FY 2018 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION 35

NOTES TO THE FINANCIAL STATEMENTS | FINANCIAL SECTION

NOTE 1. Summary of Significant 

Accounting Policies

REPORTING ENTITY AND PROGRAMS

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

a cabinet-level agency of the executive branch of the 

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

Department of Education Organization Act (Public Law 96-

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

of the Department is to promote student achievement 

and preparation for global competitiveness by fostering 

educational excellence and ensuring equal access. 

The Department is primarily responsible for 

administering federal student loan and grant programs 

and provides technical assistance to loan and grant 

recipients and other state and local partners. The largest 

portions of the Department’s financial activities relate 

to the execution of loan and grant programs which are 

discussed below.

Federal Student Loan Programs. The Department 

administers direct loan, loan guarantee, and other 

student aid programs to help students and their families 

finance the cost of postsecondary education. These 

include the William D. Ford Federal Direct Loan (Direct 

Loan) program and the Federal Family Education Loan 

(FFEL) program.

The Direct Loan program, added to the Higher 

Education Act of 1965 (HEA) in 1993 by the Student 

Loan Reform Act of 1993, authorizes the Department 

to make loans through participating schools to eligible 

undergraduate and graduate students and their 

parents. The Direct Loan program offers four types 

of loans: Stafford, Unsubsidized Stafford, PLUS, and 

Consolidation. Evidence of financial need is required for 

an undergraduate student to receive a subsidized Stafford 

loan. The other three loan programs are available to 

borrowers at all income levels. Loans can be used only to 

meet qualified educational expenses. 

The FFEL program, authorized by the HEA, operates 

through state and private nonprofit guaranty agencies 

NOTES TO THE FINANCIAL STATEMENTS FOR THE 

PERIODS ENDED SEPTEMBER 30, 2018 AND 2017

that provide loan guarantees on loans made by private 

lenders to eligible students. The Student Aid and Fiscal 

Responsibility Act (SAFRA), which was included in the 

Health Care and Education Reconciliation Act of 2010

(HCERA), stated that no new FFEL loans would be 

made effective July 1, 2010. FFEL program receivables 

include defaulted FFEL loans and acquired FFEL loans. 

Acquired FFEL loans include interest in student loan 

assets acquired using temporary authority provided in the 

Ensuring Continued Access to Student Loans Act of 2008

(ECASLA). ECASLA gave the Department temporary 

authority to purchase FFEL loans and participation 

interests in those loans. The Department implemented 

three activities under this authority: loan purchase 

commitments; purchases of loan participation interests; 

and a put, or forward purchase commitment, with an 

Asset-Backed Commercial Paper (ABCP) Conduit. This 

authority expired after September 30, 2010; as a result, 

loan purchase commitments and purchases of loan 

participation interests concluded. However, under the 

terms of the Put Agreement with the conduit, ABCP 

Conduit activity ceased operations in January 2014.

The Department also administers other credit programs 

for higher education. These include the Federal Perkins 

Loan program, the Teacher Education Assistance 

for College and Higher Education Grant (TEACH) 

program, the Health Education Assistance Loan (HEAL) 

program, and facilities loan programs that includes the 

Historically Black Colleges and Universities (HBCU) 

Capital Financing program, along with low-interest loans 

to institutions of higher education for the building and 

renovating of their facilities. (See Notes 5 and 10)

Grant Programs. The Department has more than 100 

grant programs. The three largest grant programs are 

Title I of the Elementary and Secondary Education 

Act (ESEA), Federal Pell Grant (Pell Grant), and the 

Individuals with Disabilities Education Act (IDEA) 

grants. In addition, the Department offers other 

discretionary grants under a variety of authorizing 

legislation awarded using a competitive process, and 

formula grants using formulas determined by Congress 

with no application process. (See Note 10)
36 FY 2018 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION

FINANCIAL SECTION | NOTES TO THE FINANCIAL STATEMENTS

PROGRAM OFFICES

The Department has three major program offices that 

administer most of its loan and grant programs: 

 Federal Student Aid (FSA) administers financial 

assistance programs for students pursuing 

postsecondary education and makes available federal 

grants, direct loans, and work-study funding to 

eligible undergraduate and graduate students.

