FY 2017 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION 13

FINANCIAL HIGHLIGHTS

INTRODUCTION

This section provides summarized information and 

analyses about the Department’s assets, liabilities, 

net position, sources and uses of funds, program 

costs, and related trend data. It also provides a high-level 

perspective of the detailed information contained in the 

financial statements and related notes.

The Department consistently produces complete, 

accurate, and timely financial information. The 

Department’s financial statements and notes are prepared 

in accordance with accounting principles generally 

accepted in the United States for federal agencies issued 

by the Federal Accounting Standards Advisory Board 

(FASAB) and the format and content specified by OMB 

Circular No. A-136, Financial Reporting Requirements. 

The financial statements, notes, and underlying business 

processes, systems, and controls are audited by an 

independent accounting firm with audit oversight 

provided by the Office of Inspector General (OIG). 

For 16 consecutive years, the Department has earned 

an unmodified (or “clean”) audit opinion. The financial 

statements and notes for FY 2017 are on pages 32–69 and 

the Independent Auditors’ Report begins on page 78.

BALANCE SHEET

The consolidated balance sheet presents, as of a 

specific point in time (the end of the fiscal year), 

the Department’s total assets, total liabilities, and 

net position.

The Department’s assets totaled $1,259.2 billion as of 

September 30, 2017. The vast majority of the assets 

relate to credit program receivables, which comprised 

91.1 percent of all assets. Direct loans comprise the 

largest share of these receivables, totaling $1,041.6 

billion. All other assets totaled $112.5 billion, most of 

which was Fund Balance with Treasury.

The Department’s liabilities totaled $1,202.1 billion 

as of September 30, 2017. As with assets, the vast 

majority of the Department’s liabilities are associated 

with credit programs, primarily amounts borrowed from 

the U.S. Department of the Treasury (Treasury) to fund 

student loans. This debt totaled $1,180.1 billion as of 

September 30, 2017.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

MANAGEMENT’S DISCUSSION AND ANALYSIS

Figure 3 shows the changes in the Direct Loan 

receivables components over the past five years. The 

principal continues to grow as the Direct Loan program 

has originated all new federal loans since July 2010. 

However, the rate of increase in principal has slowed, as 

the Direct Loan program has originated fewer new loans 

each year since FY 2013 as a result of stagnant and in 

some cases declining enrollment, coinciding with the 

recovery from the 2007–09 recession. Even so, new loan 

disbursements continue to exceed overall loan principal 

repayments—student loan borrowers now have more 

options to stretch out their repayment terms and reduce 

their monthly payments. 

In accordance with the Federal Credit Reform Act of 1990

(FCRA), the Department’s financial statements report the 

value of direct loans and loan guarantees (credit program 

receivables) at the net present value of their future cash 

flows, discounted at a fixed rate established based on 

Treasury securities. The difference between the recorded 

principal and interest balance and the net present value 

of the loans is referred to as the “allowance for subsidy,” 

which can be positive or negative.

Prior years’ positive allowance for subsidy balances 

represented estimates of funds expected to be recovered 

in excess of principal loaned less anticipated defaults, 

loan cancellations, and other adjustments. These positive 

allowance for subsidy balances resulted primarily from 

the difference between the interest rates charged by the 

Department to borrowers and the interest rates charged to 

the Department on amounts borrowed from Treasury to 

make the loans. The reduction in the positive allowance 

since FY 2013 is due primarily to higher subsidy costs 

to the government, the main cause being increasing 

participation in income-driven repayment plans discussed 

elsewhere in this AFR as (a) new plans have become 

available that are more advantageous to borrowers, (b) 

new plans have become available that expand the potential 

pool of borrowers, and (c) the Department has conducted 

targeted outreach to borrowers to make them aware of 

their potential eligibility for these plans. During FY 2017, 

the allowance for subsidy changed from a positive to a 

negative balance. In practical terms, this means that the 

present value of funds expected to be recovered is now less 

than the principal loaned, which represents an increased 

cost to the taxpayer.

