MANAGEMENT’S

DISCUSSION

and ANALYSIS
2 FY 2019 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION

MANAGEMENT’S DISCUSSION AND ANALYSIS

ABOUT THE MANAGEMENT’S DISCUSSION AND ANALYSIS

The U.S. Department of Education (the 

Department) continued to enhance the content 

quality, report layout, and public accessibility 

of the Fiscal Year (FY) 2019 Agency Financial Report

(AFR) by refining graphics and providing more useful, 

balanced, and easily understood information about the 

Department’s loan programs, including additional cost 

and risk information. Additionally, we chose relevant 

web content to provide users with additional information 

about the Department’s operations and performance. To 

take advantage of the hyperlinks embedded in the report, 

the Department recommends reading it on the Internet. 

To help us continue to improve the quality and usefulness 

of information provided in our AFR, we encourage our 

public and other stakeholders to provide feedback and 

suggestions at AFRComments@ed.gov.

This section highlights information on the Department’s 

performance, financial statements, systems and controls, 

compliance with laws and regulations, and actions taken 

or planned to address select challenges.

MISSION AND ORGANIZATIONAL STRUCTURE

This section provides information about the Department’s 

mission, an overview of its history, and its structure. The 

active links include the organization chart and principal 

offices and a link to the full list of Department offices

with a description of selected offices by function.

THE DEPARTMENT’S APPROACH 

TO PERFORMANCE

This section provides a brief summary of the 

Department’s performance goals and results for FY 

2019. Since the Department has chosen to produce 

separate financial and performance reports, a detailed 

discussion of performance information for FY 2019 will 

be provided in the Department’s Annual Performance 

Report to be released online at the same time as the 

President’s FY 2021 Budget in February 2020. For 

more information, prior year performance reports can 

be found on the Department’s website. We also urge 

readers to seek programmatic data as it is reported in 

the Congressional Budget Justification, as well as on 

the web pages of individual programs. Any questions or 

comments about the Department’s performance reporting 

should be e-mailed to PIO@ed.gov. For more details on 

performance, please refer to the Department’s budget and 

performance web page at www.Performance.gov.

FINANCIAL HIGHLIGHTS

The Department expends a substantial portion of its 

budgetary resources and cash on multiple loan and grant 

programs intended to support state and local efforts to 

improve learning outcomes for all prekindergarten through 

12th grade (P–12) students in every community and to 

expand postsecondary education options and improve 

outcomes to foster economic opportunity and informed, 

thoughtful, and productive citizens. Accordingly, the 

Department included more high-level details about 

sources and uses of the federal funds received and net costs 

by program.

ANALYSIS OF SYSTEMS, CONTROLS, AND 

LEGAL COMPLIANCE

The Department’s internal control framework and 

its assessment of controls, in accordance with Office 

of Management and Budget (OMB) Circular A-123, 

Management’s Responsibility for Enterprise Risk 

Management and Internal Control, provide assurance 

to Department leadership and external stakeholders that 

financial data produced by the Department’s business 

and financial processes and systems are complete, 

accurate, and reliable.

FORWARD-LOOKING INFORMATION

The Forward-Looking Information section describes the 

challenges that the Department aims to address to achieve 

progress on Enterprise Risk Management (ERM), Direct 

Loans, Next Gen Federal Student Aid (FSA), Leveraging 

Data as a Strategic Asset, and Technology Business 

Management Solutions (TBMS).
FY 2019 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION 3

MANAGEMENT’S DISCUSSION AND ANALYSIS

ABOUT THE DEPARTMENT

OUR MISSION

The U.S. Department of Education’s mission is to promote student achievement and 

preparation for global competitiveness by fostering educational excellence and 

ensuring equal access.

Who We Are. In 1867, the federal government recognized 

that furthering education was a national priority and 

created a federal education agency to collect and report 

statistical data. The Department was established as a 

cabinet-level agency in 1980. Today, the Department 

supports programs in every area and level of education 

from preschool through postdoctoral research.

The Department makes funds and information 

available to individuals pursuing education, colleges and 

universities, state education agencies, and school districts 

by engaging in four major types of activities:

 Establishing policies related to federal education 

funding, including distributing funds, collecting on 

student loans, and using data to monitor the 

use of funds;

 Supporting data collection and research on 

America’s schools;

 Identifying major issues in education and focusing 

national attention on them; and

 Enforcing federal laws promoting equal access and 

prohibiting discrimination in programs that receive 

federal funds.

Our Public Benefit. The Department executes the 

laws passed by Congress to promote student academic 

achievement and preparation for global competitiveness. 

The Department works with students, parents, educational 

institutions, school districts, and states to foster 

educational excellence and to ensure equal access to a high 

quality education for all students. While recognizing the 

primary role of states and school districts in providing 

high quality education, the Department is committed to 

helping ensure students throughout the nation develop 

skills to succeed in school, pursue postsecondary options, 

and transition to the workforce. The Department’s vision 

is to improve educational outcomes for all students.

Many of the Department’s programs involve awarding 

grants to state and local educational agencies and 

providing grants and loans to postsecondary students. The 

Department’s largest outlays are for its portfolio of student 

loans (see the Financial Highlights and Notes sections). 

Grant programs constitute the second-largest driver of 

outlays. The grant programs include: student aid to help 

pay for college through Pell Grants, Work Study, and 

other campus-based programs; grants awarded based on 

statutory formulas mostly for elementary and secondary 

education; and competitive grant programs to promote 

innovation. The Department also supports research, 

collects education statistics, and enforces civil rights 

statutes. We manage and spend financial resources on 

programs designed to support parents, teachers, principals, 

school leadership, institutions, and states in the pursuit of 

instilling knowledge and transferring skills to students.
4 FY 2019 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION

MANAGEMENT’S DISCUSSION AND ANALYSIS

OUR ORGANIZATION IN FISCAL YEAR 2019

This chart reflects the coordinating structure of the U.S. Department of Education. A text 

version of the FY 2019 coordinating structure of the Department is available.

 

*

 The White House Initiatives are Center for Faith and Opportunity Initiatives, White House Initiative on American Indian and Alaska Native Education, White 

House Initiative on Educational Excellence for Hispanics, and White House Initiative on Educational Excellence for African Americans.
FY 2019 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION 5

MANAGEMENT’S DISCUSSION AND ANALYSIS

FY 2018–22 Strategic Goals and Strategic Objectives1

1

 The FY 2019 Statement of Net Cost and related notes align with the FY 2018–22 Strategic Plan.

PERFORMANCE MANAGEMENT FRAMEWORK

In accordance with the GPRA Modernization Act of 2010, the Department’s framework for performance management 

starts with the four-year Strategic Plan, including its two-year Agency Priority Goals (APGs), which serve as the foundation 

for establishing and implementing long-term priorities and performance goals, objectives, and measures by which the 

Department can gauge achievement of its stated outcomes. Progress towards the Department’s strategic goals and its APGs 

is measured using data-driven review and analysis. Additional information on performance management is available in the 

Annual Performance Plans and Annual Performance Reports.

