FY 2019 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION 23

MANAGEMENT’S DISCUSSION AND ANALYSIS

FORWARD-LOOKING INFORMATION

This section summarizes information pertinent to the 

Department’s future progress and success.

ENTERPRISE RISK MANAGEMENT

The Department is focused on improving enterprise 

risk management (ERM) to maximize the Department’s 

value to students and taxpayers through achievement 

of the Department’s strategic goals and objectives. The 

Department’s implementation of ERM includes three 

critical strategies that are more fully described under 

Strategic Objective 4.2, Identify, assess, monitor and manage 

enterprise risks:

1. Creating a risk-aware culture that includes transparent 

discussions of risks.

2. Implementing an ERM framework and capability 

that leverages existing risk management activities and 

governance bodies.

3. Managing risks in a more coordinated and 

strategic manner.

In FY 2020, the Department envisions a streamlined, 

simplified approach to ERM implementation. Guiding 

principles supporting this vision include securing senior 

leadership buy-in and continued support and involvement 

with the ERM program through an established governance 

structure and routine engagement. The Department will 

revise its Risk Profile and other ERM deliverables and 

resources to capture only necessary and useful information. 

When the ERM framework is fully implemented, the 

Department plans to include risk information as a central 

consideration in all critical day-to-day and strategic 

decision-making activities, including resource allocations.

In FY 2019, the Department took further steps to set up 

a formal ERM program within the Office of Finance and 

Operations (OFO). In doing so, the Department continued 

to leverage expertise of colleagues in the Office of Federal 

Student Aid (FSA), as well as across the Federal Government 

through the ERM Community of Practice led by Treasury. 

Additionally, it ensured internal control activities are more 

efficiently focused on highest priority risks by adding a 

group of internal control experts to the ERM team.

The Department aims to develop a more risk-aware 

culture that facilitates increased focus on the range of 

risks the Department faces and fosters open discussions 

about how those risks might impact the accomplishment 

of the Department’s mission and whether resources are 

aligned accordingly. In addition, the ERM program will 

expand enterprise capacity to achieve optimal performance 

and operational outcomes by leveraging data and 

analytical solutions to successfully identify and manage 

risks, strengthen internal controls through continuous 

process improvement, and inform strategic planning and 

decision-making. Finally, the ERM program will leverage 

partnerships across the agency to identify, measure, and 

assess challenges related to mission delivery in order to 

manage risk to a tolerable level and develop actionable 

response plans and assign owners.

DIRECT LOAN PROGRAM

The Department’s largest program, the William D. Ford 

Federal Direct Loan (Direct Loan) program, provides 

students and their families with funds to help pay for 

their postsecondary education costs. The following is a 

discussion of (1) the steps the Department has taken to 

help make student debt more manageable and (2) the risks 

inherent in estimating the cost of the program.

Managing Student Loan Debt

Each year, federal student loans help millions of Americans 

obtain a college education—an investment that, on 

average, has high returns. While the average return to a 

college degree remains high,1

 some students leave school 

poorly equipped to manage their debt.

Traditionally, federal loans of this type have had flat 10-

year repayment schedules, making it difficult for borrowers 

to pay at the start of their career when their salaries are 

lower. The recent expansion of income-driven repayment 

(IDR) plans grants students the opportunity for greater 

financial flexibility as it pertains to their monthly 

payment. For more details on these plans, visit FSA’s How 

to Repay Your Loans Portal.

1 https://libertystreeteconomics.newyorkfed.org/2019/06/despite-rising-costscollege-is-still-a-good-investment.html
24 FY 2019 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION

MANAGEMENT’S DISCUSSION AND ANALYSIS

Income-Driven Repayment Plans: IDR plans tend to be 

more costly to the government than non-IDR plans; for 

the 2019 loan cohort, it is estimated that the government 

will recover 37 percent less for loans in IDR plans as 

compared to loans in standard plans. It is important 

to be careful in making such comparisons, however, as 

the underlying characteristics of borrowers selecting 

plans (and the corresponding dynamics of behavior 

driving selection in plans) also plays a role in driving the 

cost of loans enrolled in specific plans. In general, the 

proliferation of IDR plans has made IDR terms more 

generous (and more costly to the government) and made 

the plans available to a greater number of borrowers. 

Having more plans complicates repayment plan selection, 

since the tradeoffs between available plans vary by 

borrower and may not always be entirely clear. Selected 

comparisons between projected originations and borrower 

repayments under the different IDR plans are available 

on the Department’s website. Future commitment to 

market and increased participation in these plans are areas 

of uncertainty. Future legislative and regulatory activity 

could also affect the underlying cost of IDR plans.

