Unsubsidized 

Stafford, PLUS, and Consolidation. Evidence of financial 

need is required for an undergraduate student to receive 

a subsidized Stafford loan. The other three loan programs 

are available to borrowers at all income levels. Loans can 

be used only to meet qualified educational expenses. 

The FFEL program, authorized by the HEA, operates 

through state and private nonprofit guaranty agencies that 

provide loan guarantees on loans made by private lenders to 

eligible students. The Student Aid and Fiscal Responsibility 

Act (SAFRA), which was included in the Health Care and 

Education Reconciliation Act of 2010 (HCERA), stated that 

no new FFEL loans would be made effective July 1, 2010. 

FFEL program receivables include defaulted FFEL loans 

and acquired FFEL loans. Acquired FFEL loans include 

interest in student loan assets acquired using temporary 

authority provided in the Ensuring Continued Access to 

Student Loans Act of 2008 (ECASLA). ECASLA gave the 

Department temporary authority to purchase FFEL loans 

and participation interests in those loans. The Department 

implemented three activities under this authority: loan 

purchase commitments; purchases of loan participation 

interests; and a put, or forward purchase commitment, 

with an Asset-Backed Commercial Paper (ABCP) Conduit. 

This authority expired after September 30, 2010; as a 

result, loan purchase commitments and purchases of 

loan participation interests concluded. However, under 

the terms of the Put Agreement with the conduit, ABCP 

Conduit activity ceased operations in January 2014.

The Department also administers loans for the Federal 

Perkins Loan program, the Historically Black Colleges 

and Universities (HBCU) Capital Financing program, 

the Health Education Assistance Loan (HEAL) program, 

and the Teacher Education Assistance for College and 

Higher Education Grant (TEACH) program, along with 

low-interest loans to institutions of higher education for 

the building and renovating of their facilities through the 

Facilities Loan programs.

Grant Programs. The Department has more than 100 

grant programs. The three largest grant programs are Title 

I of the Elementary and Secondary Education Act (ESEA), 

Federal Pell Grant (Pell Grant), and the Individuals with 

Disabilities Education Act (IDEA) grants. In addition 

to student loans and grants, the Department offers 
FY 2017 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION

NOTES TO THE FINANCIAL STATEMENTS | FINANCIAL SECTION

39

other discretionary grants under a variety of authorizing 

legislation, awarded using a competitive process, and 

formula grants, using formulas determined by Congress 

with no application process.

PROGRAM OFFICES

The Department has three major program offices that 

administer most of its loan and grant programs: 

 Federal Student Aid (FSA) administers need-based 

financial assistance programs for students pursuing 

postsecondary education and makes available federal 

grants, direct loans, and work-study funding to 

eligible undergraduate and graduate students.

 The Office of Elementary and Secondary Education 

(OESE) assists state and local educational agencies to 

improve the achievement of preschool, elementary, 

and secondary school students, helps ensure equal 

access to services leading to such improvement—

particularly children with high needs, and provides 

financial assistance to local educational agencies whose 

local revenues are affected by federal activities.

 The Office of Special Education and Rehabilitative 

Services (OSERS) supports programs that help 

provide early intervention and special education 

services to children and youth with disabilities. 

OSERS also supports programs for the vocational 

rehabilitation of youth and adults with disabilities, 

including preemployment transition services and 

other transition services designed to assist students 

with disabilities to enter postsecondary education and 

achieve employment.

Other offices that administer programs and provide 

leadership, technical assistance, and financial support to 

state and local educational activities and institutions of 

higher education for reform, strategic investment, and 

innovation in education include: the Office of Career, 

Technical, and Adult Education (OCTAE); Office of 

Postsecondary Education (OPE); Institute of Education 

Sciences (IES); Office of English Language Acquisition 

(OELA); and Office of Innovation and Improvement 

(OII). In addition, the Office for Civil Rights (OCR) 

works to ensure equal access to education, promotes 

educational excellence throughout the nation, and 

serves student populations facing discrimination and the 

advocates and institutions promoting systemic solutions 

to civil rights issues. (See Note 10)

BASIS OF ACCOUNTING AND PRESENTATION

These financial statements have been prepared to report 

the financial position, net cost of operations, changes in 

net position, and budgetary resources of the Department, 

as required by the Chief Financial Officers Act of 1990 and 

the Government Management Reform Act of 1994. The 

financial statements were prepared from the books and 

records of the Department, in accordance with Generally 

Accepted Accounting Principles (GAAP) accepted 

in the U.S. for federal entities, issued by the Federal 

Accounting Standards Advisory Board (FASAB), and 

the Office of Management and Budget (OMB) Circular 

A-136, Financial Reporting Requirements, as revised. These 

financial statements are different from the financial reports 

prepared by the Department pursuant to OMB directives 

that are used to monitor and control the use of budgetary 

resources. FSA also issues audited stand-alone financial 

statements which are included in their annual report.

The Department’s financial statements should be read as 

a component of the U.S. government, a sovereign entity. 

One of the many implications of this is that the liabilities 

cannot be liquidated without legislation providing 

resources and legal authority to do so.

The accounting structure of federal agencies is designed 

to reflect both accrual and budgetary accounting 

transactions. Under the accrual method of accounting, 

revenues are recognized when earned and expenses are 

recognized when a liability is incurred, without regard 

to receipt or payment of cash. Budgetary accounting 

facilitates compliance with legal constraints and controls 

over the use of federal funds.

Intradepartmental transactions and balances have been 

eliminated from the consolidated financial statements. 
40 FY 2017 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION

FINANCIAL SECTION | NOTES TO THE FINANCIAL STATEMENTS

The Department’s financial activities are interlinked and 

dependent upon the financial activities of the centralized 

management functions of the federal government. Due 

to financial regulation and management control by 

OMB and the U.S. Department of Treasury (Treasury), 

operations may not be conducted and financial positions 

may not be reported as they would if the Department 

were a separate, unrelated entity.

ACCOUNTING FOR FEDERAL 

CREDIT PROGRAMS 

The Department’s accounting for its loan and loan 

guarantee programs is based on the requirements of the 

Federal Credit Reform Act of 1990 (FCRA). The purpose 

of the FCRA is to record the lifetime subsidy cost of 

direct loans and loan guarantees, in present value terms, 

at the time the loan is disbursed (subsidy). Components 

of subsidy costs for loans and guarantees include defaults 

(net of recoveries); contractual payments to third-party 

private loan collectors who receive a set percentage of 

amounts collected; and, as an offset, origination and 

other fees collected. For direct loans, the difference 

between interest rates incurred by the Department on its 

borrowings from Treasury and interest rates charged to 

particular borrowers is also subsidized (or may provide an 

offset to subsidy if the Department’s rate is less). 

Under the FCRA, subsidy cost is estimated using the 

net present value of future cash flows to and from 

the Department. In accordance with the FCRA, 

credit programs either estimate a subsidy cost to the 

government (a “positive” subsidy), breakeven (zero 

subsidy cost), or estimate a negative subsidy cost. 

Negative subsidy occurs when the estimated cost of 

providing loans to borrowers from Treasury borrowing, 

collection costs, and loan forgiveness is less than the value 

of collections from borrowers for interest and fees, in 

present value terms.

The subsidy costs of direct loan and loan guarantee 

programs are budgeted and tracked by the fiscal year in 

which the loan award is made or the funds committed. 

Such a grouping of loans or guarantees is referred to as a 

“cohort.” A cohort is a grouping of direct loans obligated 

or loan guarantees committed by a program in the same 

year even if disbursements occur in subsequent years.

In order to account for the change in the net present 

value of the loan portfolio over time, the subsidy cost 

is “amortized” each year. Amortization accounts for the 

differences in interest rates, accruals, and cash flows 

over the life of a cohort, ensuring that cost is reflected 

in subsidy estimates and re-estimates. Amortization of 

subsidy is calculated as the difference between interest 

received from borrowers and Treasury (on uninvested 

cash) and interest paid to Treasury on borrowings. 

The FCRA establishes the use of financing, program, 

and Treasury General Fund receipt accounts for loan 

guarantees committed and direct loans obligated after 

September 30, 1991. 

 Financing accounts borrow funds from Treasury, 

make direct loan disbursements, collect fees from 

lenders and borrowers, pay claims on guaranteed 

loans, collect principal and interest from borrowers, 

earn interest from Treasury on any uninvested funds, 

and transfer excess subsidy to Treasury General Fund 

receipt accounts. Financing accounts are presented 

separately in the combined statement of budgetary 

resources (SBR) as non-budgetary credit reform 

accounts to allow for a clear distinction from all other 

budgetary accounts. This facilitates reconciliation of 

the SBR to the Budget of the United States Government 

(President’s Budget).

 Program accounts receive and obligate appropriations 

to cover the positive subsidy cost of a direct loan 

or loan guarantee when the loan is approved and 

disburses the subsidy cost to the financing account 

when the loan is issued. Program accounts also receive 

appropriations for administrative expenses.

 Treasury General Fund receipt accounts receive 

amounts paid from financing accounts when there 

are negative subsidies for new loan disbursements 

or downward re-estimates of the subsidy cost of 

existing loans.

The Department records an estimated obligation each 

year for direct loan awards to be made in a fiscal year 

based on estimates of schools’ receipt of aid applications. 

The Department advances funds to schools based on 

these estimates. Promissory notes are signed when 

schools reach individual agreements with borrowers and 

the schools subsequently report each disbursement of 

advanced funds to the Department. A new promissory 

note is usually not required for students in the second 

or later year of study. Half of all loan awards are issued 
FY 2017 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION

NOTES TO THE FINANCIAL STATEMENTS | FINANCIAL SECTION

41

in the fourth quarter of the fiscal year. Loans awarded 

are typically disbursed in multiple installments over an 

academic period. As a result, loans may be disbursed 

over multiple fiscal years. Loan awards may not be fully 

disbursed due to students leaving or transferring to 

other schools. The Department’s obligation estimate 

may also not reflect the actual amount of awards made. 

Based on historical averages, the Department expects 

approximately 7.5 percent of the amount obligated for 

new loan awards will not be disbursed.

When a loan is placed in deferment or forbearance, loan 

repayment is temporarily suspended with the length of 

postponement different for each lender. Interest accrues 

while a loan is in deferment or forbearance. Loans are 

cancelled if a person dies, meets disability requirements, 

or through the bankruptcy courts. Loans are also 

cancelled through the Public Service Loan Forgiveness 

(PSLF) Program, which forgives the remaining balance 

on a Direct Loan after 120 qualifying monthly payments 

are made. These payments must be made under a 

qualifying repayment plan while working full-time for a 

qualifying employer. In addition, the Department offers 

the Pay As You Earn (PAYE) program. This student loan 

repayment program is designed to help borrowers who 

struggle to make their normal student loan payments. 

The plan allows payments to be limited to 10 percent of 

discretionary income if qualifications are met. Under the 

PAYE program, if all requirements are met, forgiveness of 

the remaining balance of a student loan is possible after 

20 years of consistent payments.

BUDGETARY RESOURCES

Budgetary resources are amounts available to enter into 

new obligations and to liquidate them. The Department’s 

budgetary resources include unobligated balances of 

resources from prior years; recoveries of prior-year 

unpaid obligations; and new resources, which include 

appropriations, authority to borrow from Treasury, and 

spending authority from collections.

Borrowing authority is an indefinite budgetary 

resource authorized under the FCRA. This resource, 

when realized, finances the unsubsidized portion of 

the Direct Loan, FFEL, and other loan programs. In 

addition, borrowing authority is requested to cover 

the cost of the initial loan disbursement as well as any 

related negative subsidy to be transferred to Treasury 

General Fund receipt accounts. Treasury prescribes 

the terms and conditions of borrowing authority and 

lends to the financing account amounts as appropriate. 