The FY 2018–22 Strategic Plan is comprised of four strategic goals and four FY 2018-19 APGs. The Strategic Plan aims to 

align the Administration’s yearly budget requests and the Department’s legislative agenda, supported by the considerable 

experience and resources available from its internal staff. The Department continues to welcome input from Congress, state 

and local partners, and other education stakeholders about the Strategic Plan. Questions or comments about the Strategic 

Plan should be emailed to PIO@ed.gov.

THE DEPARTMENT’S APPROACH TO PERFORMANCE

Strategic Goal 1: Support state and local efforts to improve learning outcomes for all prekindergarten–grade 12 students in every community.

Strategic Objective 1.1 Increase high-quality educational options and empower students and parents to choose an education that meets their needs.

Strategic Objective 1.2 Provide all prekindergarten - grade 12 students with equal access to high-quality educational opportunities.

Strategic Objective 1.3 Prepare all students for successful transitions to college and careers by supporting access to dual enrollment, job skills 

development and high-quality science, technology, engineering and mathematics (STEM).

Strategic Objective 1.4 Support agencies and institutions in the implementation of evidence-based strategies and practices that build the capacity of 

school staff and families to support students’ academic performance.

Strategic Goal 2: Expand postsecondary educational opportunities, improve outcomes to foster economic opportunity and promote an informed, 

thoughtful and productive citizenry.

Strategic Objective 2.1 Support educational institutions, students, parents and communities to increase access and completion of college, lifelong 

learning and career, technical and adult education.

Strategic Objective 2.2 Support agencies and educational institutions in identifying and using evidence-based strategies or other promising practices to 

improve educational opportunities and successfully prepare individuals to compete in the global economy.

Strategic Objective 2.3 Support agencies and educational institutions as they create or expand innovative and affordable paths to relevant careers by 

providing postsecondary credentials or job-ready skills.

Strategic Objective 2.4 Improve quality of service for customers across the entire student aid life cycle.

Strategic Objective 2.5 Enhance students’ and parents’ ability to repay their federal student loans by providing accurate and timely information, relevant 

tools and manageable repayment options.

Strategic Goal 3: Strengthen the quality, accessibility and use of education data through better management, increased privacy protections 

and transparency.

Strategic Objective 3.1 Improve the Department’s data governance, data life cycle management and the capacity to support education data.

Strategic Objective 3.2 Improve privacy protections for, and transparency of, education data both at the Department and in the education community.

Strategic Objective 3.3 Increase access to, and use of, education data to make informed decisions both at the Department and in the education 

community.

Strategic Goal 4: Reform the effectiveness, efficiency and accountability of the Department.

Strategic Objective 4.1 Provide regulatory relief to educational institutions and reduce burden by identifying time-consuming regulations, processes and 

policies and working to improve or eliminate them, while continuing to protect taxpayers from waste and abuse.

Strategic Objective 4.2 Identify, assess, monitor and manage enterprise risks.

Strategic Objective 4.3 Strengthen the Department’s cybersecurity by enhancing protections for its information technology infrastructure, systems and data.

Strategic Objective 4.4 Improve the engagement and preparation of the Department’s workforce using professional development and accountability measures.
6 FY 2019 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION

MANAGEMENT’S DISCUSSION AND ANALYSIS

THE DEPARTMENT’S AGENCY PRIORITY GOALS (APGs)

The Department identified four APGs for FY 2018–19. Improving education starts with allowing greater decision-making 

authority at the state and local levels and empowering parents and students with educational options. These APGs aimed 

to increase educational choice, improve the customer service the Department provides student aid borrowers, ensure 

protections of student privacy, and reduce red tape. The Department will identify APGs for FY 2020–21 in the FY 2021 

Annual Performance Plan. The effective implementation of the Department’s APGs will depend, in part, on the effective 

use of high-quality and timely data, including evaluations and performance measures. The Annual Performance Plan and 

quarterly updates for the APGs are available on www.Performance.gov/education/education.html.

APG Related Strategic Objective

Improve the access to, and the quality and transparency of, school choice 

options for kindergarten - grade 12 students. By September 30, 2019, the Charter 

School Program (CSP) will support the creation and expansion of 300 new charter 

schools nationally. The CSP will also support the enrollment of 50,000 students in new 

charter schools. Additionally, by September 30, 2019, the Department will disseminate 

eight resources, at least one per quarter, on evidence-based and promising practices 

related to school choice.

Strategic Objective 1.1: Increase high-quality educational 

options and empower students and parents to choose an 

education that meets their needs.

Improve borrowers’ access to quality customer service. By September 30, 

2019, the Office of Federal Student Aid (FSA) will advance the adoption of the Next 

Generation Financial Services Environment, enabling over 1.8 million customers to 

submit their Free Application for Federal Student Aid through the FSA mobile platform 

and 30,000 customers to use the mobile platform to check on their loan balances. 

Strategic Objective 2.4: Improve quality of service for 

customers across the entire student aid life cycle.

Improve student privacy and data security at Institutions of Higher Education 

(IHEs) through outreach and compliance efforts. By September 30, 2019, the 

Department will increase information security program outreach activities to IHEs by 

40% in order to help protect IT systems and data privacy and commence audits of 

IHEs subject to the Single Audit and Gramm-Leach-Bliley Act (GLBA), resulting in 

36 IHEs (from a baseline of zero) completing an audit of GLBA-related information 

security safeguards with no significant findings.

Strategic Objective 3.2: Improve privacy protections 

for, and transparency of, education data both at the 

Department and in the education community.

Provide regulatory relief to education stakeholders. By September 30, 2019, the 

Department will reduce the regulatory burden on education stakeholders by submitting 

to OMB no less than 25 deregulatory actions (against a baseline of zero (0) for FYs 

2015 and 2016).

Strategic Objective 4.1: Provide regulatory relief to 

educational institutions and reduce burden by identifying 

time-consuming regulations, processes and policies and 

working to improve or eliminate them, while continuing to 

protect taxpayers from waste and abuse.

Goal 1. Support state and local efforts to 

improve learning outcomes for all 

P–12 students in every community.

Strategic Goal 1 focuses on outcomes related to 

the transition from the No Child Left Behind Act to 

implementation of the Every Student Succeeds Act (ESSA), 

which reauthorized the Elementary and Secondary 

Education Act in December 2015. The hallmark of the 

ESSA is the flexibility it provides for states to do what is 

best for children while preserving important protections 

for economically disadvantaged students, children 

with disabilities, English learners, and other vulnerable 

students. The law requires that states take steps to ensure 

all students have access to excellent teachers and positive, 

safe learning environments that equip them for college 

and career success.

The FY 2018–19 APG associated with Strategic Goal 

1 focused on expanding educational choice options for 

parents and students. Specifically, the APG aims to improve 

the access to, and the quality and transparency of, school 

choice options for kindergarten–grade 12 students.

APG for FY 2018–2019: Improve the access to, 

and the quality and transparency of, school 

choice options for K–12 students.