Public Service Loan Forgiveness: Enacted in 2007, the 

Public Service Loan Forgiveness (PSLF) program allows 

a Direct student loan borrower to have the balance of 

their Direct student loans forgiven after having made 

120 qualifying monthly payments under a qualifying 

repayment plan, while working full time for a qualifying 

public service employer (such as government or certain 

types of nonprofit organizations). In general, forgiveness 

provided via PSLF raises the cost of the Direct Loan 

program; however, there is still uncertainty as to how 

many borrowers will take advantage of the program. Much 

of this uncertainty arises because borrowers do not need 

to apply for the program until after having made the 120 

qualifying monthly payments.

Data on approved PSLF applications first became available 

in FY 2018, since borrowers first became eligible for PSLF 

starting October 1, 2017. As of September 30, 2019, 

the total number of borrowers who received forgiveness 

totaled 1,139. The value of this forgiveness totaled 

$71.90 million. Despite the relatively modest figures of 

approved applications to date, the number of borrowers 

who have certified their employment in a public service 

organization continues to increase. As of September 30, 

2019, the number of borrowers with certified employment 

totaled 1,195,497. The low number of approved PSLF 

applications in relation to employment certifications 

Recent trends in student loan repayment data show that:

 More than 80 percent of Direct Loan recipients with 

loans actively in repayment are current on their loans.

 As of June 2019, nearly 7.7 million Direct Loan 

recipients were enrolled in IDR plans, representing an 

8 percent increase from June 2018 and a 22 percent 

increase from June 2017.

The Department continues to work relentlessly to make 

student debt more manageable. Looking to the future, the 

Department will:

 Continue conducting outreach efforts to inform 

student loan borrowers of their repayment options.

 Work to improve customer service and student aid 

systems and processes by implementing FSA’s Next 

Generation Financial Services Environment (Next Gen 

FSA), see page 26.

 Continue to support additional tools such as the 

College Scorecard and Financial Aid Shopping Sheet 

to increase transparency around higher education costs 

and outcomes, in an effort to help students and families 

make informed decisions before college enrollment.

Managing Risks and Uncertainty Facing the Direct 

Loan Program’s Cost Estimates

Direct Loan program costs are estimated consistent with 

the requirements of the Federal Credit Reform Act of 1990. 

Under the Act, the future costs and revenues associated 

with a loan are estimated for the entire life of the loan, up 

to 40 years in this case. The actual performance of a loan 

cohort tends to deviate from the estimated performance 

during that time, which is not unexpected given the 

inherent uncertainty involved in developing estimates. 

There are four types of inherent risk that make estimating 

lifetime program costs a difficult task.

Legislative, Regulatory, and Policy Risk

There are inherent risks from the possibility that the cost 

structure of the Direct Loan program may be altered 

through legislative, regulatory, or administrative action. In 

addition, recent legislative, regulatory, and policy action 

may be difficult to interpret with regard to effects on 

financial modeling and estimation, given the lack of actual 

trend data availability. Some examples of current risks 

include the following:
FY 2019 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION 25

MANAGEMENT’S DISCUSSION AND ANALYSIS

received on the defaulted loan; and, if the loan is in IDR, 

what the borrower’s employment (public sector or not) 

and income and family status will be over the next 25 

years. These types of projections are not only extremely 

difficult to make but also are subject to change if future 

student behaviors deviate from past experience. Changes 

in private student loan markets, such as the recent increase 

in refinancing of federal student loans into private student 

loans, also add a layer of uncertainty to student loan 

estimates. Lastly, the Direct student loan portfolio has 

grown from approximately $356 billion in FY 2011 to 

more than $1.2 trillion as of the end of FY 2019. This 

growth naturally results in larger re-estimates, since a reestimate worth 1 percent of the portfolio today would be 

more than three times as large as a similar re-estimate in 

FY 2011 ($11.2 billion vs. $3.6 billion).

Macroeconomic Risk

The ultimate amount, timing and value of future borrower 

repayments under the Direct Loan program are heavily 

affected by certain economic factors, especially since the 

introduction of IDR repayment plans. Some examples 

include the following:

Interest Rates: Direct Loan subsidy estimates are very 

sensitive to changes in interest rates. Under the current 

program terms, the fixed borrower rates for direct loans 

are established in advance of the upcoming school year, 

while the Treasury fixed interest rate on borrowings to 

fund those loans is not set until after those awards are 

fully disbursed, which can be as much as 18 months later. 

Unexpected changes in interest rates during this time can 

significantly impact the subsidy cost of these loans.