Amounts borrowed, but not yet disbursed, are included 

in uninvested funds and earn interest. Treasury uses 

the same weighted average interest rates for both the 

interest charged on borrowed funds and the interest 

earned on uninvested funds. Treasury sets a different 

fixed interest rate to be used for each loan cohort once 

the loans are substantially disbursed. The Department 

may carry forward borrowing authority to future fiscal 

years provided that cohorts are disbursing loans. All 

borrowings from Treasury are effective on October 1st of 

the current fiscal year, regardless of when the Department 

borrowed the funds, except for amounts borrowed to 

make annual interest payments.

Authority to borrow from Treasury provides most of 

the funding for disbursements made under the Direct 

Loan, FFEL, and other loan programs. Subsidy and 

administrative costs of the programs are funded by 

appropriations. Borrowings are repaid using collections 

from borrowers, fees, and interest on uninvested funds.

Unobligated balances represent the cumulative amount 

of budgetary resources that are not obligated and 

that remain available for obligation under law, unless 

otherwise restricted. Resources expiring at the end of 

the fiscal year remain available for five years, but only 

for upward adjustments of prior year obligations, after 

which they are cancelled and may not be used. Resources 

that have not expired at year-end are available for new 

obligations, as well as upward adjustments of prioryear obligations. Funds are appropriated on an annual, 

multiyear, or no-year basis. Appropriated funds shall 

expire on the last day of availability and are no longer 

available for new obligations. Amounts in expired funds 

are unavailable for new obligations, but may be used to 

adjust previously established obligations.

Permanent Indefinite Budget Authority. The Direct 

Loan, FFEL, and other loan programs have permanent 

indefinite budget authority through legislation to fund 

subsequent increases to the estimated future costs of 

the loan programs. Parts B and D of the HEA pertain 

to the existence, purpose, and availability of permanent 

indefinite budget authority for these programs.

Reauthorization of Legislation. Funds for most 

Department programs are authorized, by statute, to be 

appropriated for a specified number of years, with an 
42 FY 2017 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION

FINANCIAL SECTION | NOTES TO THE FINANCIAL STATEMENTS

automatic one-year extension available under Section 422 

of the General Education Provisions Act. Congress may 

continue to appropriate funds after the expiration of the 

statutory authorization period, effectively reauthorizing 

the program through the appropriations process. The 

current Budget of the United States Government presumes 

all programs continue in accordance with congressional 

budgeting rules. (See Note 12)

USE OF ESTIMATES

Department management is required to make certain 

estimates while preparing consolidated financial 

statements in conformity with GAAP. These estimates 

are reflected in the assets, liabilities, net cost, and net 

position of the financial statements and may differ from 

actual results. The Department’s estimates are based on 

management’s best knowledge of current events, historical 

experiences, and other assumptions that are believed 

to be reasonable under the circumstances. Significant 

estimates reported on the financial statements include: 

allocation of Department administrative overhead costs; 

allowance for subsidy for direct, defaulted guaranteed, 

and acquired loans; the liability for loan guarantees; the 

amount payable or receivable from annual credit program 

re-estimates and modifications of subsidy cost; and grant 

liability and advance accruals. (See Notes 4, 5, 9, and 10)

ENTITY AND NON-ENTITY ASSETS

Assets are classified as either entity or non-entity assets. 

Entity assets are those that the Department has authority 

to use for its operations. Non-entity assets are those 

held by the Department but not available for use in its 

operations. Non-entity assets are offset by liabilities to 

third parties and have no impact on net position. The 

Department combines its entity and non-entity assets on 

the balance sheet and discloses its non-entity assets in the 

notes. (See Note 2)

FUND BALANCE WITH TREASURY

Fund Balance with Treasury includes four types of funds 

in the Department’s accounts with Treasury available to 

pay current liabilities and finance authorized purchases, 

as well as funds restricted until future appropriations are 

received: (1) general funds, which consist of expenditure 

accounts used to record financial transactions funded by 

congressional appropriations (which include amounts 

appropriated to fund subsidy and administrative costs of 

loan programs); (2) revolving funds, which manage the 

activity of self-funding programs whether through fees, 

sales, or other income (which include financing accounts 

for loan programs); (3) special funds, which collect funds 

from sources that are authorized by law for a specific 

purpose—these receipts are available for expenditure 

for special programs; and (4) other funds include trust 

funds, deposit funds, agency receipt funds, and clearing 

accounts. Treasury processes cash receipts and cash 

disbursements for the Department. The Department’s 

records are reconciled with Treasury’s. (See Note 3)

ACCOUNTS RECEIVABLE

Accounts receivable are amounts due to the Department 

from the public and other federal agencies. Receivables 

from the public result from overpayments to recipients 

of grants and other financial assistance programs, as well 

as disputed costs resulting from audits of educational 

assistance programs. Amounts due from federal agencies 

result from reimbursable agreements entered into by 

the Department with other agencies to provide various 

goods and services. Accounts receivable are reduced to 

net realizable value by an allowance for uncollectible 

amounts. The estimate of an allowance for loss on 

uncollectible accounts is based on the Department’s 

experience in the collection of receivables and an analysis 

of the outstanding balances. (See Note 4)

GUARANTY AGENCIES’ FEDERAL FUNDS

Guaranty Agencies’ Federal Funds are primarily 

comprised of the federal government’s interest in the 

program assets held by state and nonprofit FFEL program 

guaranty agencies. Section 422A of the HEA required 

FFEL guaranty agencies to establish federal student loan 

reserve funds (federal funds). Federal funds include initial 

federal start-up funds, receipts of federal reinsurance 

payments, insurance premiums, guaranty agency share 

of collections on defaulted loans, investment income, 

administrative cost allowances, and other assets.

The balance in the Federal Fund represents consolidated 

reserve balances of the 26 guaranty agencies based 

on the Guaranty Agency financial reports that each 

agency submits annually to the Department. Although 

the Department and the guaranty agencies operate on 

different fiscal years, all guaranty agencies are subject to an 

annual audit based on form of organization. A year-end 

valuation adjustment is made to adjust the Department’s 

balances in order to comply with federal accounting 

principles and disclose funds held outside of Treasury.
FY 2017 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION

NOTES TO THE FINANCIAL STATEMENTS | FINANCIAL SECTION

43

Guaranty Agencies’ Federal Funds are classified as 

non-entity assets with the public and are offset by a 

corresponding liability due to Treasury. The federal funds 

are held by the guaranty agencies but can only be used 

for certain specific purposes listed in the Department’s 

regulations. The federal funds are the property of the 

U.S. and are reflected in the Budget of the United States 

Government. Payments made to the Department from 

guaranty agencies’ federal funds through a statutory recall 

or agency closures represent capital transfers and are 

credited to the Department’s Fund Balance with Treasury 

account. (See Notes 2, 4, and 9)

CREDIT PROGRAM RECEIVABLES, NET AND 

LIABILITIES FOR LOAN GUARANTEES 

The financial statements reflect the Department’s estimate 

of the long-term subsidy cost of direct and guaranteed 

loans in accordance with the FCRA. Loans and interest 

receivable are valued at their gross amounts less an 

allowance for the present value of amounts not expected 

to be recovered and thus having to be subsidized—called 

an “allowance for subsidy.” The difference between the 

gross amount and the allowance for subsidy is the present 

value of the cash flows to, and from, the Department that 

are expected from receivables over their projected lives. 

Similarly, liabilities for loan guarantees are valued at the 

present value of the cash outflows from the Department 

less the present value of related inflows. The estimated 

present value of net long-term cash outflows of the 

Department for subsidized costs is net of recoveries, 

interest supplements, and offsetting fees.

The liability for loan guarantees presents the net present 

value of all future cash flows from currently insured FFEL 

loans, including claim payments, interest assistance, 

allowance payments, and recoveries from assigned loans. 

Guaranteed loans that default are initially turned over to 

guaranty agencies for collection. Defaulted FFEL loans are 

accounted for as assets and reported at their net present 

value, similar to direct loans, although they are legally 

not direct student loans. Credit program receivables, net 

includes defaulted FFEL loans owned by the Department 

and held by the Department or guaranty agencies. In 

most cases, after approximately four years, defaulted 

guaranteed loans not in repayment are turned over by the 

guaranty agencies to the Department for collection.

FFEL program receivables include purchased loans and 

other interests acquired under an expired program. The 

cash flows related to these receivables include collections 

on purchased loans and other activities, including transfers 

of re-estimated subsidy. The cash flows of these authorities 

also include inflows and outflows associated with the 

underlying or purchased loans and other related activities, 

including any positive or negative subsidy transfers. 

Capitalization of interest occurs as a result of various 

initiatives such as loan consolidations. As a result, 

interest receivable is reduced and loan principal is 

increased. (See Note 5)

PROPERTY AND EQUIPMENT, NET AND LEASES

The Department has very limited acquisition costs 

associated with buildings, furniture, and equipment as 

all Department and contractor staff are housed in leased 

buildings. The Department does not own real property 

for the use of its staff. The Department leases office 

space from the General Services Administration (GSA). 

The lease contracts with GSA for privately and publicly 

owned buildings are operating leases.

The Department also leases information technology and 

telecommunications equipment, as part of a contractorowned, contractor-operated services contract. Lease 

payments associated with this equipment have been 

determined to be operating leases and, as such, are 

expensed as incurred. The noncancellable lease term 

is one year, with the Department holding the right to 

extend the lease term by exercising additional one-year 

options. (See Notes 4 and 14)

LIABILITIES

Liabilities represent actual and estimated amounts to 

be paid as a result of transactions or events that have 

already occurred. However, no liabilities can be paid by 

the Department without budget authority. Liabilities 

for which an appropriation has not been enacted are 

classified as liabilities not covered by budgetary resources, 

and there is no certainty that an appropriation will 

be enacted. The government, acting in its sovereign 

capacity, can abrogate liabilities that arise from activities 

other than contracts. FFEL program and Direct Loan 

program liabilities are entitlements covered by permanent 

indefinite budget authority. (See Note 6)
44 FY 2017 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION

FINANCIAL SECTION | NOTES TO THE FINANCIAL STATEMENTS

ACCOUNTS PAYABLE

Accounts payable include amounts owed by the 

Department for goods and services received from other 

entities, as well as payments not yet processed. Accounts 

payable to the public primarily consists of in-process 

grant and loan disbursements, including an accrued 

liability for schools that have disbursed loans prior to 

requesting funds. (See Note 9)

DEBT 

The Department borrows from Treasury to provide 

funding for the Direct Loan, FFEL, and other credit 

programs for higher education. The liability to Treasury 

from borrowings represents unpaid principal at yearend. The Department repays the principal based on 

available fund balances. Interest rates are based on the 

corresponding rate for 10-year Treasury securities and are 

set for those borrowings supporting each cohort of loans 

once the loans for that cohort are substantially disbursed. 

Interest is paid to Treasury on September 30th. In 

addition, the Federal Financing Bank (FFB) holds bonds 

issued by a designated bonding authority, on behalf of the 

Department, for the HBCU Capital Financing program. 

The debt for other credit programs for higher education 

includes the liability for full payment of principal and 

accrued interest for the FFB-financed HBCU Capital 

Financing program. (See Note 7)

NET COST

Net cost consists of gross costs and earned revenue. 

Gross costs and earned revenue are classified as 

intragovernmental (exchange transactions between 

the Department and other entities within the federal 

government) or with the public (exchange transactions 

between the Department and nonfederal entities).

Net program costs are gross costs less revenue earned 

from activities. The Department determines gross cost 

and earned revenue by tracing amounts back to the 

specific program office. Administrative overhead costs 

of funds unassigned are allocated based on full-time 

employee equivalents of each program. (See Note 10)

CREDIT PROGRAM INTEREST 

REVENUE AND EXPENSE

The Department recognizes interest revenue from the 

public when interest is accrued on Direct Loan program 

loans, defaulted and acquired FFEL loans, and outstanding 

principal for other loan programs. Interest due from 

borrowers is accrued at least monthly and is satisfied upon 

collection or capitalization into the loan principal. Federal 

interest revenue is recognized on the unused fund balances 

with Treasury in the financing accounts.