By September 30, 2019, the Charter School Program 

(CSP) will support the creation and expansion of 

300 new charter schools nationally. The CSP will 

also support the enrollment of 50,000 students in new 

charter schools. Additionally, by September 30, 2019, 

the Department will disseminate eight resources, 

at least one per quarter, on evidence-based and 

promising practices related to school choice.
FY 2019 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION 7

MANAGEMENT’S DISCUSSION AND ANALYSIS

security, usability, and experience of myStudentAid app 

for customers based on customer feedback to enhance 

the student and parent experience. Through FY 2019, 

nearly 66,000 customers used the myStudentAid app to 

check loan balances, resulting in goal achievement for this 

fiscal year. In addition, the fafsa.gov site was redesigned 

to accommodate the screen size and shape of any device, 

including desktop or laptop computers and mobile devices 

such as smartphones or tablets.

Goal 3. Strengthen the quality, accessibility 

and use of education data through better 

management, increased privacy protections 

and transparency.

Strategic Goal 3 focuses on strengthening data-driven 

decision-making in education by focusing on the ways 

the Department manages and makes available education 

data, while protecting student privacy. The Department 

is committed to improving how staff and stakeholders 

access, use, and share meaningful data on education 

while protecting privacy. These improvements enable 

the Department and other stakeholders in the education 

community to better provide the public with the 

information necessary to make informed decisions on 

behalf of their communities, states, and local districts. 

The FY 2018–19 APG associated with Strategic Goal 3 

focused on improving student privacy and data security at 

Institutions of Higher Education (IHEs) through outreach 

and compliance efforts.

In FY 2019, the Department focused on this APG 

through collaborative efforts involving training, outreach, 

monitoring, and reporting. New audit standards for 

GLBA-related information security safeguards were 

published in the June 2019 2 C.F.R. Part 200 Appendix 

IX Compliance Supplement and impact the requirement 

of IHEs to conduct and submit an audited assessment of 

In FY 2019, the Department focused on the 

implementation of the CSP, including conducting new 

competitions and providing technical assistance to current 

grantees. Through CSP, the Department supported seven 

charter school grant programs through monitoring calls 

and site visits. In FY 2019, the Department released three 

evidence-based and promising practices resources related 

to educational choice. The Department met the target of 

disseminating eight resources during the FY 2018–19 APG 

reporting period. 

Goal 2. Expand postsecondary educational 

opportunities, improve outcomes to foster 

economic opportunity and promote an informed, 

thoughtful and productive citizenry.

Strategic Goal 2 focuses on expanding the Department’s 

efforts to support innovative and accessible paths to 

postsecondary credentials and job-ready skills training. 

In addition to supporting expanded postsecondary 

opportunities, the Department has a number of initiatives 

focused on affordability. These initiatives ensure borrowers 

have the best information available to make postsecondary 

program selection and associated borrowing decisions. The 

Department also continues to help students understand their 

financial aid options and repayment obligations. The FY 

2018–19 APG associated with Strategic Goal 2 focused on 

improving borrowers’ access to quality customer service.

In FY 2019, the Department focused on this APG to 

improve customers’ experience throughout the entire 

student aid life cycle by first modernizing capabilities 

related to the FAFSA and the servicing and repayment of 

customer loans. With the Department’s transition in FY 

2018 to a new paradigm of student loan processing, Next 

Generation Financial Services Environment (Next Gen 

FSA), FSA is providing a new experience for borrowers, 

and FSA customers in general, as they seek to make 

informed decisions about applying for aid, attending 

school, and repaying their student loans. From October 

2018 – February 2019, FSA made changes to improve the 

APG for FY 2018–2019: Improve borrowers’ 

access to quality customer service.

By September 30, 2019, the Office of Federal Student 

Aid (FSA) will advance the adoption of the Next 

Generation Financial Services Environment, enabling 

over 1.8 million customers to submit their Free 

Application for Federal Student Aid (FAFSA) through 

the FSA mobile platform and 30,000 customers to use 

the mobile platform to check on their loan balances.

APG for FY 2018–2019: Improve student 

privacy and data security at Institutions of 

Higher Education (IHEs) through outreach and 

compliance efforts.

By September 30, 2019, the Department will increase 

information security program outreach activities to 

IHEs by 40% in order to help protect IT systems and 

data privacy and commence audits of IHEs subject 

to the Single Audit and the Gramm-Leach-Bliley Act

(GLBA), resulting in 36 IHEs (from a baseline of zero) 

completing an audit of GLBA-related information 

security safeguards with no significant findings.
8 FY 2019 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION

MANAGEMENT’S DISCUSSION AND ANALYSIS

The Department intends to reduce the regulatory 

burden on stakeholders through review, rescission, and 

modification of outdated, burdensome regulations and 

guidance. The Regulatory Reform Task Force (RRTF), 

which includes a wide cross section of the Department’s 

senior leaders, was established under Executive Order 

13777 to review and reduce regulatory inefficiencies. The 

2018 RRTF Report highlights the Department’s efforts 

to reduce regulatory burden through December 2018. In 

response to RRTF recommendations, several cross-office 

workgroups were established to focus on the Education 

Department General Administrative Regulations; a web 

portal for Departmental guidance documents; and an 

information collections workgroup to reduce paperwork 

burden. In 2019, the Department issued final regulations 

on issues such as Programs and Activities Authorized 

by the Adult Education and Family Literacy Act (Title 

II of the Workforce Innovation and Opportunity Act of 

2010) and Program Integrity: Gainful Employment. The 

latter rule eliminates significant paperwork burden and 

administrative costs for applicable entities and is estimated 

to yield $160 million in annualized cost savings.

data security programs. IHEs subject to the Single Audit 

have nine months from their fiscal year end to submit the 

audits to the Department; IHEs will not include the newly 

required standards in time to meet the Department’s FY 

2019 APG target. In Quarter 3 through Quarter 4, FSA 

engaged with 708 IHEs for technical assistance related 

to cybersecurity. FSA’s contact with these institutions 

consisted of discussing industry best practices, mitigation 

strategies, guidance for improving processes, and 

documentation to improve their security postures. FSA 

and the Department’s Privacy and Technical Assistance 

Center (PTAC) surpassed the FY 2018-19 APG target and 

collaborated to conduct 103 outreach activities targeting 

data privacy and IT security requirements of IHEs.

Goal 4. Reform the effectiveness, efficiency and 

accountability of the Department.

Strategic Goal 4 focuses in general on protecting taxpayers 

from fraud, waste and abuse. This involves improving 

internal decision-making and reducing regulatory burden 

on external stakeholders. The FY 2018-19 APG associated 

with Strategic Goal 4 aimed to provide regulatory relief to 

education stakeholders. 

APG for FY 2018–2019: Provide regulatory 

relief to education stakeholders.

By September 30, 2019, the Department will reduce 

the regulatory burden on education stakeholders by 

submitting to OMB no less than 25 deregulatory 

actions (against a baseline of zero (0) for FYs 2015 

and 2016).
FY 2019 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION 9

MANAGEMENT’S DISCUSSION AND ANALYSIS

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 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 18 

consecutive years, the Department has earned an unmodified 

(or “clean”) audit opinion. The financial statements and 

notes for FY 2019 are on pages 32–72 and the Independent 

Auditors’ Report begins on page 82.