Table 1 shows the payment status of the Direct Loan 

principal and interest balances outstanding over the past 

5 years. The Current Repayment category consists of 

loans that are being paid back on time, including the 

current portion of loans refinanced pursuant to incomedriven repayment plans. 

 

Loan Status

Fiscal Year

2013 2014 2015 2016 2017

Total Dollar 

Amount of 

Direct Loans 

Outstanding

613.8 731.2 845.1 953.6 1,058.4

Current 

Repayment 188.5 247.2 332.0 406.8 467.9

In School, 

Grace Period, 

and Education 

Deferments

265.5 281.8 284.3 289.6 291.7

Forbearance and 

Noneducation 

Deferments

70.5 97.8 103.0 106.5 122.5

Delinquent 47.8 54.6 65.1 71.8 79.5

Default/

Bankruptcy/Other 41.5 49.8 60.7 78.9 96.8

Total No. of Direct 

Loan Recipients 

(in Millions)

25.6 27.9 29.9 31.5 33.0

Table 1. Payment Status of Direct Loan 

Principal and Interest Balances

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

MANAGEMENT’S DISCUSSION AND ANALYSIS

15

Loans in the Delinquent category are considered in 

“repayment” status, but payments are anywhere from 31 

to 360 days late. Default/Bankruptcy/Other includes 

loans that are over 360 days delinquent (default status); 

loans in a nondefaulted bankruptcy status; and loans 

in disability status. The percentage of loans in default 

continues to grow, even as delinquencies and new 

defaults have declined, because defaulted loans can be 

difficult to collect on or rehabilitate. The percentage of 

the portfolio in current repayment, which rose from 

31 percent in FY 2013 to 44 percent in FY 2017, has 

eclipsed payments temporarily postponed and has grown 

far faster than loans in default. 

The Department borrows funds from the Treasury to 

disburse new loans and pay credit program outlays and 

related costs. The Department repays Treasury after 

consideration of cash position and the liability for future 

cash outflows. Figure 4 shows the Direct Loan program 

cumulative borrowing and repayment activity since 

the inception of the program that resulted in the debt 

amount on the balance sheet. Figure 6 (see page 16) 

illustrates the Direct Loan program financing process and 

provides financing and disbursing trend data.

STATEMENT OF NET COST

The consolidated statement of net cost reports the 

Department’s components of the net costs of operations 

for a given fiscal year. Net cost of operations consists of 

the gross cost incurred less any exchange (i.e., earned) 

revenue from activities. Gross cost is composed of the 

cost of credit and grant programs, and operating costs. 

Exchange revenues are primarily interest earned on credit 

program loans. Figure 5 shows the Department’s gross 

costs and earned revenues over the past five years.

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

MANAGEMENT’S DISCUSSION AND ANALYSIS

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

Fiscal Year 2013 2014 2015 2016 2017 

Net Borrowing 149.0 120.6 90.9 84.4 67.3

Borrowing from Treasury 177.7 171.2 159.7 147.0 160.5

Debt Repayments to Treasury (28.7) (50.6) (68.7) (62.6) (93.2)

Interest Expense to Treasury (22.7) (25.2) (27.6) (30.5) (31.3)

Interest Earned from Treasury 3.4 3.7 4.2 3.9 4.3

Cumulative Taxpayer Cost / (Savings) (65.2) (47.4) (35.5) (5.3) 16.8

Current Subsidy Expense (Revenue) (39.6) 8.1 (0.9) 16.1 5.3

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

Fiscal Year 2013 2014 2015 2016 2017 

Loan Disbursements 129.5 134.1 142.2 140.5 142.5

Stafford Subsidized 26.5 25.9 24.0 23.8 23.4

Stafford Unsubsidized 56.1 54.7 52.7 52.3 51.4

Parent PLUS 19.4 18.9 19.2 19.0 18.7

Consolidation1 27.5 34.5 46.4 45.5 49.0

Loan Collections 36.2 48.8 65.1 73.2 82.0

Principal 26.4 36.3 50.0 55.9 62.6

 Interest 8.1 10.8 13.4 15.5 17.6

 Fees 1.7 1.8 1.8 1.8 1.9

 