Federal interest expense is recognized monthly on the 

outstanding borrowing from Treasury (debt) used to 

finance direct loan and loan guarantee programs. Accrued 

interest to Treasury is paid on September 30th. The 

interest rate for federal interest expense is the same as the 

rate used for federal interest revenue.

Interest expense equals interest revenue plus 

administrative fees accrued for all credit programs due to 

subsidy amortization. Subsidy amortization is required 

by the FCRA and accounts for the difference between 

interest expense and revenue cash flows. For direct loans, 

the allowance for subsidy is adjusted with the offset to 

interest revenue. For guaranteed loans, the liability for 

loan guarantees is adjusted with the offset to interest 

expense. (See Note 11)

NET POSITION

Net position consists of unexpended appropriations 

and cumulative results of operations. Unexpended 

appropriations include undelivered orders and 

unobligated balances, except for amounts in financing 

accounts, liquidating accounts, and trust funds. 

Cumulative results of operations represent the net 

difference since inception between (1) expenses and (2) 

revenues and financing sources.
FY 2017 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION

NOTES TO THE FINANCIAL STATEMENTS | FINANCIAL SECTION

45

PERSONNEL COMPENSATION AND OTHER 

EMPLOYEE BENEFITS

Annual, Sick, and Other Leave. The liability for annual 

leave, compensatory time off, and other vested leave is 

accrued when earned and reduced when taken. Each 

year, the accrued annual leave account balance is adjusted 

to reflect current pay rates. Sick leave and other types 

of nonvested leave are expensed as taken. Annual leave 

earned but not taken, within established limits, is funded 

from future financing sources.

Retirement Plans and Other Retirement Benefits.

Employees participate in either the Civil Service 

Retirement System (CSRS), a defined benefit plan, or the 

Federal Employees Retirement System (FERS), a defined 

benefit and contribution plan. For CSRS employees, the 

Department contributes a fixed percentage of pay.

FERS consists of Social Security, a basic annuity plan, 

and the Thrift Savings Plan. The Department and the 

employee contribute to Social Security and the basic 

annuity plan at rates prescribed by law. In addition, 

the Department is required to contribute to the Thrift 

Savings Plan a minimum of 1 percent per year of the 

basic pay of employees covered by this system, match 

voluntary employee contributions up to 3 percent of the 

employee’s basic pay, and match one-half of contributions 

between 3 percent and 5 percent of the employee’s 

basic pay. For FERS employees, the Department also 

contributes the employer’s share of Medicare.

Contributions for CSRS, FERS, and other retirement 

benefits are insufficient to fund the programs fully and 

are subsidized by the Office of Personnel Management 

(OPM). The Department imputes its share of the OPM 

subsidy, using cost factors provided by OPM, and reports 

the full cost of the programs related to its employees.

Federal Employees’ Compensation Act. The Federal 

Employees’ Compensation Act (FECA) provides income 

and medical cost protection to covered federal civilian 

employees injured on the job, employees who have 

incurred work-related occupational diseases, and 

beneficiaries of employees whose deaths are attributable 

to job-related injuries or occupational diseases. The 

FECA program is administered by the U.S. Department 

of Labor (DOL), which pays valid claims and 

subsequently seeks reimbursement from the Department 

for these paid claims.

The FECA liability consists of two components. The first 

component is based on actual claims paid and recognized 

by the Department as a liability. Generally, the 

Department reimburses DOL within two to three years 

once funds are appropriated. The second component is 

the estimated liability for future benefit payments based 

on unforeseen events, such as death, disability, medical, 

and miscellaneous costs as determined by DOL annually. 

(See Notes 6 and 9)

RECLASSIFICATIONS

Certain reclassifications were made to the prior year 

notes to conform to the current year presentation. 

These changes had no effect on total assets, liabilities 

and net position, net cost of operations, or budgetary 

resources. Components of Fund Balance with Treasury 

in Note 3 were reclassified to identify the amount of 

borrowing authority not yet converted to Fund Balance 

with Treasury; the total Fund Balance with Treasury was 

unaffected. Components of gross cost and earned revenue 

in Note 10 were reclassified between intragovernmental 

and with the public to better reflect the underlying 

activities that resulted in changes in the Guaranty 

Agencies’ Federal Funds balance; the total gross cost and 

the total earned revenue were unaffected. Direct Loan 

program revenue was reclassified in Note 5 to better reflect 

administrative fee revenue; total Direct Loan program 

revenue was unaffected. Components of Distributed 

Offsetting Receipts in Note 12 were reclassified to identify 

the amount associated with HEAL program loans; total 

distributed offsetting receipts was unaffected.
46 FY 2017 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION

FINANCIAL SECTION | NOTES TO THE FINANCIAL STATEMENTS

NOTE 2. Non-Entity Assets

As of September 30, 2017 and 2016, non-entity assets consisted of the following:

The Department’s FY 2017 assets are predominantly entity assets (99.8 percent), leaving the small portion of assets 

remaining as non-entity assets. Non-entity intragovernmental assets primarily consist of balances in deposit and clearing 

accounts. Non-entity assets with the public primarily consist of guaranty agency reserves (78.7 percent), reported as 

Guaranty Agencies’ Federal Funds, and Federal Perkins Loan program loan receivables (18.8 percent), reported as credit 

program receivables, net. Federal Perkins Loan program receivables are a non-entity asset because the assets are held by the 

Department but are not available for use by the Department. The corresponding liabilities for these non-entity assets are 

reflected in various accounts, including intragovernmental accounts payable, Guaranty Agencies’ Federal Funds Due to 

Treasury, and other liabilities. (See Note 9)

2017 2016

Intragovernmental With the Public Intragovernmental With the Public

Non-Entity Assets

Fund Balance with Treasury $ 260 $ - $ 231 $ -

Credit Program Receivables, Net - 495 - 449

Other Assets

Guaranty Agencies’ Federal Funds - 2,077 - 1,197

Accounts Receivable, Net - 68 - 69

Total Non-Entity Assets 260 2,640 231 1,715

Entity Assets 109,979 1,146,364 96,634 1,076,227

Total Assets $ 110,239 $ 1,149,004 $ 96,865 $ 1,077,942

Non-Entity Assets

(Dollars in Millions)
FY 2017 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION

NOTES TO THE FINANCIAL STATEMENTS | FINANCIAL SECTION

47

Fund Balance with Treasury 

(Dollars in Millions)

General 

Funds

Revolving 

Funds

Special 

Funds

All Other 

Funds Total

2017

Unobligated Balance

 Available $ 9,008 $ - $ 3 $ 1 $ 9,012

Unavailable 1,174 23,218 10 - 24,402

Obligated Balance, not Disbursed 56,829 78,390 - - 135,219

Authority Temporarily Precluded from Obligation - - 1 - 1

Borrowing Authority Not Yet Converted to Fund Balance 

with Treasury - (58,701) - - (58,701)

Other - - - 241 241

Total Fund Balance with Treasury $ 67,011 $ 42,907 $ 14 $ 242 $ 110,174

2016

Unobligated Balance

 Available $ 10,280 $ - $ - $ - $ 10,280

Unavailable 902 15,480 12 - 16,394

Obligated Balance, not Disbursed 54,240 76,621 1 - 130,862

Borrowing Authority Not Yet Converted to Fund Balance with 

Treasury - (60,991) - - (60,991)

Other - - - 218 218

Total Fund Balance with Treasury $ 65,422 $ 31,110 $ 13 $ 218 $ 96,763

NOTE 3. Fund Balance with Treasury

Fund Balance with Treasury by status of funds and fund type, as of September 30, 2017 and 2016, consisted of the following:

COMPOSITION OF FUNDS

A portion of the general funds is provided in advance by multiyear appropriations for obligations anticipated during the 

current and future fiscal years. Revolving funds are derived from borrowings, as well as collections from the public and 

other federal agencies. Special funds include fees collected on delinquent or defaulted Perkins loans that have reverted back 

to the Department from the initial lenders.

STATUS OF FUNDS

Available unobligated balances represent amounts that are apportioned for obligation in the current fiscal year. Unavailable 

unobligated balances represent amounts that are not apportioned for obligation during the current fiscal year and expired 

appropriations no longer available to incur new obligations. Total unavailable unobligated balance ($24,402 million) 

differs from unapportioned and expired amounts on the SBR ($26,479 million) due to the Guaranty Agencies’ Federal 

Funds ($2,077 million).
48 FY 2017 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION

FINANCIAL SECTION | NOTES TO THE FINANCIAL STATEMENTS

NOTE 4. Other Assets

Other assets, as of September 30, 2017 and 2016, consisted of the following:

NOTE 5. Credit Programs for Higher Education: Credit Program Receivables, Net and Liabilities 

for Loan Guarantees

Credit program receivables, as of September 30, 2017 and 2016, consisted of the following:

The federal student loan programs provide students and their families with the funds to help meet postsecondary 

education costs. Funding for these programs is provided through permanent indefinite budget authority. What follows is 

additional analysis of the activity, costs and adjustments for each of the loan programs.

William D. Ford Federal Direct Loan Program. The federal government makes loans directly to students and parents 

through participating institutions of higher education under the Direct Loan program. Direct Loans are originated and 

serviced through contracts with private vendors.

Direct Loan program loan receivables include defaulted and nondefaulted loans owned and held by the Department. Of 

the $1,058.4 billion in gross receivables, as of September 30, 2017, $70.7 billion (6.7 percent) in loan principal was in 

default and had been transferred to the Department’s defaulted loan servicer, compared to $57.3 billion (6.0 percent) as 

of September 30, 2016.

Other Assets 

(Dollars in Millions)

2017 2016

Intragovernmental With the Public Intragovernmental With the Public

Guaranty Agencies’ Federal Funds $ - $ 2,077 $ - $ 1,197 

Accounts Receivable, Net 1 172 1 137 

Advances 64 1 101 3 

Property and Equipment, Net - 33 - 24 

Other - 2 - 2 

Total Other Assets $ 65 $ 2,285 $ 102 $ 1,363 

Credit Program Receivables

(Dollars in Millions)

Principal Accrued Interest Allowance for 

Subsidy Net

2017

Direct Loan Program $ 998,825 $ 59,534 $ (16,805) $ 1,041,554 

FFEL Program 101,601 19,338 (18,529) 102,410 

Other Credit Programs for Higher Education 3,157 409 (811) 2,755 

Total Credit Receivables $ 1,103,583 $ 79,281 $ (36,145) $ 1,146,719 

2016

Direct Loan Program $ 902,754 $ 50,835 $ 5,292 $ 958,881 

FFEL Program 109,804 18,191 (13,125) 114,870 

Other Credit Programs for Higher Education 2,988 389 (549) 2,828 

Total Credit Receivables $ 1,015,546 $ 69,415 $ (8,382) $ 1,076,579 
FY 2017 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION

NOTES TO THE FINANCIAL STATEMENTS | FINANCIAL SECTION

49

Direct Loan Program Reconciliation of Allowance for Subsidy 

(Dollars in Millions)

2017 2016

Beginning Balance, Allowance for Subsidy $ (5,292) $ (35,496)

Activity

Fee Collections 1,694 1,685 

Loan Cancellations (7,689) (5,065)

Subsidy Allowance Amortization 23,276 17,815 

Other (513) (350)

Total Activity 16,768 14,085 

Components of Subsidy Expenses for 2017 and 2016 Cohorts of Loans

Interest Rate Differential (13,045) (15,463)

Defaults, Net of Recoveries (133) (127)

Fees (1,968) (1,993)

Other 12,541 11,887 

Negative Subsidy Expenses for 2017 and 2016 Cohorts of Loans (2,605) (5,696)

Components of Subsidy Re-estimates For All Prior Year Cohorts of Loans

Interest Rate Re-estimates (5,765) (1,536)

Technical and Default Re-estimates 13,699 23,351 

Upward Subsidy Re-estimates of Prior Year Cohorts of Loans 7,934 21,815 

Ending Balance, Allowance for Subsidy $ 16,805 $ (5,292)

The following schedule provides a reconciliation between the beginning and ending balances of the allowance for subsidy 

for the Direct Loan program:

The estimation process used to determine the amount of positive or negative subsidy expense each fiscal year, and 

subsequently the cumulative taxpayer cost of the program (allowance for subsidy), is subject to various internal and 

external risk factors which often show strong interdependence with one another. These risks include uncertainty about 

changes in the general economy, changes in the legislative and regulatory environment, and changing trends in borrower 

performance with regard to contractual cash flows within the loan programs.