BALANCE SHEETS

The consolidated balance sheets present, 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 $1,310.7 billion as of 

September 30, 2019. The vast majority of the assets 

relate to credit program receivables, $1,203.5 billion, 

which comprised 91.8 percent of all assets. Direct Loans 

comprise the largest share of these receivables. All other 

assets totaled $107.2 billion, most of which was Fund 

Balance with Treasury.

The Department’s liabilities totaled $1,314.2 billion as 

of September 30, 2019. 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. Debt associated with Direct Loans totaled $1,192.1 

billion as of September 30, 2019.

 

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

MANAGEMENT’S DISCUSSION AND ANALYSIS

value of direct loans (credit program receivables) at the net 

present value of their future cash flows, discounted at a fixed 

rate established based on Treasury securities. The difference 

between the recorded principal and interest balance and the 

net present value of the loans is referred to as the “allowance 

for subsidy,” which can be positive or negative.

Prior years’ positive allowance for subsidy balances 

represented estimates of funds expected to be recovered 

Figure 3 shows the changes in the Direct Loan receivables 

components over the past five years. The principal 

amount has continued to grow as the Direct Loan 

program has originated all new federal loans since 

July 2010, when originations of new Federal Family 

Education Loan (FFEL) loans ended. However, the 

rate of increase in principal has slowed, as the Direct 

Loan program has disbursed decreased amounts of new 

loans each year since FY 2015 as a result of stagnant 

and in some cases declining enrollment, while accrued 

interest amounts have increased as more loans have 

moved into active repayment statuses. 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 

 

Direct Loan 

Component

(Dollars

 in Billions)

Fiscal Year

2015 2016 2017 2018 2019

Principal $ 800.8 $ 902.8 $ 998.8 $ 1,083.7 $ 1,164.9

Rate of 

Increase in 

Principal

15.4% 12.7% 10.6% 8.5% 7.5%

Accrued Interest $ 44.3 $ 50.8 $ 59.5 $ 72.0 $ 83.3

Allowance for 

Subsidy $ 35.5 $ 5.3 $ (16.8) $ (40.7) $ (124.4)

Total No. of 

Direct Loan 

Recipients 

(in Millions)

29.9 31.5 33.0 34.2 35.1

Loan Status

Fiscal Year

2015 2016 2017 2018 2019

Total No. of 

Direct Loan 

Recipients 

(in Millions)

29.9 31.5 33.0 34.2 35.1

Total Dollar 

Amount of 

Direct Loans 

Outstanding

$ 845.1 $ 953.6 $ 1,058.4 $ 1,155.7 $ 1,248.1 

Current 

Repayment1 332.0 406.8 467.9 531.4 594.7

% Current

Repayment 39.3% 42.7% 44.2% 46.0% 47.6%

In School, 

Grace Period, 

and Education 

Deferments

284.3 289.6 291.7 291.7 294.8

% In School, 

Grace Period, 

and Education 

Deferments

33.6% 30.4% 27.6% 25.2% 23.6%

Forbearance 

and 

Noneducation 

Deferments

103.0 106.5 122.5 121.9 133.2

% Forbearance 

and 

Noneducation 

Deferments

12.2% 11.2% 11.6% 10.5% 10.7%

Delinquent 

(Past Due

31-360 Days)

65.1 71.8 79.5 92.2 90.8

% Delinquent 

(Past Due

31-360 Days)

7.7% 7.5% 7.5% 8.0% 7.3%

Default/

Bankruptcy/

Other

60.7 78.9 96.8 118.5 134.6

% Default/

Bankruptcy/

Other

7.2% 8.2% 9.1% 10.3% 10.8%

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

interest accruing is higher than payments that are being made, which can occur 

in the case of loans on income-driven repayment plans.

Table 1. Payment Status of Direct Loan Principal 

and Interest Balances

(Dollars in Billions)
FY 2019 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION 11

MANAGEMENT’S DISCUSSION AND ANALYSIS

delinquent, default is defined as 361 days delinquent for 

reporting purposes. 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 or rehabilitate. The percentage of the portfolio 

in current repayment, which rose from 39 percent in FY 

2015 to 48 percent in FY 2019, has eclipsed payments 

temporarily postponed and has grown far faster than loans 

in default. 

The Department borrows funds to disburse new loans 

and pay credit program outlays and related costs. The 

Department repays Treasury after consideration of cash 

position and the liability for future cash outflows. Figure 

4 shows the Direct Loan program cumulative borrowing 

and repayment activity that resulted in the debt amount 

on the balance sheet. A diagram depicting the Direct Loan 

program financing process is displayed with related trend 

data as Figure 6 on page 12 of this report.

STATEMENTS OF NET COST

The consolidated statements of net cost report the 

Department’s components of the net cost of operations for 

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

gross costs incurred less any exchange (i.e., earned) revenue 

from activities. Gross costs are composed of the cost of 

credit and grant programs, and operating costs. Exchange 

revenue is primarily interest earned on credit program 

loans. Figure 5 shows the Department’s gross costs and 

earned revenue over the past five years. 

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 2015 is due primarily to higher subsidy costs, 

the main cause being high participation in income-driven 

repayment (IDR) plans. As of FY 2017, the allowance for 

subsidy changed 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 outstanding.

Participation in IDR plans has increased 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. 

Table 1 shows the payment status of the Direct Loan 

principal and interest balances outstanding over the past five 

years. The Current Repayment category consists of loans 

that are being paid back on time, including the current 

portion of loans being repaid pursuant to IDR plans. 

Loans in the Delinquent category are past due anywhere 

from 31 to 360 days. Default/Bankruptcy/Other includes 

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

loans in a nondefaulted bankruptcy status; and loans 

in disability status. While technical default is 271 days 

 
12 FY 2019 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 2015 2016 2017 2018 2019 

Net Borrowing 90.9 84.4 67.3 89.1 41.5 

 Borrowing from Treasury 159.7 147.0 160.5 155.3 137.6 

 Debt Repayments to Treasury (68.7) (62.6) (93.2) (66.2) (96.1)

Interest Expense to Treasury (27.6) (30.5) (31.3) (32.3) (33.8)

Interest Earned from Treasury 4.2 3.9 4.3 3.9 4.1 

Cumulative Taxpayer Cost / (Savings) (35.5) (5.3) 16.8 40.7 124.4 

Current Subsidy Expense (Revenue) (0.9) 16.1 5.3 4.4 61.5 

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

Fiscal Year 2015 2016 2017 2018 2019 

Loan Disbursements 142.2 140.5 142.5 134.1 130.7 

 Stafford Subsidized 24.0 23.8 23.4 20.3 20.0 

 Stafford Unsubsidized 52.7 52.3 51.4 49.0 48.1 

 PLUS 19.2 19.0 18.7 23.1 22.7 

 Consolidation1 46.4 45.5 49.0 41.6 39.8 

Loan Collections2 65.1 73.2 82.0 84.9 91.3 

 Principal 50.0 55.9 62.6 63.5 67.0 

 Interest 13.4 15.5 17.6 19.5 22.4 

 Fees 1.8 1.8 1.9 1.9 1.9 

* Numbers may not add up due to rounding.