1

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

Numbers may not add up due to rounding.
FY 2017 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION

MANAGEMENT’S DISCUSSION AND ANALYSIS

17

The major components of the Department’s gross cost and earned revenue are shown in Figure 7 and include:

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

subsidy amortization;

 Credit program subsidy expense (see also Figure 8); and

 Grant expenses (see also Figure 9).

One of the components significantly impacting the 

Department’s gross costs pertains to the estimated subsidy 

expense of the Direct Loan program. The Department’s 

gross costs can fluctuate significantly each year as a result 

of changes in the estimated subsidy expense. Subsidy 

expense is an estimate of the cost of providing direct 

loans, but excludes the administrative costs of issuing and 

servicing the loans. The Department estimates subsidy 

expense using economic models that project cash flows 

on a net present value basis.

The Department estimates subsidy costs annually for new 

loans disbursed in the current year; updates the previous 

cost estimates for outstanding loans disbursed in prior 

years (subsidy re-estimates); and updates previous cost 

estimates based on changes to terms of existing loans 

(subsidy modifications). Figure 8 shows these three 

components of the Direct Loan program subsidy expense 

for the past five years.

Factors such as interest rates charged to the borrower, 

interest rates on Treasury debt, default rates, fees, and other 

costs impact the estimated cost calculation and determine 

whether the overall subsidy expense is positive or negative. 

Subsidy expense for new loans has been negative in recent 

years primarily because lending interest rates charged 

 

2013 2014 2015 2016 2017

Subsidy Expense for 

New Loans Disbursed 

in the Current Year

$(27.0) $(22.1) $(6.2) $(5.7) (2.6)

Subsidy 

Re-estimates (12.6) 30.2 (4.6) 21.8 7.9 

Subsidy Modification - - 9.9 - -

Total Subsidy 

Expense—(negative) 

and positive

$(39.6) $8.1 $(0.9) $16.1 5.3

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

MANAGEMENT’S DISCUSSION AND ANALYSIS

to student and parent borrowers were greater than the 

historically low rates at which the Department borrowed 

from Treasury. In practical terms, a negative subsidy and/

or a downward re-estimate of prior years’ subsidy occurs 

when the interest and/or fees charged to the borrower 

are more than sufficient to cover the interest on Treasury 

borrowings and the costs of borrower default. Conversely, 

a positive subsidy and/or an upward re-estimate of prior 

years’ subsidy occurs when the interest and/or fees charged 

to the borrower do not cover the interest on Treasury 

borrowings and the cost of borrower defaults.

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 the Office of 

Management and Budget, 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, 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 Auditors’ 

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.

 Repayment Plan Selection. The GAO audit referred 

to 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 

was a net upward re-estimate of $9.2 billion.

The Department has more than 100 grant and loan 

programs (www.ed.gov/programs/inventory.html). The 

largest grant programs are shown in Figure 9 and include:

 Pell Grants—provides need-based grants to lowincome undergraduate and certain postbaccalaureate 

students to promote access to postsecondary 

education. Students may use their grants at any one 

of approximately 5,400 participating postsecondary 

institutions. Grant amounts are dependent on: the 

student’s expected family contribution; the cost of 

attendance (as determined by the institution); the 

student’s enrollment status (full-time or part-time); 

and whether the student attends for a full academic 

year or less.

 Title I Grants to Local Educational Agencies—

provides financial assistance through state educational 

agencies to local educational agencies and public 

schools with high numbers or percentages of poor 

children to help ensure that all children meet 

challenging state academic content and student 

academic achievement standards.