Due to the complexity of the Direct Loan program, there is inherent projection risk in the process used for estimating 

long-term program costs. As stated, some uncertainty stems from potential changes in student loan legislation and 

regulations because these changes may fundamentally alter the cost structure of the program. Operational and policy 

shifts, such as growing efforts to increase borrower enrollment in income-driven repayment (IDR) plans, may also affect 

program costs by causing significant changes in borrower repayment timing. Actual performance may deviate from 

estimated performance, which is not unexpected given the long-term nature of these loans (cash flows may be estimated 

up to 40 years), and the multitude of projection paths and possible outcomes. The increasing enrollment of borrowers 

in the IDR plans has made projection of borrower incomes a key input for the estimation process. This uncertainty is 

directly tied to the macroeconomic climate and is another inherent program element that displays the interrelated risks 

facing the Direct Loan program.

Loan cancellations include write-offs of loans because the borrower died, became disabled, or declared bankruptcy. The 

interest rate re-estimate reflects the cost of finalizing the Treasury borrowing rate to be used for borrowings received 

to fund the disbursed portion of the loan awards obligated. Other components of subsidy transfers consist of contract 

collection costs, program review collections, fees, loan forgiveness under Pay as You Earn (PAYE) and other accruals. 
50 FY 2017 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION

FINANCIAL SECTION | NOTES TO THE FINANCIAL STATEMENTS

Direct Loan Program Subsidy Expense 

(Dollars in Millions)

2017 2016

Components of Subsidy Expenses for 2017 and 2016 Cohorts of Loans

Interest Rate Differential $ (13,045) $ (15,463)

Defaults, Net of Recoveries (133) (127)

Fees (1,968) (1,993)

Other 12,541 11,887

Negative Subsidy Expenses For 2017 and 2016 Cohorts of Loans (2,605) (5,696)

Upward Subsidy Re-estimates For All Prior Loan Cohorts 7,934 21,815

Direct Loan Subsidy Expense $ 5,329 $ 16,119 

The following schedule summarizes the Direct Loan program interest expense and revenues for the years ended 

September 30, 2017 and 2016:

The following schedule summarizes the Direct Loan subsidy expense for the years ended September 30, 2017 and 2016:

Direct Loan program re-estimated subsidy cost was adjusted upward by $7.9 billion in FY 2017. In addition to the major 

assumption updates described below, the re-estimate reflects several other assumption updates, including interest rates 

provided by OMB, volume, and enter repayment rates. Prepayment rates increased from the FY 2016 estimate, resulting 

in a $2.4 billion upward re-estimate. Contract collection costs were updated for new data reflecting lower overall average 

commission rates, resulting in a $5.1 billion downward re-estimate.

 IDR Model Changes. The U.S. Government Accountability Office (GAO) audit report, Federal Student Loans: 

Education Needs to Improve Its Income Driven Repayment Plan Budget Estimates, identified several areas in which the 

Department could improve its IDR cost estimates. Largely in response to this audit, as well as concerns raised in FY 

2016’s Independent Auditor’s Report, in FY 2017 the Department incorporated an adjustment for inflation into 

the Department’s IDR submodel, modified the current IDR submodel to estimate IDR subsidies by loan type, and 

implemented methods to address concerns regarding the volatility of the submodel’s income data. In addition, default; 

collection; death, disability, and bankruptcy; and prepayment rate assumptions used by the submodel were updated. 

The combined effect of these changes was a net downward re-estimate of $14.7 billion.

Direct Loan Program Interest Expense and Revenues 

(Dollars in Millions)

2017 2016

Interest Expense on Treasury Borrowing $ 31,286 $ 30,503 

Total Interest Expense $ 31,286 $ 30,503 

Interest Revenue from the Public $ 50,142 $ 44,199 

Interest Revenue on Uninvested Funds 4,258 3,943

Administrative Fees 162 176

Amortization of Subsidy (23,276) (17,815)

Total Revenues $ 31,286 $ 30,503 
FY 2017 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION

NOTES TO THE FINANCIAL STATEMENTS | FINANCIAL SECTION

51

Direct Loan Subsidy Rates—Cohort 2017

Interest Differential Defaults Fees Other Total

Stafford 4.33% 1.46% -1.07% 7.21% 11.93%

Unsubsidized Stafford -8.33% 0.93% -1.07% 8.99% 0.52%

PLUS -18.97% 0.56% -4.30% 7.86% -14.85%

Consolidation 4.97% 1.25% 0.00% 10.89% 17.11%

Weighted Average Total -6.84% 1.06% -1.21% 9.15% 2.16%

 Repayment Plan Selection. The GAO audit report cited above also recommended the Department help ensure 

that subsidy estimates reasonably reflect trends in IDR plan participation. In response, the Department updated its 

methodology for repayment plan selection, taking into account the timing of repayment plan selection as well as recent 

growth trends in the selection of income-driven repayment plans. The combined effect of these changes was a net 

upward re-estimate of $18.4 billion.

 Death, Disability, and Bankruptcy. The Department made major updates to the death, disability, and bankruptcy 

assumption in FY 2017. These updates included a revised accounting for the effect of a matching agreement with 

Social Security Administration, updates to closed school regulations, and revised borrower defense regulations. Updates 

to the data used to calculate discharges were also incorporated. The combined effect of these changes were a net upward 

re-estimate of $9.2 billion.

Subsidy rates are sensitive to the difference between the borrowers’ rates and the rate the Department is charged by 

Treasury on the debt to fund the loans; for example, a 1 percent increase in projected borrower interest rates would reduce 

projected direct loan subsidy cost by $5.2 billion. Re-estimated costs only include cohorts that are 90 percent disbursed; 

cohort years 1994–2016. With the increase in IDR participation, the Department also conducted sensitivities on incomes 

for students in IDR and Public Service Loan Forgiveness (PSLF) plans. For example, a 10 percent upward increase in 

borrower incomes decreases costs almost $2.3 billion for cohort 2016. A 10 percent increase in PSLF plan participation 

would increase costs by $.6 billion for cohort 2016. 

Direct Loan program re-estimated subsidy cost was adjusted upward by $21.8 billion in FY 2016. The re-estimates reflect 

several updated assumptions: however, in this case, the size of the net upward re-estimate was due largely to collection 

rates on defaulted loans and repayment plan selection. Actual collections on defaults since FY 2011 were lower than 

anticipated, which reduced estimated lifetime rates and increased the cost to the Department by $10.1 billion. For 

repayment plan selection, a greater percentage of borrowers chose costlier plans than had been estimated and increased the 

cost to the Department by $8.1 billion. The percentage of borrowers choosing an IDR plan was the primary cost driver 

for that assumption.

The subsidy rates applicable to the 2017 loan cohort year follow:

The subsidy rate represents the subsidy expense of the program in relation to the obligations or commitments made 

during the fiscal year and are weighted on gross volume. The subsidy rates shown above, which reflect aggregate positive 

subsidy in the FY 2017 cohort, cannot be applied to direct loans disbursed during the current reporting year to yield the 

subsidy expense, nor are these rates applicable to the portfolio as a whole. The Department does not re-estimate student 

loan cohorts until they are at least 90 percent disbursed. As a result, the financial statement re-estimate does not include 

a re-estimate of the current year cohort. The first re-estimate of this cohort will take place upon execution of the FY 2019 

President’s Budget.
52 FY 2017 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION

FINANCIAL SECTION | NOTES TO THE FINANCIAL STATEMENTS

The subsidy costs of the Department’s student loan programs, especially the Direct Loan program, are highly sensitive 

to changes in actual and forecasted interest rates. The formulas for determining program interest rates are established by 

statute; the existing loan portfolio has a mixture of borrower and lender rate formulas. Interest rate projections are based 

on probabilistic interest rate scenario inputs developed and provided by OMB.

The following schedule summarizes the Direct Loan program loan disbursements by loan type for the years ended 

September 30, 2017 and 2016:

Direct Loan Program Loan Disbursements by Loan Type

(Dollars in Millions)

2017 2016

Stafford $ 23,368 $ 23,752 

Unsubsidized Stafford 51,410 52,254 

PLUS 18,695 19,001 

Consolidation 48,999 45,518 

Total Disbursements $ 142,472 $ 140,525 

The allocation of disbursements for the first three loan types is estimated based on historical trend information.

Student and parent borrowers may prepay existing loans without penalty through a new consolidation loan. Under the 

FCRA and requirements provided by OMB regulations, the retirement of direct loans being consolidated is considered a 

collection of principal and interest. This receipt is offset by the disbursement related to the newly created consolidation 

loan. Underlying direct or guaranteed loans, performing or nonperforming, are paid off in their original cohort; new 

consolidation loans are originated in the cohort in which the new consolidation loan was obligated. Consolidation activity 

is taken into consideration in establishing subsidy rates for defaults and other cash flows. The cost of new consolidations 

is included in subsidy expense for the current-year cohort; the effect of prepayments on existing loans could contribute 

to re-estimates of prior cohort subsidy costs. The net receivables include estimates of future prepayments of existing loans 

through consolidations; they do not reflect subsidy costs associated with anticipated future consolidation loans.

Direct loan consolidations were $49.0 billion during FY 2017 and $45.5 billion during FY 2016. Under the FCRA, the 

subsidy costs of new consolidation loans are not reflected until the future fiscal year in which they are disbursed. The effect 

of the early payoff of the existing loans—those being consolidated—is recognized in the future projected cash flows of the 

past cohort year in which the loans were originated. 

Federal Family Education Loan Program. As a result of the SAFRA Act, no new FFEL loans have been made since July 

1, 2010. Federal guarantees on FFEL program loans and commitments remain in effect for loans made before July 1, 

2010, unless they were sold to the Department through an ECASLA program (acquired FFEL loans), consolidated into a 

direct loan, or otherwise satisfied, discharged, or cancelled. As of September 30, 2017 and 2016, total principal balances 

outstanding of guaranteed loans held by lenders were approximately $176 billion and $197 billion, respectively. As of 

September 30, 2017 and 2016, the estimated maximum government exposure on outstanding guaranteed loans held by 

lenders was approximately $173 billion and $193 billion, respectively. Of the insured amount, the Department would pay 

a smaller amount to the guaranty agencies. The rates range from 75 to 100 percent of the loan value depending on when 

the loan was made and the guaranty agency’s claim experience.
FY 2017 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION

NOTES TO THE FINANCIAL STATEMENTS | FINANCIAL SECTION

53

FFEL Program Loan Receivables 

(Dollars in Millions)

Principal Accrued Interest Allowance for 

Subsidy Net

2017

DEFAULTED FFEL GURANTEED LOANS

FFEL GSL Program (Pre-1992) $ 3,882 $ 5,659 $ (8,019) $ 1,522 

FFEL GSL Program (Post-1991) 34,395 7,216 (13,838) 27,773 

Total Defaulted FFEL Guaranteed Loans 38,277 12,875 (21,857) 29,295 

ACQUIRED FFEL LOANS

Loan Purchase Commitment 21,375 2,224 1,656 25,255 

Loan Participation Purchase 40,288 3,947 2,072 46,307 

ABCP Conduit 1,661 292 (400) 1,553 

Total Acquired FFEL Loans 63,324 6,463 3,328 73,115 

FFEL Program Loan Receivables $ 101,601 $ 19,338 $ (18,529) $ 102,410 

2016

DEFAULTED FFEL GURANTEED LOANS

FFEL GSL Program (Pre-1992) $ 4,087 $ 5,674 $ (7,622) $ 2,139 

FFEL GSL Program (Post-1991) 35,645 6,562 (12,398) 29,809 

Total Defaulted FFEL Guaranteed Loans 39,732 12,236 (20,020) 31,948 

ACQUIRED FFEL LOANS

Loan Purchase Commitment 23,867 2,090 2,922 28,879 

Loan Participation Purchase 44,434 3,600 4,347 52,381 

ABCP Conduit 1,771 265 (374) 1,662 

Total Acquired FFEL Loans 70,072 5,955 6,895 82,922 

FFEL Program Loan Receivables $ 109,804 $ 18,191 $ (13,125) $ 114,870 

The balances of defaulted and acquired FFEL loans as of September 30, 2017 and 2016, are presented below.
54 FY 2017 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION

FINANCIAL SECTION | NOTES TO THE FINANCIAL STATEMENTS

The following schedule provides a reconciliation between the beginning and ending balances of the liability for the 

outstanding portfolio of insured FFEL loans. This liability is included as a component of other liabilities on the balance 

sheet (see Note 9).