Unemployment: The financial crisis of 2008 and 

ensuing spike in unemployment rates had a dramatic 

effect on both student loan volume and student loan 

performance. Student loan volume peaked along with 

unemployment, as many displaced workers sought higher 

education opportunities. Student loan performance 

suffered as many borrowers repaying their loans were left 

with much less disposable income with which to make 

their loan payments. For example, the cohort default 

rate for students was at a high of 14.7 percent for loans 

entering repayment in 2010, while the most recent rate 

is 10.1 percent for loans entering repayment in FY 2016. 

While recessions and economic downturns are cyclical 

phenomena, their exact timing and impact on the cost 

estimates remain an area of uncertainty.

may be partially due to the complicated nature of 

the program, in particular the determination of what 

constitutes a qualifying payment. Many borrowers who file 

employment certification forms early in their careers may 

also move into private sector employment before reaching 

the 10 years and thus may (a) never apply for forgiveness 

or (b) apply for forgiveness much later, after returning to 

public service work. In the Consolidated Appropriations 

Act, FY 2018, Congress provided $350 million in funding 

to forgive up to $500 million in loan balances which 

were ineligible for immediate PSLF solely due to having 

made a payment under a nonqualifying repayment plan. 

Congress provided an additional $350 million in funding 

for up to $500 million in face-value forgiveness in the 

Department of Education Appropriations Act, FY 2019. 

Future congressional action that may affect eligibility 

for PSLF will continue to be an area of uncertainty. 

Lastly, the Department continues to remain informed 

on, and manage the risk that may arise in relation to, the 

uncertainty about the effect of further borrower outreach 

on boosting participation in the PSLF program.

Total and Permanent Disability: On August 21, 2019, 

the President issued a memorandum directing the 

Department of Education to ease the processing of loan 

discharges for borrowers who have been determined by the 

Secretary of Veterans Affairs to be unemployable due to a 

service-connected condition. Previously, borrowers were 

required to sign and return the application to complete the 

process of applying for a total and permanent disability 

(TPD) discharge. The ultimate effect of the new process 

is an area of uncertainty until enough actual data can be 

observed to analyze their impact. 

Estimation Risk

Actual student loan outcomes may deviate from estimated 

student loan outcomes, which is not unexpected given 

the long projection window of up to 40 years. The Direct 

Loan program is subject to a large number of future 

borrower-level events and economic factors that heavily 

impact the ultimate cost of issued loans. For example, 

estimates that need to be made for loans originating in 

FY 2019 include how long students will remain in school; 

what repayment plan will be chosen; whether the loan will 

be consolidated; whether the borrower will die, become 

disabled, bankrupt, or have another claim for discharge 

or forgiveness (closed school, borrower defense, etc.); if 

the loan will go into deferment or forbearance; if the loan 

will go into default and, if so, what collections will be 
26 FY 2019 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION

MANAGEMENT’S DISCUSSION AND ANALYSIS

availability of financial aid, to applying for aid, to 

repaying loans.

Today’s Environment

In the current federal financial aid process, students 

and families must negotiate a complex and fragmented 

landscape, interacting with multiple systems, vendors, 

processes, and interfaces across a multitude of brands 

and user experiences. Too often, this poor customer 

experience creates confusion, resulting in borrowers 

failing to understand their repayment options and the 

financial implications of their student debt, borrower 

indifference, and, ultimately, higher loan delinquency 

and default rates. Additionally, operational complexities 

and inefficiencies result in higher administrative costs 

and hinder effective oversight.

Next Gen FSA Environment

Multiple websites, mobile applications, contact centers, 

and other customer interfaces are being combined into 

a simplified, consistent, and engaging experience, which 

will be enhanced by standardized training and tools 

across vendors and partners. With a focus on mobile 

engagement, Next Gen FSA has already begun to meet 

customers where they are, letting them connect with 

FSA on the device of their choice. Customers will soon 

have additional access to a modernized, online portal 

with personalized information that helps them quickly 

understand their options and make informed decisions 

throughout the financial aid life cycle, including 

borrowing and loan repayment. While Next Gen FSA will 

cut through the information clutter and provide robust 

self-service, it also will seamlessly connect customers with 

additional support when needed. 

In addition to an improved customer experience, Next 

Gen FSA will completely modernize FSA’s back-end 

systems and infrastructure. This transformation will 

pave the way for improved processing and customer 

management at lower costs. Vendor and partner 

performance standards and accountability measures 

will be built into Next Gen FSA to ensure customers 

receive world-class service while protecting taxpayer 

dollars. Next Gen FSA will integrate state-of-the-art 

cybersecurity protections across every aspect of the 

student aid experience. Enterprise-wide data analytics 

will drive improved customer service, particularly for 

at-risk students and borrowers, while also enhancing 

our oversight of participating postsecondary schools and 

supporting vendors.