 The Office of Elementary and Secondary Education 

(OESE) assists state and local educational agencies to 

improve the achievement of preschool, elementary, 

and secondary school students, helps ensure equal 

access to services leading to such improvement—

particularly children with high needs, and provides 

financial assistance to local educational agencies whose 

local revenues are affected by federal activities.

 The Office of Special Education and Rehabilitative 

Services (OSERS) supports programs that help 

provide early intervention and special education 

services to children and youth with disabilities. 

OSERS also supports programs for the vocational 

rehabilitation of youth and adults with disabilities, 

including preemployment transition services and 

other transition services designed to assist students 

with disabilities to enter postsecondary education and 

achieve employment.

Other offices that administer programs and provide 

leadership, technical assistance, and financial support to 

state and local educational activities and institutions of 

higher education for reform, strategic investment, and 

innovation in education include: the Office of Career, 

Technical, and Adult Education (OCTAE); Office of 

Postsecondary Education (OPE); Institute of Education 

Sciences (IES); Office of English Language Acquisition 

(OELA); and Office of Innovation and Improvement 

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

works to ensure equal access to education, promotes 

educational excellence throughout the nation, and 

serves student populations facing discrimination and the 

advocates and institutions promoting systemic solutions 

to civil rights issues. (See Note 10)

BASIS OF ACCOUNTING AND PRESENTATION

These financial statements were prepared to report the 

financial position, net cost of operations, changes in net 

position, and budgetary resources of the Department, as 

required by the Chief Financial Officers Act of 1990 and 

the Government Management Reform Act of 1994. The 

financial statements were prepared from the books and 

records of the Department, in accordance with Generally 

Accepted Accounting Principles (GAAP) accepted 

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

Accounting Standards Advisory Board (FASAB), and 

the Office of Management and Budget (OMB) Circular 

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

financial statements are different from the financial reports 

prepared by the Department pursuant to OMB directives 

that are used to monitor and control the use of budgetary 

resources. FSA also issues audited stand-alone financial 

statements which are included in their annual report.

The Department’s financial statements should be read as 

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

One of the many implications of this is that the liabilities 

cannot be liquidated without legislation providing 

resources and legal authority to do so.

The accounting structure of federal agencies is designed 

to reflect both accrual and budgetary accounting 

transactions. Under the accrual method of accounting, 

revenues are recognized when earned and expenses are 

recognized when a liability is incurred, without regard 

to receipt or payment of cash. Budgetary accounting 

facilitates compliance with legal constraints and controls 

over the use of federal funds.

Intradepartmental transactions and balances have been 

eliminated from the consolidated financial statements. 

ACCOUNTING FOR FEDERAL 

CREDIT PROGRAMS 

The Department’s accounting for its loan and loan 

guarantee programs is based on the requirements of the 

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

of the FCRA is to record the lifetime subsidy cost of 

direct loans and loan guarantees, in present value terms, 

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

of subsidy costs for loans and guarantees include defaults 

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

private loan collectors who receive a set percentage of 

amounts collected; and, as an offset, origination and 

other fees collected. For direct loans, the difference 

between interest rates incurred by the Department on its 

borrowings from Treasury and interest rates charged to 

particular borrowers is also subsidized (or may provide an 

offset to subsidy if the Department’s rate is less). 
FY 2018 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION 37

NOTES TO THE FINANCIAL STATEMENTS | FINANCIAL SECTION

Under the FCRA, subsidy cost is estimated using the 

net present value of future cash flows to and from 

the Department. In accordance with the FCRA, 

credit programs either estimate a subsidy cost to the 

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

subsidy cost), or estimate a negative subsidy cost. 

Negative subsidy occurs when the estimated cost of 

providing loans to borrowers from Treasury borrowing, 

collection costs, and loan forgiveness is less than the value 

of collections from borrowers for interest and fees, in 

present value terms.