Other activity includes negative special allowance collections, collections on defaulted FFEL loans, guaranty agency 

expenses, and loan cancellations due to death, disability, or bankruptcy.

The following schedules provide reconciliations between the beginning and ending balances of the allowance for subsidy 

for the acquired FFEL portfolio.

Loan Purchase Commitment Reconciliation of Allowance for Subsidy 

(Dollars in Millions)

2017 2016

Beginning Balance, Allowance for Subsidy $ (2,922) $ (4,410)

Activity

Subsidy Allowance Amortization 635 644

Loan Cancellations (203) (193)

Direct Asset Activities (45) (40)

Total Activity 387 411

Upward Subsidy Re-estimates 879 1,077

Ending Balance, Allowance for Subsidy $ (1,656) $ (2,922)

FFEL Program Reconciliation of Liabilities for Loan Guarantees 

(Dollars in Millions)

2017 2016

Beginning Balance, FFEL Financing Account Liability for Loan Guarantees $ 1,417 $ (3,398)

Activity 

Interest Supplement Payments (810) (830)

Claim Payments (5,819) (6,678)

Fee Collections 1,633 1,731

Interest on Subsidy Amortization (1,263) (1,766)

Other 7,459 5,648

Total Activity 1,200 (1,895)

Components of Loan Modifications

Loan Modification Costs - 151

Modification Adjustment Transfers - 24

Loan Modifications - 175

Upward Subsidy Re-estimates 1,019 6,535

Ending Balance, FFEL Financing Account Liability for Loan Guarantees 3,636 1,417

FFEL Liquidating Account Liability for Loan Guarantees 23 12

FFEL Liabilities for Loan Guarantees $ 3,659 $ 1,429
FY 2017 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION

NOTES TO THE FINANCIAL STATEMENTS | FINANCIAL SECTION

55

FFEL Program Subsidy Expense 

(Dollars in Millions)

2017 2016

Upward Subsidy Re-estimates

FFEL Loan Guarantee Program $ 1,019 $ 6,535

Loan Purchase Commitment 879 1,077

Loan Participation Purchase 1,513 2,447

Total FFEL Program Upward Subsidy Re-estimates 3,411 10,059

FFEL Guaranteed Loan Program Modification Costs - 175

FFEL Program Subsidy Expense $ 3,411 $ 10,234

Loan Participation Purchase Reconciliation of Allowance for Subsidy 

(Dollars in Millions)

2017 2016

Beginning Balance, Allowance for Subsidy $ (4,347) $ (7,573)

Activity

Subsidy Allowance Amortization 1,219 1,208

Loan Cancellations (390) (355)

Direct Asset Activities (67) (74)

Total Activity 762 779

Upward Subsidy Re-estimates 1,513 2,447

Ending Balance, Allowance for Subsidy $ (2,072) $ (4,347)

The following schedule provides FFEL program subsidy expense for the years ended September 30, 2017 and 

2016, respectively:

FFEL subsidy cost was adjusted upward by $3.4 billion in FY 2017. The net upward re-estimates in these programs were 

due primarily to interest rates provided by OMB and updated prepayment rates. Subsidy rates are sensitive to interest 

rate fluctuations; for example, a 1 percent increase in borrower interest rates and the guaranteed yield for lenders would 

increase projected FFEL subsidy costs by $15.1 billion.

FFEL re-estimated subsidy cost was adjusted upward by $10.2 billion in FY 2016. The net upward re-estimates in these 

programs were due primarily to collection rates on defaulted loans which were lower than anticipated.
56 FY 2017 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION

FINANCIAL SECTION | NOTES TO THE FINANCIAL STATEMENTS

TEACH Subsidy Rates—Cohort 2017

Interest Differential Defaults Fees Other Total

Subsidy Rates 8.60% 0.20% 0.00% 6.17% 14.97%

OTHER CREDIT PROGRAMS FOR HIGHER EDUCATION

Receivables, Net for Other Credit Programs for Higher Education 

(Dollars in Millions)

Principal Accrued Interest Allowance for 

Subsidy Net

2017

Federal Perkins Loans $ 424 $ 268 $ (197) $ 495

TEACH Program Loans 723 95 (225) 593

HEAL Program Loans 398 30 (74) 354

Facilities Loan Programs 1,612 16 (315) 1,313

Total $ 3,157 $ 409 $ (811) $ 2,755

2016

Federal Perkins Loans $ 385 $ 242 $ (178) $ 449

TEACH Program Loans 698 101 (109) 690

HEAL Program Loans 405 31 (99) 337

Facilities Loan Programs 1,500 15 (163) 1,352

Total $ 2,988 $ 389 $ (549) $ 2,828

Federal Perkins Loan Program. The Federal Perkins Loan program provides low-interest loans to eligible postsecondary 

school students. In some statutorily defined cases, funds are provided to reimburse schools for loan cancellations. For 

defaulted loans assigned to the Department, collections of principal, interest, and fees, net of amounts paid by the 

Department to cover contract collection costs, are transferred to Treasury annually.

TEACH Grant Program. The Department awards annual grants of up to $4,000 to eligible undergraduate and graduate 

students who agree to serve as full-time mathematics, science, foreign language, bilingual education, special education, 

or reading teachers at high-need schools for four years within eight years of graduation. The maximum lifetime grant 

for students is $16,000 for undergraduate programs and $8,000 for graduate programs. For students failing to fulfill the 

service requirement, the grants are converted to direct unsubsidized Stafford Loans. Since grants can be converted to direct 

loans, for budget and accounting purposes, the program is operated as a loan program under the FCRA.

The subsidy rates applicable to the 2017 loan cohort year follow:
FY 2017 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION

NOTES TO THE FINANCIAL STATEMENTS | FINANCIAL SECTION

57

Administrative Expenses 

(Dollars in Millions)

2017 2016

Direct Loan Program FFEL Program Direct Loan Program FFEL Program

Operating Expense $ 1,200 $ 144 $ 721 $ 465

Other Expense 19 3 50 33 

Total $ 1,219 $ 147 $ 771 $ 498

HEAL Program. The Department assumed responsibility in FY 2014 for the HEAL program and the authority to 

administer, service, collect, and enforce the program. The HEAL program is structured as required by the FCRA. A 

liquidating account is used to record all cash flows to and from the government resulting from guaranteed HEAL loans 

committed prior to 1992. All loan activity for 1992 and beyond is recorded in corresponding financing accounts.

Facilities Loan Programs. The Department also administers the HBCU Capital Financing program. Since 1992, 

this program has given HBCUs access to financing for the repair, renovation, and, in exceptional circumstances, the 

construction or acquisition of facilities, equipment, and infrastructure through federally insured bonds. The Department 

has authorized a designated bonding authority to make loans to eligible institutions, charge interest, and collect principal 

and interest payments. In compliance with HEA, as amended, the bonding authority maintains an escrow account to pay 

the principal and interest on bonds for loans in default. 

The total amount of support for HBCU programs, along with any accrued interest and unpaid servicing fees, will be 

capitalized to principal and be reamortized through the original maturity date of June 1, 2037. The Department has 

approximately $1.6 billion in outstanding borrowing from the FFB to support loans made to HBCU institutions and 

$242 million obligated to support near term lending as of September 30, 2017.

The Department administers the College Housing and Academic Facilities Loan program, the College Housing Loan 

program, and the Higher Education Facilities Loan program. From 1952 to 1993, these programs provided low-interest 

financing to institutions of higher education for the construction, reconstruction, and renovation of housing, academic, 

and other educational facilities.

ADMINISTRATIVE EXPENSES

Administrative expenses, for the years ended September 30, 2017 and 2016, consisted of the following:

Administrative expenses are allocated between Direct Loan and FFEL programs based on estimates. The Department 

revised the estimation process in 2017. The revised process estimates (by program) the number of applications processed, 

number of loans serviced, dollar amount of loan originations, cost of school compliance actions, and the cost to collect 

defaulted loans. The revised process is more robust than the process used in previous years and results in a higher 

percentage of costs being allocated to the Direct Loan program.
58 FY 2017 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION

FINANCIAL SECTION | NOTES TO THE FINANCIAL STATEMENTS

NOTE 7. Debt

Debt, as of September 30, 2017 and 2016, consisted of the following:

NOTE 6. Liabilities Not Covered by Budgetary Resources

Liabilities not covered by budgetary resources include liabilities for which congressional action is needed before 

budgetary resources can be provided. Although future appropriations to fund these liabilities are likely, it is not certain 

that appropriations will be enacted to fund these liabilities.

Debt 

(Dollars in Millions)

Beginning Balance Borrowing Repayments Ending Balance

2017

Direct Loan Program $ 994,285 $ 160,508 $ (93,234) $ 1,061,559

FFEL Program 131,347 - (15,057) 116,290

Other Credit Programs for Higher Education 2,191 255 (224) 2,222

Total $ 1,127,823 $ 160,763 $ (108,515) $ 1,180,071

2016

Direct Loan Program $ 909,927 $ 146,992 $ (62,634) $ 994,285

FFEL Program 139,771 160 (8,584) 131,347

Other Credit Programs for Higher Education 2,078 224 (111) 2,191

Total $ 1,051,776 $ 147,376 $ (71,329) $ 1,127,823 

Liabilities Not Covered by Budgetary Resources

(Dollars in Millions)

2017 2016

Intragovernmental With the Public Intragovernmental With the Public

Liabilities Not Covered By Budgetary Resources

Subsidy Due to Treasury General Fund $ 1,784 $ - $ 2,429 $ - 

Other Liabilities

 Federal Perkins Loan Program 482 - 437 - 

 Accrued Unfunded Annual Leave - 40 - 40 

 FECA Liabilities 3 14 8 1 

 Custodial Liabilities - - 2 - 

Total Liabilities Not Covered By Budgetary Resources $ 2,269 $ 54 $ 2,876 $ 41 

Total Liabilities Covered By Budgetary Resources 1,187,448 12,312 1,129,411 9,642 

Total Liabilities $ 1,189,717 $ 12,366 $ 1,132,287 $ 9,683 
FY 2017 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION

NOTES TO THE FINANCIAL STATEMENTS | FINANCIAL SECTION

59

Subsidy Due to Treasury General Fund 

(Dollars in Millions)

2017 2016

Credit Program Downward Subsidy Re-estimates

Direct Loan Program $ 5,010 $ - 

FFEL Program 219 213 

Total Credit Program Downward Subsidy Re-estimates 5,229 213 

Future Liquidating Account Collections

FFEL Program 1,614 2,253 

Other Credit Programs for Higher Education 170 176 

Total Future Liquidating Account Collections 1,784 2,429 

Total Subsidy Due to Treasury General Fund $ 7,013 $ 2,642 

The Department borrows from Treasury to fund the disbursement of new loans and the payment of credit program outlays 

and related costs. During FY 2017, debt increased 4.6 percent from $1,127.8 billion in the prior year to $1,180.1 billion. 