Wage Growth: The estimated costs of IDR plans are 

largely dependent on trends in observed wage growth. To 

the extent that future wage growth deviates significantly 

from prior wage growth, actual costs of IDR plans may 

deviate from projected estimated costs. The Department 

continues to manage risks in this area by continuing to 

learn about its borrower base and remain informed on 

such labor market statistics.

Operational Risk

Unforeseen issues in administering and servicing student 

loans may impact the cost estimates. For example, in 

March 2017, a tool used to transfer automatically a 

family’s tax information to both student aid applications 

and IDR plan applications was taken down due to security 

concerns. Incidents like this may happen without warning 

and disrupt not only student loan administration but also 

resulting cash flows. Hence, there is an inherent risk that 

future, unpredictable disruptions in the administrative 

status quo may impact student loan cost estimates.

NEXT GEN FSA

About FSA

As the nation’s largest provider of financial aid for 

education beyond high school, FSA delivers more than 

$120 billion in aid each year to students and their families. 

Through programs authorized under the Higher Education 

Act of 1965, as amended, FSA provides grants, loans, 

and work-study funds for college or career school. FSA 

also oversees the approximately 6,000 postsecondary 

institutions that participate in the federal student aid 

programs. In every interaction with students and their 

families, FSA strives to be the most trusted and reliable 

source of student financial aid information and services in 

the nation.

The Vision

FSA has one of the largest consumer loan portfolios in 

the country at $1.5 trillion.2

 It is critical that we provide 

a customer experience that is on par with world-class 

financial services firms and establishes our organization as 

one of the most trusted brands in the student aid industry. 

The Next Generation Financial Services Environment 

(Next Gen FSA) will enable FSA to realize this vision by 

modernizing the way we connect with our customers and 

streamlining our student aid systems and processes. This 

broad effort will deliver an improved customer experience 

for millions of Americans across the entire student aid 

life cycle, from fostering greater awareness about the 

2 Includes lender-held FFEL loans and school-held Perkins loans.
FY 2019 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION 27

MANAGEMENT’S DISCUSSION AND ANALYSIS

which is responsible for managing and improving the 

Department’s ability to leverage data as a strategic asset. 

In accordance with the Evidence Act, the Secretary 

has named a Department Chief Data Officer (CDO), 

whose responsibilities include, but are not limited to, 

lifecycle data management across the Department and 

developing and enforcing the Department’s data strategy 

and governance policies. The OCDO has oversight over 

the Department’s information collections approval and 

associated Office of Management and Budget (OMB) 

clearance process. It is responsible for developing and 

enforcing the Department’s open data plan, including 

management of a centralized comprehensive data 

inventory accounting for all data assets across the 

Department. The CDO submits annual reports to 

Congress on agency compliance with the Evidence 

Act. The OCDO is also responsible for developing and 

maintaining a technological and analytical infrastructure 

that is responsive to the Department’s strategic data 

needs and exploiting traditional and emerging analytical 

methods to improve decision making, optimize outcomes, 

and create efficiencies.

ED Data Governance Board

In accordance with OMB guidance on the implementation 

of the Evidence Act, the CDO will convene an ED Data 

Governance Board (DGB). The DGB will gather input 

from across the Department to develop and enforce sound 

data governance policy and process decisions. The DGB 

will sponsor agency-wide actions to develop an open data 

culture and work to improve the Department’s capacity 

to leverage data as a strategic asset for evidence building 

and operational decisions, including developing the 

capacity of data professionals in program offices. The DGB 

will help the Department implement a coordinated and 

collaborative approach to oversee strategic data collection 

and acquisition, responsible lifecycle data management, 

open and transparent release of its data assets, and advance 

internal and external uses of data.

Evaluation Officer and Evidence 

Leadership Group

The Evidence Act created a new role, a Department 

“Evaluation Officer” (EO), who is responsible for: (a) 

developing the Department’s learning agenda by assessing 

the Department’s portfolio of evaluations, policy research, 

and ongoing evaluation activities; (b) assessing the 

Department’s capacity to support the development and 

use of evaluation; (c) establishing and implementing the 

Department’s evaluation policy; and (d) coordinating 

Solicitation and Procurement Process

The Next Gen FSA implementation plan was based, in 

part, on extensive market research with more than 60 

industry leaders. This research-based approach enabled 

FSA to identify best-in-industry standards and technical 

benchmarks that continue to inform the procurement 

process. On February 20, 2018, FSA initiated a multistage 

procurement process designed to identify the commercial 

partners most capable of supporting the implementation 

of Next Gen FSA; FSA intends to select a pool of vendors 

to deliver the Next Gen FSA environment. The first major 

element of Next Gen FSA, the Digital and Customer Care 

contract that will deliver our integrated mobile, web, and 

telephonic solution and single customer view, was awarded 

in February 2019. A series of additional awards, for 

enterprise data architecture and standards, was completed 

in August 2019. Contracts to support the remaining Next 

Gen FSA efforts are expected to be awarded in late 2019 

or early 2020.