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

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

 
FY 2019 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION 13

MANAGEMENT’S DISCUSSION AND ANALYSIS

ANALYSIS OF DIRECT LOAN PROGRAM 

SUBSIDY EXPENSE 

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. The increase 

in the subsidy expense for Direct Loans in FY 2019 

accounts for 75.4 percent of the total increase in the 

Department’s gross costs from FY 2018. Subsidy expense 

is an estimate of the present value cost of providing direct 

loans, but excludes the administrative costs of issuing and 

servicing the loans. The Department estimates subsidy 

expense using a set of econometric and financial models, as 

well as cash flow models.

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.

GROSS COSTS AND EXCHANGE REVENUE BY TYPE 

The Department’s gross costs and earned revenue include three primary components:

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

amortization; 

 Credit program subsidy expense (see Analysis of Direct Loan Program Subsidy Expense below); and

 Grant expenses (see Figure 9). 

 

2015 2016 2017 2018 2019

Subsidy Expense for 

New Loans Disbursed 

in the Current Year

$ (6.2) $ (5.7) $ (2.6) $ (3.1) $ (3.0)

Subsidy 

Re-estimates (4.6) 21.8 7.9 7.4 64.5 

Loan Modification 9.9 - - 0.1 - 

Total Subsidy Expense $ (0.9) $ 16.1 $ 5.3 $ 4.4 $ 61.5 

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

MANAGEMENT’S DISCUSSION AND ANALYSIS

 Maturity, Prepayment, and Loan Payoff. The 

Department further enhanced the forecasting 

of amount of debt distributions and aligned all 

three sub-components of this assumption to enter 

repayment cohorts. The loan payoff component was 

improved as well by using a more precise method 

to estimate payoff for loans enrolled in graduated 

repayment plans. As mentioned above, the impact 

on repayment of delinquency was moved to the 

payoff maturity assumption to better reflect interest 

accrual and the extension of the payment period. 

These adjustments resulted in longer assumed terms, 

resulting in a longer stream of payments, more 

interest accrual and less subsidy. The combined effect 

of these changes led to a net downward re-estimate of 

$26.1 billion.

 Financing Account Interest Adjustment. Beginning 

in FY 2019, the Department implemented a process 

to calculate and execute a financing account interest 

adjustment to address differences between net 

financing account interest executed for cohorts each 

year and amounts earned based on final Treasury 

interest rates for those cohorts. This resulted in a net 

upward re-estimate of $6.3 billion.

 Default. The Department updated the data and made 

a change in methodology to a weighted fractional 

logit in order to more appropriately reflect the 

different sizes of the grouped data. The combined 

effect of these changes led to a net downward reestimate of $1.0 billion. 

 Collections. As a result of analyzing updated Debt 

Management and Collection System (DMCS) data, 

collection rate estimates were revised which resulted 

in a net upward re-estimate of $4.2 billion.

 2018 Cohort Assumption Changes. The technical 

re-estimate cannot reflect the impacts of certain 

assumption changes applicable to the current year 

loan cohort until the following fiscal year per OMB 

guidance. The current year’s re-estimate includes a net 

upward adjustment of $5.8 billion for these prior year 

changes attributable to the FY 2018 cohort. 

Factors such as interest rates charged to the borrower, 

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

costs, and assumptions concerning borrowers’ selection of 

repayment plans impact the estimated cost calculation and 

determine whether the overall subsidy expense is positive 

or negative. Subsidy expense for new loans disbursed in 

the current year has been negative in recent years primarily 

because lending interest rates charged were greater than 

the historically low rates at which the Department 

borrowed from Treasury. In practical terms, a negative 

subsidy occurs when the interest and/or fees charged to the 

borrower are more than sufficient to cover the interest on 

Treasury borrowings and the costs of borrower default.

The Direct Loan program subsidy re-estimate increased 

subsidy expense in FY 2019 by $64.5 billion. Re-estimated 

costs only include cohorts that are 90 percent disbursed; 

cohort years 1994–2018. The re-estimate reflects the 

assumption updates and other changes described below. 

 IDR Model Changes. During FY 2019, the 

Department enhanced the IDR model by examining 

the most current available IDR application data 

from NSLDS to supplement information previously 

used from the Department of Treasury’s Office of 

Tax Analysis, in order to calibrate projected incomes. 

The Department’s analysis determined a downward 

calibration was warranted, with the Departmental and 

FSA senior management concurrence. The impact of 

this calibration was the most significant factor in the 

IDR component of the re-estimate. The IDR update 

also reflects further refinement in the logic for switching 

borrowers among IDR plans and the appropriate balance 

to be paid off when they do switch. These updates led to 

a net upward re-estimate of $43.6 billion. 

 Deferment and Forbearance. The Department made 

enhancements in the methodology for delinquency, 

to more precisely reflect interest accrual and the 

extension of the payment period than the method 

previously employed. These enhancements resulted 

in a lower rate of forbearance which led to an upward 

re-estimate of subsidy as less interest is accrued, 

capitalized, and collected. Deferment rates increased 

for PLUS loans eligible for in-school deferments. 

The combined effect of these changes, in addition 

to updated data from NSLDS, was a net upward reestimate of $18.3 billion.
FY 2019 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION 15

MANAGEMENT’S DISCUSSION AND ANALYSIS

$16.3

 $26.7

 

$16.7

 

 Interest on the Re-estimate. Interest on re-estimates 

is the amount of interest that would have been earned 

or paid by each cohort on the subsidy re-estimate, if 

the re-estimated subsidy had been included as part of 

the original subsidy estimate. The interest on the reestimate calculated on the overall subsidy re-estimate 

resulted in a net upward re-estimate of $9.7 billion.

 Interactive Effects. The re-estimate includes a net 

upward re-estimate of $3.2 billion attributed to 

the interactive effects of the assumption changes 

described above.

The Department has more than 100 grant and loan 

programs. The Department’s FY 2019 expenses for grant 

programs totaled $77.8 billion. The three largest grant 

program areas are:

 Pell Grants—provides need-based grants to students 

to promote access to postsecondary education. 

Grant amounts are dependent on: the student’s 

expected family contribution; the cost of attendance 

(as determined by the institution); the student’s 

enrollment status (full-time or part-time); and whether 

the student attends for a full academic year or less. 

Pell grants are the single largest source of grant aid for 

postsecondary education.

 Education for the Disadvantaged—primarily consists 

of Title I grants that provide 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. Also 

provides fund to states to support educational services 

to children of migratory farmworkers and fishers, and 

to neglected or delinquent children and youth in Staterun institutions, attending community day programs, 

and correctional facilities.

 Special Education—primarily consists of Individuals 

with Disabilities Education Act (IDEA) grants that 

provide funds by formula to states to assist them 

in providing a free appropriate public education in 

the least restrictive environment for children with 

disabilities ages 3 through 21 and 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 and other nonprofit organizations to 

support research, demonstrations, technical assistance 

and dissemination, technology, personnel development 

and parent-training and information centers.