The subsidy costs of direct loan and loan guarantee 

programs are budgeted and tracked by the fiscal year in 

which the loan award is made or the funds committed. 

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

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

or loan guarantees committed by a program in the same 

year even if disbursements occur in subsequent years.

In order to account for the change in the net present 

value of the loan portfolio over time, the subsidy cost 

is “amortized” each year. Amortization accounts for the 

differences in interest rates, accruals, and cash flows 

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

in subsidy estimates and re-estimates. Amortization of 

subsidy is calculated as the difference between interest 

received from borrowers and Treasury (on uninvested 

funds) and interest paid to Treasury on borrowings. 

The FCRA establishes the use of financing, program, 

and Treasury General Fund receipt accounts for loan 

guarantees committed and direct loans obligated after 

September 30, 1991. 

 Financing accounts borrow funds from Treasury, make 

direct loan disbursements, collect fees from lenders 

and borrowers, pay claims on guaranteed loans, collect 

principal and interest from borrowers, earn interest from 

Treasury on any uninvested funds, and transfer excess 

subsidy to Treasury General Fund receipt accounts. 

Financing accounts are presented separately in the 

combined statements of budgetary resources (SBR) as 

non-budgetary credit reform accounts to allow for a 

clear distinction from all other budgetary accounts. This 

facilitates reconciliation of the SBR to the Budget of the 

United States Government (President’s Budget).

 Program accounts receive and obligate appropriations 

to cover the positive subsidy cost of a direct loan 

or loan guarantee when the loan is approved and 

disburses the subsidy cost to the financing account 

when the loan is issued. Program accounts also receive 

appropriations for administrative expenses.

 Treasury General Fund receipt accounts receive 

amounts paid from financing accounts when there 

are negative subsidies for new loan disbursements or 

downward re-estimates of the subsidy cost of existing 

loans. (See Note 11)

The Department records an obligation each year for 

direct loan awards to be made in a fiscal year based on 

estimates of schools’ receipt of aid applications. The 

Department advances funds to schools based on these 

estimates. Promissory notes are signed when schools 

reach individual agreements with borrowers and the 

schools subsequently report each disbursement of 

advanced funds to the Department. A new promissory 

note is usually not required for students in the second 

or later year of study. Half of all loan awards are issued 

in the fourth quarter of the fiscal year. Loans awarded 

are typically disbursed in multiple installments over an 

academic period. As a result, loans may be disbursed 

over multiple fiscal years. Loan awards may not be fully 

disbursed due to students leaving or transferring to 

other schools. The Department’s obligation estimate 

may also not reflect the actual amount of awards made. 

Based on historical averages, the Department expects 

approximately 7.8 percent of the amount obligated for 

new loan awards will not be disbursed.

When a loan is placed in deferment or forbearance, loan 

repayment is temporarily suspended with the length of 

postponement different for each lender. Interest accrues 

while a loan is in deferment or forbearance. Loans are 

cancelled if a person dies, meets disability requirements, 

or through the bankruptcy courts. Loans are also 

cancelled through the Public Service Loan Forgiveness 

(PSLF) Program, which forgives the remaining balance 

on a direct loan after 120 qualifying monthly payments 

are made. These payments must be made under a 

qualifying repayment plan while working full-time for a 

qualifying employer. In addition, the Department offers 

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

repayment program is designed to help borrowers who 

struggle to make their normal student loan payments. 

The plan allows payments to be limited to 10 percent of 

discretionary income if qualifications are met. Under the 

PAYE program, if all requirements are met, forgiveness 

of the remaining balance of a student loan is possible 

after 20 years of consistent payments.
38 FY 2018 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION

FINANCIAL SECTION | NOTES TO THE FINANCIAL STATEMENTS

BUDGETARY RESOURCES

Budgetary resources are amounts available to enter into 

new obligations and to liquidate them. The Department’s 

budgetary resources include unobligated balances of 

resources from prior years and new resources, which 

include appropriations, authority to borrow from 

Treasury, and spending authority from collections.