The Department makes periodic principal payments after considering the cash position and liability for future outflows in 

each cohort of loans, as mandated by the FCRA.

Approximately 90.0 percent of the Department’s debt, as of September 30, 2017, is attributable to the Direct Loan 

program. The majority of the net borrowing activity (borrowing less repayments) for the year was designated for funding 

new Direct Loan disbursements.

The Department also borrows from Treasury for activity in the other credit programs for higher education. During FY 

2017, TEACH net borrowing of $(88.9) million was used for the advance of new grants and repayments of principal 

made to Treasury. In FY 2017, debt in HBCU increased by $81.5 million, or 5.7 percent. This total represents the 

aggregate of new bonds administered and repayments made on previously issued bonds.

NOTE 8. Subsidy Due to Treasury General Fund

When downward subsidy re-estimates are executed, the amounts will be transferred to the Treasury General Fund 

in the following fiscal year. Future liquidating account collections represent the net present value of estimated future 

excess collections (estimated collections in excess of estimated outlays) for the Department’s pre-1992 FFEL and HEAL 

loan programs.
60 FY 2017 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION

FINANCIAL SECTION | NOTES TO THE FINANCIAL STATEMENTS

NOTE 9. Other Liabilities

Other liabilities, as of September 30, 2017 and 2016, consisted of the following:

Other Liabilities 

(Dollars in Millions)

2017 2016

Intragovernmental With the Public Intragovernmental With the Public

Accounts Payable $ 1 $ 4,191 $ 1 $ 3,966 

Accrued Grant Liability - 3,959 - 3,760 

Guaranty Agencies' Funds Due to Treasury 2,077 - 1,197 - 

Loan Guarantee Liability - 3,870 - 1,633 

Federal Perkins Loan Program 482 - 437 - 

Miscellaneous Receipt, Deposit Funds and Clearing Accounts 52 270 40 255 

Advances from Others and Deferred Credits 10 7 11 9 

Accrued Unfunded Annual Leave - 40 - 40 

FECA Liabilities 3 14 8 1 

Accrued Payroll and Benefits - 15 - 19 

Employer Contributions and Payroll Taxes 8 - 126 - 

Custodial Liabilities - - 2 - 

Total Other Liabilities $ 2,633 $ 12,366 $ 1,822 $ 9,683 
FY 2017 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION

NOTES TO THE FINANCIAL STATEMENTS | FINANCIAL SECTION

61

NOTE 10. Gross Cost and Exchange Revenue by Program

Gross Cost and Exchange Revenue by Program 

(Dollars in Millions)

2017

FSA OESE OSERS Other Total

INCREASE COLLEGE ACCESS, QUALITY, AND COMPLETION

Gross Cost

Intragovernmental $ 36,054 $ - $ - $ 65 $ 36,119

With the Public 37,717 - - 4,453 42,170

Total Gross Program Costs 73,771 - - 4,518 78,289

Earned Revenue

Intragovernmental (5,335) - - (14) (5,349)

With the Public (30,490) - - (48) (30,538)

Total Program Earned Revenue (35,825) - - (62) (35,887)

Net Program Costs 37,946 - - 4,456 42,402 

IMPROVE PREPARATION FOR COLLEGE AND CAREER FROM BIRTH THROUGH 12TH GRADE, ESPECIALLY FOR CHILDREN WITH 

HIGH NEEDS

Gross Cost

Intragovernmental - 176 - - 176 

With the Public - 22,400 - 1 22,401 

Total Gross Program Costs - 22,576 - 1 22,577 

Earned Revenue

With the Public - (10) - - (10)

Total Program Earned Revenue - (10) - - (10)

Net Program Costs - 22,566 - 1 22,567 

ENSURE EFFECTIVE EDUCATIONAL OPPORTUNITIES FOR ALL STUDENTS

Gross Cost

Intragovernmental - - 16 36 52 

With the Public - - 16,370 836 17,206 

Total Gross Program Costs - - 16,386 872 17,258 

Earned Revenue

With the Public - - (10) (1) (11)

Total Program Earned Revenue - - (10) (1) (11)

Net Program Costs - - 16,376 871 17,247 

ENHANCE THE EDUCATION SYSTEM’S ABILITY TO CONTINUOUSLY IMPROVE

Gross Cost

Intragovernmental - - - 85 85 

With the Public - - - 2,037 2,037 

Total Gross Program Costs - - - 2,122 2,122 

Earned Revenue

With the Public - - - (59) (59)

Total Program Earned Revenue - - - (59) (59)

Net Program Costs - - - 2,063 2,063 

Net Cost of Operations $ 37,946 $ 22,566 $ 16,376 $ 7,391 $ 84,279 
62 FY 2017 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION

FINANCIAL SECTION | NOTES TO THE FINANCIAL STATEMENTS

Gross Cost and Exchange Revenue by Program

(Dollars in Millions)

2016

FSA OESE OSERS Other Total

INCREASE COLLEGE ACCESS, QUALITY, AND COMPLETION

Gross Cost

Intragovernmental $ 35,692 $ - $ - $ 120 $ 35,812 

With the Public 57,340 - - 4,162 61,502 

Total Gross Program Costs 93,032 - - 4,282 97,314 

Earned Revenue

Intragovernmental (4,464) - - (6) (4,470)

With the Public (29,796) - - (50) (29,846)

Total Program Earned Revenue (34,260) - - (56) (34,316)

Net Program Costs 58,772 - - 4,226 62,998 

IMPROVE PREPARATION FOR COLLEGE AND CAREER FROM BIRTH THROUGH 12TH GRADE, ESPECIALLY FOR CHILDREN WITH 

HIGH NEEDS

Gross Cost

Intragovernmental - 183 - - 183 

With the Public - 22,179 - 1 22,180 

Total Gross Program Costs - 22,362 - 1 22,363 

Earned Revenue

Intragovernmental - (5) - - (5)

With the Public - (11) - - (11)

Total Program Earned Revenue - (16) - - (16)

Net Program Costs - 22,346 - 1 22,347 

ENSURE EFFECTIVE EDUCATIONAL OPPORTUNITIES FOR ALL STUDENTS

Gross Cost

Intragovernmental - - 105 35 140 

With the Public - - 15,973 812 16,785 

Total Gross Program Costs - - 16,078 847 16,925 

Earned Revenue

With the Public - - (10) (1) (11)

Total Program Earned Revenue - - (10) (1) (11)

Net Program Costs - - 16,068 846 16,914 

ENHANCE THE EDUCATION SYSTEM’S ABILITY TO CONTINUOUSLY IMPROVE

Gross Cost

Intragovernmental - - - 96 96 

With the Public - - - 2,025 2,025 

Total Gross Program Costs - - - 2,121 2,121 

Earned Revenue

With the Public - - - (58) (58)

Total Program Earned Revenue - - - (58) (58)

Net Program Costs - - - 2,063 2,063 

Net Cost of Operations $ 58,772 $ 22,346 $ 16,068 $ 7,136 $ 104,322 
FY 2017 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION

NOTES TO THE FINANCIAL STATEMENTS | FINANCIAL SECTION

63

For the years ended September 30, 2017 and 2016, interest expense and revenues for credit programs consisted of 

the following:

NOTE 11: Credit Program Interest Expense and Revenues

Gross Interest 

Expense

Subsidy 

Amortization

Net Interest 

Expense

Gross Interest and Administrative 

Fee Revenue

Subsidy 

Amortization

Net Revenue

Intragovernmental With the Public Intragovernmental With the Public With the Public

2017

Direct Loan Program $ 31,286 $ - $ 31,286 $ 4,258 $ 50,304 $ (23,276) $ 31,286 

FFEL Program 4,661 (1,263) 3,398 1,071 4,234 (1,907) 3,398 

Other Credit Programs 

for Higher Education 69 - 69 20 81 (32) 69 

Total $ 36,016 $ (1,263) $ 34,753 $ 5,349 $ 54,619 $ (25,215) $ 34,753 

2016

Direct Loan Program $ 30,503 $ - $ 30,503 $ 3,943 $ 44,375 $ (17,815) $ 30,503 

FFEL Program 4,980 (1,766) 3,214 516 4,600 (1,902) 3,214 

Other Credit Programs 

for Higher Education 66 - 66 12 79 (25) 66 

Total $ 35,549 $ (1,766) $ 33,783 $ 4,471 $ 49,054 $ (19,742) $ 33,783 

Credit Program Interest Expense and Revenues 

(Dollars in Millions)
64 FY 2017 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION

FINANCIAL SECTION | NOTES TO THE FINANCIAL STATEMENTS

NOTE 12. Statement of Budgetary Resources

The Statement of Budgetary Resources compares budgetary resources with the status of those resources. As of September 

30, 2017, budgetary resources were $398.5 billion and net agency outlays were $152.2 billion. As of September 30, 2016, 

budgetary resources were $335.0 billion and net agency outlays were $159.6 billion.

NEW OBLIGATIONS INCURRED AND UPWARD ADJUSTMENTS BY APPORTIONMENT TYPE AND CATEGORY

New obligations incurred and upward adjustments by apportionment type and category, as of September 30, 2017 and 

2016, consisted of the following:

2017 2016

DIRECT

Category A $ 2,186 $ 2,170

Category B 360,781 304,270

Exempt from Apportionment 13 638

Total Direct Apportionment 362,980 307,078

REIMBURSABLE

Category A 3 3

Category B 55 63

New Obligations Incurred and Upward Adjustments $ 363,038 $ 307,144

New Obligations Incurred and Upward Adjustments by Apportionment Type and Category 

(Dollars in Millions)

New obligations incurred and upward adjustments can be either direct or reimbursable. Reimbursable obligations are 

those financed by offsetting collections received in return for goods and services provided, while all other obligations are 

direct. The apportionment categories are determined in accordance with the guidance provided in OMB regulations. 

Category A apportionments are those resources that can be obligated in the current fiscal year without restriction on the 

purpose of the obligation, other than to be in compliance with legislation underlying programs for which the resources 

were made available. Category B apportionments are restricted by purpose for which obligations can be incurred. In 

addition, some resources are available without apportionment by OMB.
FY 2017 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION

NOTES TO THE FINANCIAL STATEMENTS | FINANCIAL SECTION

65

UNUSED BORROWING AUTHORITY

Unused borrowing authority and related changes in available borrowing authority, as of September 30, 2017 and 2016, 

consisted of the following:

The Department is given authority to draw funds from Treasury to finance the Direct Loan, FFEL, and other loan 

programs. Unused borrowing authority is a budgetary resource and is available to support obligations for these programs. 

The Department periodically reviews its borrowing authority balances in relation to its obligations, resulting in the 

withdrawal of unused amounts.