In addition to student loans and grants, the Department 

offers other discretionary grants under a variety of 

authorizing legislation, with approximately 90 percent of 

non-student aid funds awarded by formula and 10 percent 

through competitive processes. 
16 FY 2019 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION

MANAGEMENT’S DISCUSSION AND ANALYSIS

STATEMENTS OF CHANGES IN NET POSITION

The consolidated statements of changes in net position 

report the beginning net position, the summary effect 

of transactions that affect net position during the fiscal 

year, and the ending net position. Net position consists 

of unexpended appropriations and cumulative results 

of operations. Unexpended appropriations include 

undelivered orders and unobligated balances for grant and 

administrative operations. Cumulative results of operations 

represent the net difference since inception between (1) 

expenses and (2) revenues and financing sources. 

STATEMENTS OF BUDGETARY RESOURCES

The combined statements of budgetary resources present 

information on how budgetary resources were made 

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

Information in the statements is based on budgetary 

transactions as prescribed by OMB and Treasury.

The Department’s budgetary resources totaled $358.2 

billion for the period ended September 30, 2019, decreasing 

from $358.5 billion, or approximately 0.1 percent 

from the prior year. Budgetary resources are comprised 

of appropriated budgetary resources of $137.2 billion 

and non-budgetary credit reform resources of $221.0 

billion. The non-budgetary credit reform resources are 

predominantly borrowing authority for the loan programs. 

The Department’s gross outlays totaled $307.5 billion for 

the period ended September 30, 2019. 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 $150.8 billion of collections—

primarily principal, interest and subsidy collections.

LIMITATIONS OF THE FINANCIAL STATEMENTS

The principal financial statements are prepared to report 

the financial position and results of operations of the 

reporting entity, pursuant to the requirements of 31 

U.S.C. § 3515(b). The statements are prepared from 

the Department’s books and records in accordance with 

generally accepted accounting principles for federal entities 

and the formats prescribed by OMB. Reports used to 

monitor and control budgetary resources are prepared 

from the same books and records. The financial statements 

should be read with the realization that they are for a 

component of the U.S. Government.

 

Billions %

CREDIT PROGRAMS $ 226.8 73.8%

DIRECT LOAN PROGRAM 208.0 67.6%

FFEL PROGRAM 18.4 6.1%

OTHER CREDIT PROGRAMS FOR 

HIGHER EDUCATION 0.4 0.1%

GRANTS $ 76.9 25.0%

PELL GRANTS 29.0 9.4%

EDUCATION FOR 

THE DISADVANTAGED 16.2 5.3%

SPECIAL EDUCATION - INDIVIDUALS 

WITH DISABILITIES EDUCATION ACT 

(IDEA) GRANTS

 13.2 4.3%

ALL OTHER GRANTS 18.5 6.0%

CONTRACTUAL SERVICES $ 3.1 1.0%

PERSONNEL COMPENSATION 

AND BENEFITS $ 0.6 0.2%

OTHER $ 0.1 0.0%

TOTAL $ 307.5 100.0%

 
FY 2019 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION 17

MANAGEMENT’S DISCUSSION AND ANALYSIS

ANALYSIS OF SYSTEMS, CONTROLS, 

AND LEGAL COMPLIANCE

MANAGEMENT ASSURANCES

The Secretary of Education’s 2019 Statement of Assurance provided below is the final report produced by the Department’s 

annual assurance process. Although the Department has not identified any material weaknesses, the independent auditor 

identified a material weakness and significant deficiencies in the auditors’ report, and the Office of Inspector General 

identified management challenges in the Office of Inspector General’s Management and Performance Challenges For Fiscal 

Year 2020 report.

STATEMENT OF ASSURANCE

FISCAL YEAR 2019

November 15, 2019

The Department of Education (the Department) management is responsible for meeting 

the objectives of the Federal Managers’ Financial Integrity Act of 1982 (FMFIA) by 

establishing, maintaining, evaluating, and reporting on the Department’s internal control 

and financial systems. 

In accordance with Section 2 of FMFIA and Office of Management and Budget (OMB) 

Circular A-123, Management’s Responsibility for Enterprise Risk Management and Internal 

Control, management evaluated the effectiveness of the Department’s internal controls to 

support effective and efficient operations, reliable reporting, and compliance with applicable 

laws and regulations.

Section 4 of FMFIA and the Federal Financial Management Improvement Act of 1996

(FFMIA) require management to ensure the Department’s financial management systems 

provide reliable, consistent disclosure of financial data. In accordance with Appendix D 

of OMB Circular A-123, management evaluated whether the Department’s financial 

management systems substantially complied with FFMIA requirements. The Department 

also conducted a separate assessment of the effectiveness of its internal control over financial 

reporting, including controls designed to prevent, detect, and recover improper payments, in 

accordance with Appendix A of OMB Circular A-123.

The Department has not identified any material weaknesses in operations, reporting, or 

compliance with applicable laws and regulations. 

Based on the results of the Department’s assessments described above, our system of internal 

controls provides Department management with reasonable assurance that the objectives of 

sections 2 and 4 of the FMFIA were achieved as of September 30, 2019.

Betsy DeVos
18 FY 2019 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION

MANAGEMENT’S DISCUSSION AND ANALYSIS

INTRODUCTION

Strong risk management practices and internal controls help an entity run its operations efficiently and effectively, report 

reliable information about its operations and financial position, and comply with applicable laws and regulations. The 

FMFIA requires federal agencies to establish internal controls that provide reasonable assurance that agency objectives 

will be achieved. OMB Circular A-123, Management’s Responsibility for Enterprise Risk Management and Internal 

Control implements FMFIA and defines management’s responsibilities for ERM and internal control. The Circular provides 

guidance to federal managers to improve accountability and effectiveness of federal programs, as well as mission support 

operations through implementation of ERM practices and by establishing, maintaining, and assessing internal control 

effectiveness. The guidance requires federal agencies to provide reasonable assurance that it has met the three objectives 

of internal controls:

 Operations—Effectiveness and efficiency of operations; 

 Reporting—Reliability of reporting for internal and external use; and 

 Compliance—Compliance with applicable laws and regulations. 

This section describes the Department’s internal control framework, an analysis of the effectiveness of its internal controls, 

and assurances provided by the Department’s leadership that internal controls were in place and working as intended during 

FY 2019 to meet the three objectives.

Internal Control Framework

The Department’s internal control framework helps to ensure that the Department achieves its strategic goals and objectives 

related to delivering education services effectively and efficiently, complies with applicable laws and regulations, and prepares 

accurate reports. The Department maintains a comprehensive internal control framework and assurance process as depicted 

in the following diagram.

Figure 12. Department of Education Internal Control Framework
FY 2019 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION 19

MANAGEMENT’S DISCUSSION AND ANALYSIS

discretionary and formula grants policy, training, audit 

resolution, and indirect cost negotiation.

In accordance with OMB Circular A-123, the 

Department also conducted an additional assessment of 

the effectiveness of the Department’s internal control over 

reporting and compliance with key financial management 

laws and regulations as described below. 