 Individuals with Disabilities Education Act 

Grants—provides formula grants to states to 

assist them in providing a free appropriate public 

education in the least restrictive environment for 

children with disabilities ages 3 through 21 and 

assists states in providing early intervention services 

for infants and toddlers from birth through age 

two and their families. Also provides discretionary 

grants to institutions of higher education, public 

agencies, and nonprofit organizations to support 

research, demonstrations, technical assistance and 

dissemination, technology, personnel development 

and parent-training and information centers. 
FY 2017 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION

MANAGEMENT’S DISCUSSION AND ANALYSIS

19

 

 

In addition to student loans and grants, the Department 

offers 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. 

STATEMENT OF CHANGES IN NET POSITION

The consolidated statement of changes in net position 

reports the beginning net position, the summary effect 

of transactions that affect net position during the fiscal 

year, and the ending net position. Net position consists 

of unexpended appropriations and cumulative results 

of operations. Unexpended appropriations include 

undelivered orders and unobligated balances for grant 

and administrative operations. Cumulative results of 

operations represent the net difference since inception 

between (1) expenses and (2) revenues and financing 

sources. Net position of the Department totaled $57.2 

billion as of September 30, 2017. This reflects a 74.4 

percent increase over the net position of $32.8 billion 

from the prior fiscal year.

STATEMENT OF BUDGETARY RESOURCES

The combined statement of budgetary resources presents 

information on how budgetary resources were made 

available and their status at the end of the fiscal year. 

Information in the statement is based on budgetary 

transactions as prescribed by OMB and Treasury.

The Department’s budgetary resources totaled $398.5 

billion for the period ended September 30, 2017, 

increasing from $335.0 billion, or approximately 19.0 

percent from the prior year. Budgetary resources are 

comprised of appropriated budgetary resources of $152.2 

billion and non-budgetary credit reform resources 

of $246.3 billion. The non-budgetary credit reform 

resources are predominantly borrowing authority for the 

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

MANAGEMENT’S DISCUSSION AND ANALYSIS

 

The Department’s gross outlays totaled $340.0 billion 

for the period ended September 30, 2017. Gross 

outlays are primarily comprised of credit program loan 

disbursements and claim payments, credit program 

subsidy interest payments to Treasury, and grant 

payments. Credit program gross outlays were offset 

by $168.2 billion of collections—primarily principal, 

interest and subsidy collections.

Billions %

CREDIT PROGRAMS $ 263.0 77.4%

DIRECT LOAN PROGRAM 237.0 69.7%

FFEL PROGRAM 25.2 7.4%

OTHER CREDIT PROGRAMS FOR 

HIGHER EDUCATION 0.8 0.2%

GRANTS $ 73.5 21.6%

PELL GRANTS 26.9 7.9%

TITLE I GRANTS TO LOCAL 

EDUCATIONAL AGENCIES 15.2 4.5%

INDIVIDUALS WITH DISABILITIES 

EDUCATION ACT GRANTS 12.7 3.7%

ALL OTHER GRANTS 18.7 5.5%

CONTRACTUAL SERVICES $ 2.8 0.8%

PERSONNEL COMPENSATION 

AND BENEFITS $ 0.6 0.2%

OTHER $ 0.1 0.0%

TOTAL $ 340.0 100.0%

LIMITATIONS OF THE FINANCIAL STATEMENTS

Management has prepared the accompanying financial 

statements to report the financial position and 

operational results for the U.S. Department of Education 

for FY 2017 and FY 2016, pursuant to the requirements 

of Title 31 of the United States Code, section 3515(b).

While these statements have been prepared from the 

books and records of the Department in accordance 

with generally accepted accounting principles for federal 

entities and the formats prescribed by OMB, these 

statements are in addition to the financial reports used 

to monitor and control budgetary resources, which are 

prepared from the same books and records.

The statements should be read with the realization that 

they are a component of the U.S. government, a sovereign 

entity. The implications of this are that the liabilities 

presented herein cannot be liquidated without the 

enactment of appropriations, and that ongoing operations 

are subject to the enactment of future appropriations.