UNDELIVERED ORDERS AT THE END OF THE PERIOD

Undelivered orders, as of September 30, 2017 and 2016, consisted of the following:

Unused Borrowing Authority 

(Dollars in Millions)

2017 2016

Beginning Balance, Unused Borrowing Authority $ 60,991 $ 54,829

Current Year Borrowing Authority 166,601 167,400 

Funds Drawn from Treasury (160,763) (147,376)

Borrowing Authority Withdrawn (8,128) (13,862)

Ending Balance, Unused Borrowing Authority $ 58,701 $ 60,991

Undelivered Orders

(Dollars in Millions)

2017 2016

Budgetary $ 52,390 $ 50,019 

Non-Budgetary 75,665 73,366 

Undelivered Orders (Unpaid) $ 128,055 $ 123,385 

Budgetary undelivered orders represent the amount of goods and/or services ordered which have not been actually or 

constructively received. This amount includes any orders which may have been prepaid or advanced but for which delivery 

or performance has not yet occurred. Non-budgetary undelivered orders primarily represent undisbursed loan awards and 

related negative subsidy.
66 FY 2017 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION

FINANCIAL SECTION | NOTES TO THE FINANCIAL STATEMENTS

Distributed Offsetting Receipts

(Dollars in Millions)

2017 2016

Negative Subsidies and Downward Re-estimates of Subsidies:

Direct Loan Program $ 18,849 $ 7,881 

FFEL Program 370 2,529 

Facilities Loan Programs 55 18 

TEACH Program - 5 

HEAL Program 18 21 

Total Negative Subsidies and Downward Re-estimates 19,292 10,454 

Other 270 312 

Distributed Offsetting Receipts $ 19,562 $ 10,766 

DISTRIBUTED OFFSETTING RECEIPTS

The majority of the distributed offsetting receipts line item on the SBR 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 negative subsidies. Distributed offsetting receipts, for the years ended September 

30, 2017 and 2016, consisted of the following:

EXPLANATION OF DIFFERENCES BETWEEN THE STATEMENT OF BUDGETARY RESOURCES AND THE 

BUDGET OF THE UNITED STATES GOVERNMENT

The FY 2019 Budget of the United States Government (President’s Budget), which presents the actual amounts for the 

year ended September 30, 2017, has not been published as of the issue date of these financial statements. The FY 2019 

President’s Budget is scheduled for release in February 2018. A reconciliation of the FY 2016 SBR to the FY 2018 

President’s Budget (FY 2016 actual amounts) for budgetary resources, obligations incurred, distributed offsetting receipts, 

and net outlays is presented below.

SBR to Budget of the United States Government

(Dollars in Millions)

Budgetary 

Resources

Obligations 

Incurred

Distributed Offsetting 

Receipts Net Outlays

Combined Statement of Budgetary Resources $ 335,015 $ 307,144 $ 10,766 $ 159,629 

Expired Funds (1,339) (433) - - 

 FFEL Guaranty Agency Amounts Included in the 

President’s Budget 8,332 8,333 - - 

Distributed Offsetting Receipts - - - 10,766 

Other 8 - (2) (4)

Budget of the United States Government1 $ 342,016 $ 315,044 $ 10,764 $ 170,391 

1

 Amounts obtained from the Appendix, Budget of the United States Government, FY 2018

Reconciling differences exist because the President’s Budget excludes expired funds. Additionally, the President’s Budget 

includes a public enterprise fund that reflects the gross obligations by the FFEL program for the estimated activity of the 

consolidated federal fund of the guaranty agencies. Ownership by the federal government is independent of the actual 

control of the assets. Since the actual operation of the federal fund is independent from the Department’s direct control, 

budgetary resources and obligations incurred are estimated and disclosed in the President’s Budget to approximate the 

gross activities of the combined federal fund. Amounts reported on the FY 2016 SBR for the federal fund are compiled by 

combining all guaranty agencies’ annual reports to determine a net valuation amount for the federal fund.
FY 2017 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION

NOTES TO THE FINANCIAL STATEMENTS | FINANCIAL SECTION

67

NOTE 13. Reconciliation of Net Cost of Operations to Budget

The reconciliation of net cost of operations to budget reconciles the resources used to finance activities, both those received 

through budgetary resources and those received through other means, with the net cost of operations on the statement 

of net cost. This reconciliation provides an explanation of the differences between budgetary and financial (proprietary) 

accounting, as required by FASAB Standard No. 7, Accounting for Revenue and Other Financing Sources and Concepts 

for Reconciling Budgetary and Financial Accounting. 

Resources used to finance activities (section one) are reconciled with the net cost of operations by: (a) excluding resources 

used or generated for items not part of the net cost of operations (section two); and (b) including components of the net 

cost of operations that will not require or generate resources in the current period (section three). The primary resources 

used to finance activities that do not fund the net cost of operations include the acquisition of net credit program 

assets, the liquidation of liabilities for loan guarantees, and subsidy re-estimates accrued in the prior period. Significant 

components of the net cost of operations that will not generate or use resources in the current period include subsidy 

amortization, interest on the liability for loan guarantees, and increases in exchange revenue receivable from the public.

The reconciliation of net cost of operations to budget, as of September 30, 2017 and 2016, is presented below:

Reconciliation of Net Cost of Operations to Budget 

(Dollars in Millions)

2017 2016

RESOURCES USED TO FINANCE ACTIVITIES

New Obligations Incurred and Upward Adjustments $ 363,038 $ 307,144

Spending Authority from Offsetting Collections & Recoveries (186,509) (136,094)

Offsetting Receipts (19,562) (10,766)

Net Budgetary Resources Obligated 156,967 160,284

Imputed Financing From Costs Absorbed by Others 27 81

Other Financing Sources (25,461) (5,124)

Net Other Resources (25,434) (5,043)

Net Resources Used to Finance Activities 131,533 155,241

RESOURCES USED OR GENERATED FOR ITEMS NOT PART OF THE NET COST OF OPERATIONS

(Increase)/Decrease in Budgetary Resources Obligated but Not Yet Provided (3,777) 1,763

Resources that Fund Subsidy Re-estimates Accrued in Prior Period (28,006) (2,598)

Credit Program Collections 142,011 92,080

Acquisition of Fixed Assets (10) (11)

Acquisition of Net Credit Program Assets or Liquidation of Liabilities for Loan Guarantees (171,770) (161,826)

Resources from Non-Entity Activity 25,476 5,196

Net Resources That Do Not Finance the Net Cost of Operations (36,076) (65,396)

Net Resources Used to Finance the Net Cost of Operations 95,457 89,845

COMPONENTS OF THE NET COST OF OPERATIONS THAT WILL NOT REQUIRE OR GENERATE RESOURCES IN THE CURRENT PERIOD

Change in Depreciation 1 - 

Subsidy Amortization and Interest on the Liability for Loan Guarantees 23,953 17,977

Other 2 22

Total Components Not Requiring or Generating Resources 23,956 17,999

Increase/(Decrease) in Annual Leave Liability - 2

Accrued Re-estimates of Credit Subsidy Expense 134 28,006

Increase in Exchange Revenue Receivable from the Public (35,155) (31,611)

Accrued Interest with Treasury 1 1

Other (+/-) (114) 80

Total Components Requiring or Generating Resources in Future Periods (35,134) (3,522)

Total Components That Will Not Require or Generate Resources in the Current Period (11,178) 14,477

Net Cost of Operations $ 84,279 $ 104,322
68 FY 2017 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION

FINANCIAL SECTION | NOTES TO THE FINANCIAL STATEMENTS

NOTE 14. Commitments and Contingencies

The Department discloses contingencies where any of 

the conditions for liability recognition are not met and 

there is at least a reasonable possibility that a loss or an 

additional loss may have been incurred in accordance 

with FASAB Standard No. 5, Accounting for Liabilities 

of the Federal Government. The following commitments 

are amounts for contractual arrangements that may 

require future financial obligations.

FUTURE MINIMUM LEASE PAYMENTS

The Department leases all or a portion of 16 privately 

owned and 10 publicly owned buildings in 20 cities. 

Estimated future minimum lease payments for the privately 

and publicly owned buildings are presented below.

GUARANTY AGENCIES

The Department may assist guaranty agencies 

experiencing financial difficulties. The Department has 

not done so in fiscal years 2017 or 2016 and does not 

expect to in future years. No provision has been made in 

the financial statements for potential liabilities.

FEDERAL PERKINS LOAN PROGRAM

The Federal Perkins Loan program provides financial 

assistance to eligible postsecondary school students. In 

FY 2017, the Department provided funding of 83.1 

percent of the capital used to make loans to eligible 

students through participating schools at 5 percent 

interest. The schools provided the remaining 16.9 percent 

of program funding. For the latest academic year that 

ended June 30, 2017, approximately 356 thousand loans 

were made totaling $885.4 million at 1,266 institutions, 

making an average of $2,488 per loan. The Department’s 

equity interest was approximately $6.3 billion as of June 

30, 2017.

Federal Perkins Loan program borrowers who meet 

statutory eligibility requirements—such as those who 

provide service as teachers in low-income areas or as 

Peace Corps or AmeriCorps VISTA volunteers, as well 

as those who serve in the military, law enforcement, 

nursing, or family services—may receive partial loan 

forgiveness for each year of qualifying service.

Future Minimum Lease Payments

(Dollars in Millions)

2017 2016

FY Amount FY Amount

2018 $ 73 2017 $ 74 

2019 77 2018 78 

2020 79 2019 80 

2021 81 2020 83 

2022 85 2021 85 

After 2022 86 After 2021 86 

 Total $ 481 Total $ 486 
FY 2017 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION

NOTES TO THE FINANCIAL STATEMENTS 

| FINANCIAL SECTION

69

The Federal Perkins Loan program was scheduled to 

officially end on September 30, 2015. However, the 

program was extended through September 30, 2017 

by the Federal Perkins Loan Program Extension Act of 

2015 (Extension Act). The Extension Act eliminated 

the Perkins Loan grandfathering provisions that the 

Department had put in place, and establishes new 

eligibility requirements for undergraduate and graduate 

students to receive Perkins Loans. As of September 30, 

2017, the Department is no longer authorized to make 

new Perkins Loans.

LITIGATION AND OTHER CLAIMS 

The Department is involved in various lawsuits incidental 

to its operations. In the opinion of management, the 

ultimate resolution of pending litigation will not have a 

material impact on the Department’s financial position.

The cost of loan forgiveness related to borrower defense 

claims resulting from proprietary school closures reflected 

in the accompanying financial statements is limited 

to claims received through September 30, 2017. The 

final disposition of claims filed and those yet to be filed 

from schools closed before September 30, 2017, is not 

expected to have a material impact on these 

financial statements

OTHER MATTERS 

Some portion of the current-year financial assistance 

expenses (grants) may include funded recipient 

expenditures that are subsequently disallowed through 

program review or audit processes. In the opinion of 

management, the ultimate disposition of these matters 

will not have a material effect on the Department’s 

financial position.
70 FY 2017 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION

FINANCIAL SECTION | REQUIRED SUPPLEMENTARY INFORMATION

United States Department of Education Combining Statement of Budgetary Resources 

For the Year Ended September 30, 2017

(Dollars in Millions)

Combined 

Budgetary

Non-Budgetary 

Credit Reform 

Financing Accounts

BUDGETARY RESOURCES

Unobligated Balance, Brought Forward, October 1 $ 12,392 $ 15,479 

Recoveries of Prior Year Unpaid Obligations 4,781 13,356 

Other Changes in Unobligated Balance (+ or -) (456) (18,277) 

Unobligated Balance from Prior Year Budget Authority, Net $ 16,717 $ 10,558 

Appropriations (Discretionary and Mandatory) 134,388 - 

Borrowing Authority (Discretionary and Mandatory) (Note 12) - 166,601 

Spending Authority from Offsetting Collections (Discretionary and Mandatory) 1,096 69,169 

Total Budgetary Resources $ 152,201 $ 246,328 

STATUS OF BUDGETARY RESOURCES

New Obligations Incurred and Upward Adjustments (Total) (Note 12) $ 139,923 $ 223,115 

Unobligated Balance, End of Year:

Apportioned, Unexpired Accounts 9,012 - 

Unapportioned, Unexpired Accounts 2,100 23,213 

Unexpired Unobligated Balance, End of Year $ 11,112 $ 23,213 

Expired Unobligated Balance, End of Year 1,166 - 

Unobligated Balance, End of Year (Total) $ 12,278 $ 23,213 

Total Status of Budgetary Resources $ 152,201 $ 246,328 

CHANGE IN OBLIGATED BALANCE

Unpaid Obligations

Unpaid Obligations, Brought Forward, October 1 $ 54,249 $ 76,624 

New Obligations Incurred and Upward Adjustments 139,923 223,115 

Outlays (Gross) (-) (132,553) (207,402) 

Recoveries of Prior Year Unpaid Obligations (-) (4,781) (13,356) 

Unpaid Obligations, End of Year $ 56,838 $ 78,981 

Uncollected Payments

Uncollected Payments, Federal Sources, Brought Forward, October 1 (-) $ (2) $ (4) 

Change in Uncollected Payments, Federal Sources (+ or -) - (588) 

Uncollected Payments, Federal Sources, End of Year (-) $ (2) $ (592) 

Memorandum (Non-Add) Entries

Obligated Balance, Start of Year (+ or -) $ 54,247 $ 76,620 

Obligated Balance, End of Year (+ or -) $ 56,836 $ 78,389 

BUDGET AUTHORITY AND OUTLAYS, NET

Budget Authority, Gross (Discretionary and Mandatory) $ 135,484 $ 235,770 

Actual Offsetting Collections (Discretionary and Mandatory) (-) (1,279) (166,942) 

Change in Uncollected Payments from Federal Sources (Discretionary and Mandatory) (+ or -) - (588) 

Recoveries of Prior Year Paid Obligations (Discretionary and Mandatory) (+ or -) (1) (439) 

Budget Authority, Net (Discretionary and Mandatory) $ 134,204 $ 67,801 

Outlays, Gross (Discretionary and Mandatory) $ 132,553 $ 207,402 

Actual Offsetting Collections (Discretionary and Mandatory) (-) (1,279) (166,942) 

Outlays, Net (Discretionary and Mandatory) 131,274 40,460 

Distributed Offsetting Receipts (-) (Note 12) (19,562) - 

Agency Outlays, Net (Discretionary and Mandatory) (Note 12) $ 111,712 $ 40,460 
FY 2017 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION

REQUIRED SUPPLEMENTARY INFORMATION | FINANCIAL SECTION

71

Federal Student Aid Office of Elementary and 

Secondary Education

Office of Special Education and 

Rehabilitative Services Other

Total

Budgetary

Non-Budgetary 

Credit Reform 

Financing 

Accounts

Budgetary Budgetary Budgetary

Non-Budgetary 

Credit Reform 

Financing 

Accounts

$ 10,384 $ 15,303 $ 913 $ 161 $ 934 $ 176 $ 27,871

3,919 13,356 454 233 175 - 18,137

(239) (18,270) (55) (64) (98) (7) (18,733)

$ 14,064 $ 10,389 $ 1,312 $ 330 $ 1,011 $ 169 $ 27,275

88,321 - 22,197 16,582 7,288 - 134,388

- 166,426 - - - 175 166,601

1,037 68,906 - - 59 263 70,265

$ 103,422 $ 245,721 $ 23,509 $ 16,912 $ 8,358 $ 607 $ 398,529

$ 92,308 $ 222,838 $ 23,304 $ 16,601 $ 7,710 $ 277 $ 363,038

8,595 - 144 2 271 - 9,012

2,093 22,883 - - 7 330 25,313

$ 10,688 $ 22,883 $ 144 $ 2 $ 278 $ 330 $ 34,325

426 - 61 309 370 - 1,166

$ 11,114 $ 22,883 $ 205 $ 311 $ 648 $ 330 $ 35,491

$ 103,422 $ 245,721 $ 23,509 $ 16,912 $ 8,358 $ 607 $ 398,529

$ 20,216 $ 76,389 $ 15,314 $ 9,328 $ 9,391 $ 235 $ 130,873

92,308 222,838 23,304 16,601 7,710 277 363,038

(86,205) (207,131) (22,505) (16,233) (7,610) (271) (339,955)

(3,919) (13,356) (454) (233) (175) - (18,137)

$ 22,400 $ 78,740 $ 15,659 $ 9,463 $ 9,316 $ 241 $ 135,819

$ - $ (4) $ - $ - $ (2) $ - $ (6)

- (588) - - - - (588)

$ - $ (592) $ - $ - $ (2) $ - $ (594)

$ 20,216 $ 76,385 $ 15,314 $ 9,328 $ 9,389 $ 235 $ 130,867

$ 22,400 $ 78,148 $ 15,659 $ 9,463 $ 9,314 $ 241 $ 135,225

$ 89,358 $ 235,332 $ 22,197 $ 16,582 $ 7,347 $ 438 $ 371,254

(1,219) (166,641) - - (60) (301) (168,221)

- (588) - - - - (588)

 (1) (439) - - - - (440)

$ 88,138 $ 67,664 $ 22,197 $ 16,582 $ 7,287 $ 137 $ 202,005

$ 86,205 $ 207,131 $ 22,505 $ 16,233 $ 7,610 $ 271 $ 339,955

(1,219) (166,641) - - (60) (301) (168,221)

84,986 40,490 22,505 16,233 7,550 (30) 171,734

(19,438) - - - (124) - (19,562)

$ 65,548 $ 40,490 $ 22,505 $ 16,233 $ 7,426 $ (30) $ 152,172
72 FY 2017 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION

FINANCIAL SECTION | REQUIRED SUPPLEMENTARY INFORMATION

United States Department of Education Combining Statement of Budgetary Resources 

For the Year Ended September 30, 2016

(Dollars in Millions)

Combined 

Budgetary

Non-Budgetary 

Credit Reform 

Financing Accounts

BUDGETARY RESOURCES

Unobligated Balance, Brought Forward, October 1 $ 14,774 $ 14,437 

Recoveries of Prior Year Unpaid Obligations 746 21,047 

Other Changes in Unobligated Balance (+ or -) (772) (24,695) 

Unobligated Balance from Prior Year Budget Authority, Net $ 14,748 $ 10,789 

Appropriations (Discretionary and Mandatory) 87,924 24 

Borrowing Authority (Discretionary and Mandatory) (Note 12) - 167,400 

Spending Authority from Offsetting Collections (Discretionary and Mandatory) 522 53,608 

Total Budgetary Resources $ 103,194 $ 231,821 

STATUS OF BUDGETARY RESOURCES

New Obligations Incurred and Upward Adjustments (Total) (Note 12) $ 90,802 $ 216,342 

Unobligated Balance, End of Year:

Apportioned, Unexpired Accounts 10,280 - 

Unapportioned, Unexpired Accounts 1,212 15,479 

Unexpired Unobligated Balance, End of Year $ 11,492 $ 15,479 

Expired Unobligated Balance, End of Year 900 - 

Unobligated Balance, End of Year (Total) $ 12,392 $ 15,479 

Total Status of Budgetary Resources $ 103,194 $ 231,821 

CHANGE IN OBLIGATED BALANCE

Unpaid Obligations

Unpaid Obligations, Brought Forward, October 1 $ 52,645 $ 78,116 

New Obligations Incurred and Upward Adjustments 90,802 216,342 

Outlays (Gross) (-) (88,452) (196,787) 

Recoveries of Prior Year Unpaid Obligations (-) (746) (21,047) 

Unpaid Obligations, End of Year $ 54,249 $ 76,624 

Uncollected Payments

Uncollected Payments, Federal Sources, Brought Forward, October 1 (-) $ (3) $ (26) 

Change in Uncollected Payments, Federal Sources (+ or -) 1 22 

Uncollected Payments, Federal Sources, End of Year (-) $ (2) $ (4) 

Memorandum (Non-Add) Entries

Obligated Balance, Start of Year (+ or -) $ 52,642 $ 78,090 

Obligated Balance, End of Year (+ or -) $ 54,247 $ 76,620 

BUDGET AUTHORITY AND OUTLAYS, NET

Budget Authority, Gross (Discretionary and Mandatory) $ 88,446 $ 221,032 

Actual Offsetting Collections (Discretionary and Mandatory) (-) (721) (114,123) 

Change in Uncollected Payments from Federal Sources (Discretionary and Mandatory) (+ or -) 1 22 

Recoveries of Prior Year Paid Obligations (Discretionary and Mandatory) (+ or -) (1) (516) 

Budget Authority, Net (Discretionary and Mandatory) $ 87,725 $ 106,415 

Outlays, Gross (Discretionary and Mandatory) $ 88,452 $ 196,787 

Actual Offsetting Collections (Discretionary and Mandatory) (-) (721) (114,123) 

Outlays, Net (Discretionary and Mandatory) 87,731 82,664 

Distributed Offsetting Receipts (-) (Note 12) (10,766) - 

Agency Outlays, Net (Discretionary and Mandatory) (Note 12) $ 76,965 $ 82,664 
FY 2017 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION

REQUIRED SUPPLEMENTARY INFORMATION | FINANCIAL SECTION

73

Federal Student Aid Office of Elementary and 

Secondary Education

Office of Special Education and 

Rehabilitative Services Other

Total

Budgetary

Non-Budgetary 

Credit Reform 

Financing 

Accounts

Budgetary Budgetary Budgetary

Non-Budgetary 

Credit Reform 

Financing 

Accounts

$ 12,719 $ 14,236 $ 800 $ 273 $ 982 $ 201 $ 29,211

188 21,047 368 88 102 - 21,793

(374) (24,687) (87) (153) (158) (8) (25,467)

$ 12,533 $ 10,596 $ 1,081 $ 208 $ 926 $ 193 $ 25,537

41,948 24 22,145 16,493 7,338 - 87,948

- 167,272 - - - 128 167,400

470 53,563 3 - 49 45 54,130

$ 54,951 $ 231,455 $ 23,229 $ 16,701 $ 8,313 $ 366 $ 335,015

$ 44,567 $ 216,152 $ 22,316 $ 16,540 $ 7,379 $ 190 $ 307,144

8,782 - 846 - 652 - 10,280

1,212 15,303 - - - 176 16,691

$ 9,994 $ 15,303 $ 846 $ - $ 652 $ 176 $ 26,971

390 - 67 161 282 - 900

$ 10,384 $ 15,303 $ 913 $ 161 $ 934 $ 176 $ 27,871

$ 54,951 $ 231,455 $ 23,229 $ 16,701 $ 8,313 $ 366 $ 335,015

$ 19,286 $ 77,880 $ 14,950 $ 8,835 $ 9,574 $ 236 $ 130,761

44,567 216,152 22,316 16,540 7,379 190 307,144

(43,449) (196,596) (21,584) (15,959) (7,460) (191) (285,239)

(188) (21,047) (368) (88) (102) - (21,793)

$ 20,216 $ 76,389 $ 15,314 $ 9,328 $ 9,391 $ 235 $ 130,873

$ - $ (4) $ - $ - $ (3) $ (22) $ (29)

- - - - 1 22 23

$ - $ (4) $ - $ - $ (2) $ - $ (6)

$ 19,286 $ 77,876 $ 14,950 $ 8,835 $ 9,571 $ 214 $ 130,732

$ 20,216 $ 76,385 $ 15,314 $ 9,328 $ 9,389 $ 235 $ 130,867

$ 42,418 $ 220,859 $ 22,148 $ 16,493 $ 7,387 $ 173 $ 309,478

(653) (113,986) - - (68) (137) (114,844)

- - - - 1 22 23

(1) (516) - - - - (517)

$ 41,764 $ 106,357 $ 22,148 $ 16,493 $ 7,320 $ 58 $ 194,140

$ 43,449 $ 196,596 $ 21,584 $ 15,959 $ 7,460 $ 191 $ 285,239

(653) (113,986) - - (68) (137) (114,844)

42,796 82,610 21,584 15,959 7,392 54 170,395

(10,684) - - - (82) - (10,766)

$ 32,112 $ 82,610 $ 21,584 $ 15,959 $ 7,310 $ 54 $ 159,629