Borrowing authority is an indefinite budgetary 

resource authorized under the FCRA. This resource, 

when realized, finances the unsubsidized portion of 

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

addition, borrowing authority is requested to cover 

the cost of the initial loan disbursement as well as any 

related negative subsidy to be transferred to Treasury 

General Fund receipt accounts. Treasury prescribes 

the terms and conditions of borrowing authority and 

lends to the financing account amounts as appropriate. 

Amounts borrowed, but not yet disbursed, are included 

in uninvested funds and earn interest. Treasury uses 

the same weighted average interest rates for both the 

interest charged on borrowed funds and the interest 

earned on uninvested funds. Treasury sets a different 

fixed interest rate to be used for each loan cohort once 

the loans are substantially disbursed. The Department 

may carry forward borrowing authority to future fiscal 

years provided that cohorts are disbursing loans. All 

borrowings from Treasury are effective on October 1st of 

the current fiscal year, regardless of when the Department 

borrowed the funds, except for amounts borrowed to 

make annual interest payments.

Authority to borrow from Treasury provides most of 

the funding for disbursements made under the Direct 

Loan, FFEL, and other loan programs. Subsidy and 

administrative costs of the programs are funded by 

appropriations. Borrowings are repaid using collections 

from borrowers, fees, and interest on uninvested funds.

Unobligated balances represent the cumulative amount 

of budgetary resources that are not obligated and 

that remain available for obligation under law, unless 

otherwise restricted. Resources expiring at the end of 

the fiscal year remain available for five years, but only 

for upward adjustments of prior year obligations, after 

which they are cancelled and may not be used. Resources 

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

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

multiyear, or no-year basis. Appropriated funds expire 

on the last day of availability and are no longer available 

for new obligations. Amounts in expired funds are 

unavailable for new obligations, but may be used to 

adjust previously established obligations.

Permanent Indefinite Budget Authority. The Direct 

Loan, FFEL, and other loan programs have permanent 

indefinite budget authority through legislation to fund 

subsequent increases to the estimated future costs of 

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

to the existence, purpose, and availability of permanent 

indefinite budget authority for these programs.

Reauthorization of Legislation. Funds for most 

Department programs are authorized, by statute, to be 

appropriated for a specified number of years, with an 

automatic one-year extension available under Section 422 

of the General Education Provisions Act. Congress may 

continue to appropriate funds after the expiration of the 

statutory authorization period, effectively reauthorizing 

the program through the appropriations process. The 

current Budget of the United States Government presumes 

all programs continue in accordance with congressional 

budgeting rules. (See Note 11)

ENTITY AND NON-ENTITY ASSETS

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

Entity assets are those that the Department has authority 

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

held by the Department but not available for use in its 

operations. Non-entity assets are offset by liabilities to 

third parties and have no impact on net position. The 

Department combines its entity and non-entity assets on 

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

notes. (See Note 2)

FUND BALANCE WITH TREASURY

Fund Balance with Treasury includes amounts available to 

pay current liabilities and finance authorized purchases, 

as well as funds restricted until future appropriations 

are received. Treasury processes cash receipts and cash 

disbursements for the Department. The Department’s 

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

ACCOUNTS RECEIVABLE

Accounts receivable are amounts due to the Department 

from the public and other federal agencies. Receivables 

from the public result from overpayments to recipients 
FY 2018 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION 39

NOTES TO THE FINANCIAL STATEMENTS | FINANCIAL SECTION

of grants and other financial assistance programs, as well 

as disputed costs resulting from audits of educational 

assistance programs. Amounts due from federal agencies 

result from reimbursable agreements entered into by 

the Department with other agencies to provide various 

goods and services. Accounts receivable are reduced to 

net realizable value by an allowance for uncollectible 

amounts. The estimate of an allowance for loss on 

uncollectible accounts is based on the Department’s 

experience in the collection of receivables and an analysis 

of the outstanding balances. (See Note 4)

GUARANTY AGENCIES’ FEDERAL FUNDS

Guaranty Agencies’ Federal Funds are primarily 

comprised of the federal government’s interest in the 

program assets held by state and nonprofit FFEL 

program guaranty agencies. Section 422A of the HEA 

required FFEL guaranty agencies to establish federal 

student loan reserve funds (federal funds). Federal 

funds include initial federal start-up funds, receipts of 

federal reinsurance payments, insurance premiums, 

guaranty agency share of collections on defaulted loans, 

investment income, administrative cost allowances, and 

other assets.