Internal Control over Reporting 

The Department maintains processes and procedures 

to identify, document, and assess internal control over 

reporting, which includes: 

 Comprehensive process documentation for the 

Department’s significant business processes 

and subprocesses;

 Maintenance of an extensive library of key financial, 

operations, and Information Technology (IT) controls;

 Technical assistance provided to principal offices to 

help them understand and monitor key controls;

 A Data Quality Plan to improve reporting controls and 

data quality;

 A risk-based control testing strategy; and

 A process to develop corrective action plans when 

internal control deficiencies are found and to track 

progress against those plans.

The FY 2019 internal controls assessment detected some 

deficiencies, but none that would rise to the level of 

material weakness. Corrective actions have been initiated 

for the deficiencies identified.

ANALYSIS OF FINANCIAL 

MANAGEMENT SYSTEMS

The FFMIA requires management to ensure that the 

Department’s financial management systems consistently 

provide reliable data that comply with federal financial 

management system requirements, applicable federal 

accounting standards, and the U.S. Standard General 

Ledger at the transaction level. Appendix D to OMB 

Circular A-123, Compliance with the Federal Financial 

Management Improvement Act of 1996, and OMB Circular 

A-130, Managing Federal Information as a Strategic Resource, 

The Department has a renewed focus on streamlining and 

coordinating internal control activities to ensure efficiency 

of operations, recognizing the connection points across 

areas, and enabling transparency of information across the 

Department. This framework enables increased visibility 

across compliance processes to allow for greater oversight 

and more informed monitoring of activities related to 

internal controls and risk management by all offices and 

governance bodies, including the Department’s Senior 

Management Council. This framework also allows for the 

Department to obtain the outcomes of a better control 

system and a reduced risk landscape. Furthermore, this 

streamlined approach helps the Department provide 

reasonable assurance to internal and external stakeholders 

that the data produced by the Department is complete, 

accurate and reliable, that internal controls are in place 

and working as intended, and operations are efficient 

and effective.

ANALYSIS OF CONTROLS

Overall, the Department relies on annual assurances 

provided by the heads of its principal offices, supported 

by risk-based internal control evaluations and testing, 

and annual internal control training for all employees, to 

provide reasonable assurance that its internal controls are 

well designed and in place and working as intended. The 

Department’s annual assurance process conforms to the 

requirements contained in the revised U.S. Government 

Accountability Office publication, Standards for Internal 

Control in the Federal Government (commonly referred 

to as the “Green Book”) and OMB Circular A-123, 

Management’s Responsibility for Enterprise Risk Management 

and Internal Control. 

In FY 2019, the Department identified no material 

weaknesses related to effective, efficient program operations 

and no areas of noncompliance with laws and regulations 

other than those noted in the Analysis of Legal Compliance 

section below. Although no material weaknesses were 

identified, the Department realizes that it has areas of 

control that need further strengthening, such as those 

disclosed in this report, the Independent Auditors’ Report, 

and the major challenges identified by the Department’s 

OIG in its OIG FY 2020 Management Challenges 

report. As an example, the creation of the Office of Grants 

Administration (OGA) in FY 2019 helped strengthen 

internal control in grants management at the Department. 

OGA provides guidance and oversight of the Department’s 
20 FY 2019 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION

MANAGEMENT’S DISCUSSION AND ANALYSIS

EDCAPS is serving approximately 5,300 Departmental 

internal users in Washington, D.C. and 10 regional 

offices throughout the United States. EDCAPS is serving 

approximately 37,900 external users, mostly users of G5. 

In FY 2019, the Department conducted an annual risk 

assessment of EDCAPS and tested 82 IT security controls 

out of a baseline of 630 IT security controls. No significant 

deficiencies or material weaknesses were identified.

The Department designated the FMSS as a mission-critical 

system that provides core financial management services, 

and focused its system strategy on the following areas 

during FY 2019: 

 Managing and implementing cross-validation rules 

throughout the fiscal year to prevent invalid accounting 

transactions from being processed;

 Transmitting the Department’s spending data related to 

contracts, grants, loans, and other financial assistance 

awards for the USASpending.gov initiative as part of 

the Federal Funding Accountability and Transparency Act 

of 2006;

 Transmitting the entire Department’s payments 

through the Department of Treasury Secure Payment 

System; and

 Transmitting the Department’s spending data related to 

contracts, grants, loans, and other financial assistance 

awards for the DATA Act implementation.

Budget constraints limit funding for innovation and 

modernization, requiring the Department to direct 

available funding and resources to support the steady 

state of existing investments. However, in November 

2018, the Department completed the upgrade of the 

FMSS Oracle E-Business Suite application to Oracle R12 

to ensure continued vendor support, improved security, 

improved infrastructure, and enhanced functionality. 

The Department’s primary objective is to stabilize Oracle 

R12, which is the Department’s core financial system 

(FMSS), and any implications of the infrastructure upon 

which it is hosted (Portfolio of Integrated, Value Oriented 

Technologies – Hosting), with the goal of achieving a 

future state where core financial systems and related 

business systems, support services, and infrastructure have 

migrated to the maximum extent possible to standard 

applications and shared services. 

provide specific guidance to agency managers when 

assessing conformance to FFMIA requirements. 

The Department’s vision for its financial management 

systems is to provide objective financial information 

to stakeholders to support data-driven decisionmaking, promote sound financial management, and to 

enhance financial reporting and compliance activities. 

The Department’s core financial applications have 

been brought together under common management 

control under the umbrella of Education Central 

Automated Processing System (EDCAPS). EDCAPS 

is a suite of financial applications (subsystems), 

including commercial off-the-shelf and custom code 

and interfaces that encompass the Department’s core 

financial management processes. Specifically, EDCAPS 

provides the following functions: 

 General ledger - Preparation of financial statements 

and reconciliation of general ledger balances with 

subsystems maintained in program areas and Treasury;

 Funds management - Budget formulation, budget 

execution, and funds control;

 Grants pre- and post-award processing, including grant 

payment processing;

 Contract pre- and post-award processing;

 Receivable management;

 Cost management;

 Recipient management; and

 Administrative processes (e.g., purchasing, travel, and 

miscellaneous payments).

EDCAPS is composed of five main integrated components: 

 Financial Management Support System (FMSS);

 Contracts and Purchasing Support System (CPSS);

 Grants Management System (G5);

 E2 Travel System; and

 Hyperion Budget Planning.
FY 2019 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION 21

MANAGEMENT’S DISCUSSION AND ANALYSIS

Due to unique program requirements of the Higher 

Education Act of 1965 (HEA), the Department requested 

guidance from Treasury’s Bureau of Fiscal Service, Office 

of General Counsel for the application of this revised 

DCIA requirement to Title IV debt. Treasury provided 

its interpretation of this requirement for Title IV debt 

in July 2015. Per Treasury General Counsel’s July 2015 

legal determination, compliance for Title IV debt requires 

that the Title IV debt be: 1) in technical default (i.e., 271 

days delinquent per Title IV aging) and 2) a receivable of 

the federal government. Therefore, the DCIA Treasury 

Offset Program referral requirement for Title IV debt 

owned by FSA at the time of delinquency is 271 days 

delinquent and for debt acquired via a FFEL guarantee 

default claim or default Perkins Loan assignment is 120 

days delinquent (per DCIA aging which begins upon 

acceptance of a defaulted debt). As of September 30, 2019, 

the Department and FSA were not in compliance with 

the DCIA Treasury Offset Program referral requirement 

for Title IV debt as interpreted by Treasury because FSA 

had not yet revised its loan servicing systems, procedures, 

and internal processes in response to this interpretation. 