The current Title IV Additional Servicing (TIVAS) and 

Not-for-Profit indefinite-delivery, indefinite-quantity 

contracts are set to expire in December 2019 and March 

2020, respectively. Should FSA require continued 

servicing support beyond these dates, there are multiple 

avenues it can pursue. The appropriate contractual 

actions will be taken to ensure continued servicing 

capabilities until this portion of the Next Gen FSA vision 

is implemented. FSA is taking a similar approach to all 

legacy contracts that will be impacted by the Next Gen 

FSA vision to ensure as smooth a transition as possible 

for our customers and partners.

LEVERAGING DATA AS A STRATEGIC ASSET

The Department is focusing on further leveraging its data 

as a strategic asset, in part in response to new requirements 

in the Foundations for Evidence-Based Policymaking Act

(Evidence Act; P.L. 115-435). This section highlights 

three initiatives intended to help the Department realize 

the power of data in daily operations and national policy: 

(1) the establishment of the Office of the Chief Data 

Officer; (2) the chartering of an ED Data Governance 

Board; and (3) a new focus for the Evidence Leadership 

Group in advising the Evaluation Officer and developing 

the Department’s learning agenda.

Office of the Chief Data Officer

The Department has established an Office of the 

Chief Data Officer (OCDO), effective October 2019, 
28 FY 2019 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION

MANAGEMENT’S DISCUSSION AND ANALYSIS

OCIO to communicate the cost drivers for, and the value 

of, IT to senior leadership, improve the efficiency and 

predictability of the formulation of the IT budget, and 

optimize IT costs. 

Beginning in 2017, OMB required agencies to begin 

reporting IT spending in alignment with the TBM 

Framework, including using Cost Pools and IT Towers 

to classify IT spending. The Department intends to 

leverage TBM beyond the minimum OMB reporting 

requirements to encompass the full implementation of 

the TBM cost accounting framework. The project started 

with a pilot that incorporated OCIO’s operating budget of 

approximately $120 million into a TBM module designed 

to provide cost transparency and was then broadened to 

the Department’s entire IT budget of approximately $750 

million. One of the ultimate goals is to be able to provide 

a “bill of IT” to form the basis of a show-back model to 

drive more informed decision-making around IT.

The objective is to implement an integrated solution that 

will allow OCIO to:

 Accurately account for and categorize IT spending in 

IT Cost Towers and Pools;

 Evaluate IT spending using a method that helps 

identify redundant IT assets (e.g. systems, applications, 

and licenses);

 Extract cost elements from disparate sources, analyze 

these elements, and report cost stressors and trends to 

stakeholders; and

 Prepare accurate pricing through a show-back model to 

client offices for the services provided.

a Department-wide evidence-building plan. IES’s 

Commissioner of the National Center for Education 

Evaluation and Regional Assistance is the Department’s EO. 

The Evidence Leadership Group (ELG) serves in 

an advisory capacity to the EO on these statutory 

responsibilities and serves additional functions to inform 

the Department’s programs and policies. In addition, the 

ELG advises the Department’s policy officials on how best 

to build, use, and disseminate evidence throughout the 

policy development and implementation lifecycle. The 

ELG is cochaired by the Evaluation Officer and a designee 

of the Assistant Secretary of the Office of Planning, 

Evaluation and Policy Development. 

The work of the ELG depends upon strong partnerships 

across the Department’s principal offices, with other 

agencies, states and localities, private sector innovators, 

and other stakeholders in the education community. 

It benefits from a shared vision and common language 

around evidence-building, use, and dissemination, and the 

Department’s history of promoting the use of evidence.

CONTINUOUS IMPROVEMENT

Improving critical infrastructure, systems, and overall 

capacity, and ensuring sound strategic decision making 

regarding allocation of resources are essential to the 

Department’s future progress and success. Implementing 

Technology Business Management Solutions is one of the 

Department’s key initiatives.

Technology Business Management 

Solutions (TBMS) 

The purpose of the TBMS project is to provide greater cost 

transparency into IT spend. The TBMS project will allow