The balance in the Federal Fund represents consolidated 

reserve balances of the 26 guaranty agencies based 

on the Guaranty Agency financial reports that each 

agency submits annually to the Department. Although 

the Department and the guaranty agencies operate on 

different fiscal years, all guaranty agencies are subject to 

an annual audit. A year-end valuation adjustment is made 

to adjust the Department’s balances in order to comply 

with federal accounting principles and disclose funds held 

outside of Treasury.

Guaranty Agencies’ Federal Funds are classified as 

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

corresponding liability due to Treasury. The federal 

funds are held by the guaranty agencies but can only 

be used for certain specific purposes listed in the 

Department’s regulations. The federal funds are the 

property of the U.S. and are reflected in the Budget of 

the United States Government. Payments made to the 

Department from guaranty agencies’ federal funds 

through a statutory recall or agency closures represent 

capital transfers and are returned to Treasury’s General 

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

CREDIT PROGRAM RECEIVABLES, NET AND 

LIABILITIES FOR LOAN GUARANTEES 

The financial statements reflect the Department’s estimate 

of the long-term subsidy cost of direct and guaranteed 

loans in accordance with the FCRA. Loans and interest 

receivable are valued at their gross amounts less an 

allowance for the present value of amounts not expected 

to be recovered and thus having to be subsidized—called 

an “allowance for subsidy.” The difference between the 

gross amount and the allowance for subsidy is the present 

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

are expected from receivables over their projected lives. 

Similarly, liabilities for loan guarantees are valued at the 

present value of the cash outflows from the Department 

less the present value of related inflows. The estimated 

present value of net long-term cash outflows of the 

Department for subsidized costs is net of recoveries, 

interest supplements, and offsetting fees.

The liability for loan guarantees presents the net 

present value of all future cash flows from currently 

insured FFEL loans, including claim payments, interest 

assistance, allowance payments, and recoveries from 

assigned loans. Guaranteed loans that default are 

initially turned over to guaranty agencies for collection. 

Defaulted FFEL loans are accounted for as assets and 

reported at their net present value, similar to direct 

loans, although they are legally not direct student loans. 

Credit program receivables, net includes defaulted 

FFEL loans owned by the Department and held by the 

Department or guaranty agencies. In most cases, after 

approximately four years, defaulted guaranteed loans not 

in repayment are turned over by the guaranty agencies to 

the Department for collection.

FFEL program receivables include purchased loans and 

other interests acquired under an expired program. The 

cash flows related to these receivables include collections 

on purchased loans and other activities, including transfers 

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

also include inflows and outflows associated with the 

underlying or purchased loans and other related activities, 

including any positive or negative subsidy transfers. 

Capitalization of interest occurs as a result of various 

initiatives, such as loan consolidations. As a result, 

interest receivable is reduced and loan principal is 

increased. (See Note 5)
40 FY 2018 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION

FINANCIAL SECTION | NOTES TO THE FINANCIAL STATEMENTS

PROPERTY AND EQUIPMENT, NET AND LEASES

The Department has very limited acquisition costs 

associated with buildings, furniture, and equipment as 

all Department and contractor staff are housed in leased 

buildings. The Department does not own real property 

for the use of its staff. The Department leases office 

space from the General Services Administration (GSA). 

The lease contracts with GSA for privately and publicly 

owned buildings are operating leases.