During FY 2019, FSA continued to implement changes 

to its default loan servicing system and business process 

for referring eligible debts to the Treasury Offset Program 

sooner. In addition, FSA provided guidance to the 

Guaranty Agencies that will facilitate sending debts to 

Treasury sooner. FSA will build DCIA requirements 

into the NextGen FSA servicing platform. This area of 

noncompliance is noted in the independent auditor’s 

report, exhibit C.

This determination of noncompliance with the DCIA 

does not represent a material weakness in the Department’s 

internal controls.

Federal Information Security Modernization Act 

of 2014

The Federal Information Security Modernization Act of 2014

(FISMA) requires federal agencies to develop, document, 

and implement an agency-wide program to provide 

security for the information and information systems that 

support the operations and assets of the agency and ensure 

the confidentiality, integrity, and availability of systemrelated information.

The Department’s and FSA’s information security 

programs completed several significant activities in FY 

2019 to improve cybersecurity capabilities and functions, 

some of which included:

The FMSS Oracle E-Business Suite application is 

behind the Department firewall and not external-facing. 

FMSS includes the following interfaces to multiple 

applications which are either not part of the Oracle suite 

of applications in the Enterprise Resource Planning or are 

outside the financial management segment:

 Hyperion Budget Planning module – currently only 

the license fees are included in FMSS investment;

 ED Facilities Loan System (Nortridge) – currently only 

the license fees are included in FMSS investment;

 The Invoice Processing Platform;

 FSA-FMS financial data;

 Lockbox;

 Department of the Treasury systems; and

 Department of Interior systems.

The Department’s financial management systems are 

designed to support effective internal control and 

produce accurate, reliable, and timely financial data 

and information. Based on self-assessments, systemlevel general controls tests, and the results of internal 

and external audits, the Department has not identified 

any material weaknesses in controls over these systems. 

The Department has also determined that its financial 

management systems substantially comply with FFMIA 

requirements. However, as noted below in the Analysis of 

Legal Compliance section, the Department continues to 

address issues and improve its controls over systems.

ANALYSIS OF LEGAL COMPLIANCE

The Department is committed to maintaining 

compliance with applicable laws and regulations. Below 

are some examples:

Debt Collection Improvement Act of 1996

The Debt Collection Improvement Act of 1996 (DCIA), 

Pub. L. 104-134, 110 Stat. 1321-358, was enacted into 

law as part of the Omnibus Consolidated Rescissions and 

Appropriations Act of 1996, Pub. L. 104-134, 110 Stat. 

1321. The primary purpose of the DCIA is to increase the 

collection of nontax debts owed to the federal government. 

Additionally, the DATA Act, Pub. L. 113-101, 128 Stat. 

1146, amended Section 3716(c)(6) of the DCIA to require 

referral of delinquent debt to Treasury’s Offset Program 

within 120 days. 
22 FY 2019 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION

MANAGEMENT’S DISCUSSION AND ANALYSIS

assist the Department points of contact (POCs) with 

finalizing the quarterly and annual FISMA reporting 

requirements. OCIO developed and published both 

an internal OCIO review procedure and external 

guidance document for use by POCs. These documents 

collectively outline a new process for ensuring that the 

POCs are reporting accurately, and that reports are 

reviewed, approved and submitted in accordance with 

established timelines. 

 OCIO identified and documented all FedRAMP 

Cloud Service Providers (CSPs) currently leveraged 

by the Department and established a Cloud Service 

Portfolio of CSPs that have been authorized for use. 

The activities enabled the Department to streamline 

the processes associated with selecting, assessing and 

authorizing CSPs. This prevents the acquisition of 

potentially redundant or duplicative cloud services 

and streamlines the process of obtaining new service 

offerings or migrating existing systems to cloud 

services.

 The Department has begun creating an externally 

hosted provider inventory to facilitate documentation 

of externally hosted providers currently leveraged 

by Department systems, similar to the efforts to 

strengthen security controls for CSPs. This inventory 

enables documentation of the various externally hosted 

providers being leveraged and allows for the imposition 

of security control inheritance for Department systems 

that are hosted externally.

 FSA completed a system Personally Identifiable 

Information (PII) risk assessment process to determine 

and evaluate how PII is identified, minimized, 

categorized, and safeguarded, and how incident 

responses are provided for PII security incidents. 

FSA also implemented a PII dashboard to report PII 

risk and developed mitigation strategies for PII risks 

identified through the initial risk assessment process.

 The Department conducted quarterly Contingency 

Plan Testing (CPT) and Incident Response Plan (IRP) 

tabletop exercises. This service allowed Department 

ISOs and ISSOs to complete the required annual 

contingency and incident response testing through 

a professionally facilitated workshop which exposes 

system stakeholders to new requirements, test 

scenarios and Department resources. As a result of this 

effort, CPT and IRP testing compliance across the 

Department increased from 63 percent to 92 percent.

 OCIO publishes monthly Cyber Security Framework 

(CSF) Risk Scorecards as part of the Department’s 

Information Security Continuous Monitoring (ISCM) 

efforts to identify cybersecurity risks, issues, and 

opportunities for improvements in our cybersecurity 

protections. The CSF Risk Scorecard provides a 

detailed analysis tool for Authorizing Officials, 

Information System Owners (ISOs), and Information 

System Security Officers (ISSOs) to prioritize and 

mitigate risks to the Department’s information systems. 

The CSF Risk Scorecard was enhanced during FY 

2019 to allow for automated risk scoring, improved 

accessibility, more granular and user-friendly data 

filtering capabilities, and enhanced data modeling. The 

continued use of the CSF Risk Scorecards enabled the 

Department to prioritize resources to resolve identified 

vulnerabilities. This prioritization led to the closure of 

all past due Plan of Actions & Milestones (POA&Ms) 

for the Department’s High Value Assets. Overall, the 

Department has reduced total POA&Ms by more than 

83% and delayed POA&Ms by 95%. 

 Annually, all Department users are required to 

complete multiple computer security and privacy 

awareness training courses. The Department strictly 

enforces compliance with the training requirements 

and disables network accounts for users who fail to 

complete required trainings by established deadlines. 

In FY 2019, the Department employed increasingly 

complex phishing scenarios and established 

administrative mechanisms to enhance user education 

and awareness of the risks associated with their 

susceptibility to cyber threats. The Department 

experienced increases in the Department of Education 

Security Operations Center (EDSOC) reporting rates 

for phishing exercises.

 OCIO revised the Department’s cybersecurity policy 

and guidance. 

 The updated policy framework was revised to include 

a new review and approval process for cybersecurity 

policies, standards, and instructions. This process 

includes automated workflows, pre-defined review 

timelines, and delegated approval authorities which 

will improve the Department’s agility in providing 

critical time-sensitive guidance and requirements to 

Department system stakeholders.

 OCIO developed and published Departmental 

Guidance/Standard Operating Procedures (SOPs) to 
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