The Department also leases information technology and 

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

payments associated with this equipment have been 

determined to be operating leases and, as such, are 

expensed as incurred. The noncancellable lease term 

is one year, with the Department holding the right to 

extend the lease term by exercising additional one-year 

options. (See Notes 4 and 13)

LIABILITIES

Liabilities represent actual and estimated amounts to 

be paid as a result of transactions or events that have 

already occurred.

 Liabilities are classified as covered by budgetary 

resources if budgetary resources are available to pay 

them. Credit program liabilities funded by permanent 

indefinite appropriations are also considered covered 

by budgetary resources. 

 Liabilities are classified as not covered by budgetary 

resources when congressional action is needed before 

they can be paid. Although future appropriations to 

fund these liabilities are likely, it is not certain that 

appropriations will be enacted to fund these liabilities. 

 Liabilities not requiring appropriated budgetary 

resources include those related to deposit funds, 

Subsidy Due to Treasury General Fund for Future 

Liquidating Account Collections (pre-1992 loan 

guaranty programs), and Federal Perkins Loan 

Program balances due to be repaid to the Treasury 

General Fund. (See Note 6) 

DEBT 

The Department borrows from Treasury to provide 

funding for the Direct Loan, FFEL, and other credit 

programs for higher education. The liability to Treasury 

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

available fund balances. Interest rates are based on the 

corresponding rate for 10-year Treasury securities and are 

set for those borrowings supporting each cohort of loans 

once the loans for that cohort are substantially disbursed. 

Interest is paid to Treasury on September 30th. In 

addition, the Federal Financing Bank (FFB) holds bonds 

issued by a designated bonding authority, on behalf of the 

Department, for the HBCU Capital Financing program. 

The debt for other credit programs for higher education 

includes the liability for full payment of principal and 

accrued interest for the FFB-financed HBCU Capital 

Financing program. (See Note 7) 

SUBSIDY DUE TO TREASURY GENERAL FUND

The Department must transfer to the Treasury General 

Fund all excess funding resulting from downward reestimates of credit program loans that are subject to 

FCRA requirements. This excess funding is included 

in the liability for subsidy due to Treasury and will be 

transferred to Treasury in the succeeding fiscal year upon 

receipt of authority from OMB. Subsidy due to Treasury 

also includes future liquidating account collections 

(estimated collections in excess of estimated outlays) for 

the Department’s pre-1992 FFEL and HEAL loans that, 

when collected, will also be transferred to the Treasury 

General Fund. (See Note 8)

ACCOUNTS PAYABLE

Accounts payable include amounts owed by the 

Department for goods and services received from other 

entities, as well as payments not yet processed. Accounts 

payable to the public primarily consists of in-process 

grant and loan disbursements, including an accrued 

liability for schools that have disbursed loans prior to 

requesting funds. (See Note 9)
FY 2018 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION 41

NOTES TO THE FINANCIAL STATEMENTS | FINANCIAL SECTION

ACCRUED GRANT LIABILITY

Some grant recipients incur allowable expenditures as 

of the end of an accounting period but have not been 

reimbursed by the Department. The Department accrues 

a liability for these allowable expenditures. The amount 

is estimated using statistical sampling of unliquidated 

balances. (See Note 9)

PERSONNEL COMPENSATION AND OTHER 

EMPLOYEE BENEFITS

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

leave, compensatory time off, and other vested leave is 

accrued when earned and reduced when taken. Each 

year, the accrued annual leave account balance is adjusted 

to reflect current pay rates. Sick leave and other types 

of nonvested leave are expensed as taken. Annual leave 

earned but not taken, within established limits, is funded 

from future financing sources. (See Notes 6 and 9)

Retirement Plans and Other Retirement Benefits.

Employees participate in either the Civil Service 

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

Federal Employees Retirement System (FERS), a defined 

benefit and contribution plan. For CSRS employees, the 

Department contributes a fixed percentage of pay.

FERS consists of Social Security, a basic annuity plan, 

and the Thrift Savings Plan. The Department and the 

employee contribute to Social Security and the basic 

annuity plan at rates prescribed by law. In addition, 

the Department is required to contribute to the Thrift 

Savings Plan a minimum of 1 percent per year of the 

basic pay of employees covered by this system, match 

voluntary employee contributions up to 3 percent of the 

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

between 3 percent and 5 percent of the employee’s 

basic pay. For FERS employees, the Department also 

contributes the employer’s share of Medicare.

Contributions for CSRS, FERS, and other retirement 

benefits are insufficient to fund the programs fully and 

are subsidized by the Office of Personnel Management 

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

subsidy, using cost factors provided by OPM, and reports 

the full cost of the programs related to its employees.

Federal Employees’ Compensation Act. The Federal 

Employees’ Compensation Act (FECA) (Pub. L. 103-

3) provides income and medical cost protection to 

covered federal civilian employees injured on the job, to 

employees who have incurred work-related occupational 

diseases, and to beneficiaries of employees whose deaths 

are attributable to job-related injuries or occupational 

diseases. The FECA program is administered by the 

Department of Labor (DOL), which pays valid claims 

and subsequently seeks reimbursement from the 

Department for these paid claims.

The FECA liability consists of two elements. The first 

element, accrued FECA liability, is based on claims paid 

by DOL but not yet reimbursed by the Department. 

The Department reimburses DOL for claims as funds 

are appropriated for this purpose. In general, there is a 

two- to three-year period between payment by DOL and 

reimbursement to DOL by the Department. As a result, 

the Department recognizes an intragovernmental liability, 

not covered by budgetary resources, for the claims paid 

by DOL that will be reimbursed by the Department.

The second element, actuarial FECA liability, is the 

estimated liability for future benefit payments and is 

recorded as a liability with the public, not covered by 

budgetary resources. The actuarial FECA liability includes 

the expected liability for death, disability, medical, and 

miscellaneous costs for approved compensation cases. 

DOL determines the actuarial FECA liability annually, 

as of September 30, using an actuarial method that 

considers historical benefit payment patterns, wage 

inflation factors, medical inflation factors, and other 

variables. The projected annual benefit payments are 

discounted to present value. (See Notes 6 and 9)

NET COST OF OPERATIONS

As required by the GPRA Modernization Act of 2010, 

the Department’s programs have been aligned with 

the goals presented in the Department’s Strategic Plan. 

The Department updated its Strategic Plan in FY 2018 

resulting in realigning how the activities of its program 

offices crosswalk to the revised Strategic Plan goals and 

the programs presented on the Statement of Net Cost. 

The Department elected not to reclassify the FY 2017 

Statement of Net Cost that was aligned with its previous 

2014 – 2018 Strategic Plan.

Net cost consists of gross costs less earned revenue. Major 

components of the Department’s net costs include credit 

program subsidy expense, credit program interest revenue 

and expense, and grant expenses. (See Note 10)
42 FY 2018 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION

FINANCIAL SECTION | NOTES TO THE FINANCIAL STATEMENTS

Credit Program Subsidy Expense. Subsidy expense is an 

estimate of the present value cost of providing loans, but 

excludes the administrative costs of issuing and servicing 

the loans. In order to estimate subsidy expense, the 

Department must project lifetime cash flows associated 

with loans disbursed in a specific fiscal year (i.e., the loan 

cohort). The Department projects these lifetime cash 

flows using a set of econometric and financial models, 

as well as cash flow models. The Department estimates 

subsidy expenses annually for new loans disbursed in 

the current year; updates the previous cost estimates for 

outstanding loans disbursed in prior years (subsidy reestimates); and updates previous cost estimates based on 

changes to terms of existing loans (loan modifications). 

Loan modifications include actions resulting from 

new legislation or from the exercise of administrative 

discretion under existing law, which directly or indirectly 

alters the estimated subsidy cost of outstanding direct 

loans (or direct loan obligations). (See Notes 5 and 10) 

Credit Program Interest Revenue and Expense. The 

Department recognizes interest revenue from the public 

when interest is accrued on Direct Loan program loans, 

defaulted and acquired FFEL loans, and outstanding 

principal for other loan programs. Interest due from 

borrowers is accrued at least monthly and is satisfied 

upon collection or capitalization into the loan principal. 

Federal interest revenue is recognized on the unused fund 

balances with Treasury in the financing accounts.

Federal interest expense is recognized monthly on the 

outstanding borrowing from Treasury (debt) used to 

finance direct loan and loan guarantee programs. Accrued 

interest to Treasury is paid on September 30th. The 

interest rate for federal interest expense is the same as the 

rate used for federal interest revenue.

Interest expense equals interest revenue plus 

administrative fees accrued for all credit programs due to 

subsidy amortization. Subsidy amortization is required 

by the FCRA and accounts for the difference between 

interest expense and revenue cash flows. For direct loans, 

the allowance for subsidy is adjusted with the offset to 

interest revenue. For guaranteed loans, the liability for 

loan guarantees is adjusted with the offset to interest 

expense. (See Note 10)

NET POSITION

Net position consists of unexpended appropriations 

and cumulative results of operations. Unexpended 

appropriations include undelivered orders and 

unobligated balances, except for amounts in financing 

accounts, liquidating accounts, and trust funds. 

Cumulative results of operations represent the net 

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

revenues and financing sources.

ALLOCATION TRANSFERS

The Department is a party to allocation transfers as a 

receiving (child) entity with the Department of Health 

and Human Resources (HHS). Allocation transfers are 

legal delegations by one entity of its authority to obligate 

budget authority and outlay funds to another entity. A 

separate fund account (allocation account) is created in 

the U.S. Treasury as a subset of the parent fund account 

for tracking and reporting purposes. All allocation 

transfers of balances are credited to this account, and 

subsequent obligations and outlays incurred by the child 

entity are charged to this allocation account as they 

execute the delegated activity on behalf of the parent 

entity. All financial activity related to this allocation 

transfer (e.g., budget authority, obligations, outlays) is 

reported in the financial statements of the parent entity 

(HHS) from which the underlying legislative authority, 

appropriations and budget apportionments are derived.

TAXES

The Department is a Federal entity and is not subject to 

Federal, state or local taxes. Therefore, no provision for 

income taxes is recorded.

USE OF ESTIMATES

Department management is required to make certain 

estimates while preparing consolidated financial 

statements in conformity with GAAP. These estimates 

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

position of the financial statements and may differ from 

actual results. The Department’s estimates are based on 

management’s best knowledge of current events, historical 

experiences, and other assumptions that are believed 

to be reasonable under the circumstances. Significant 

estimates reported on the financial statements include: 

allocation of Department administrative overhead costs; 

allowance for subsidy and subsidy expense for direct, 

defaulted guaranteed, and acquired loans; the liability for 

loan guarantees; and grant liability and advance accruals. 

(See Notes 4, 5, 9, and 10)
FY 2018 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION 43

NOTES TO THE FINANCIAL STATEMENTS | FINANCIAL SECTION

RECLASSIFICATIONS

The following reclassifications were made to the prior year financial statements and notes to conform to the current 

year presentation. These changes had no effect on total assets, liabilities and net position, net cost of operations, or 

budgetary resources.

 The Combined Statements of Budgetary Resources were condensed to present budgetary resources, status of budgetary 

resources, and net outlays, while removing the presentation of the change in obligated balance to conform to FY 2018 

changes in OMB Circular A-136.

 Note 6, Liabilities Not Covered by Budgetary Resources, was expanded to include the presentation of liabilities not 

requiring budgetary resources to conform to FY 2018 changes in OMB Circular A-136.

NOTE 2. Non-Entity Assets

2018 2017

Intragovernmental With the Public Intragovernmental With the Public

Non-Entity Assets

Fund Balance with Treasury $ 310 $ - $ 260 $ - 

Credit Program Receivables, Net - 551 - 495 

Other Assets

 Guaranty Agencies’ Federal Funds - 2,176 - 2,077 

 Accounts Receivable, Net - 65 - 68 

Total Non-Entity Assets 310 2,792 260 2,640 

Entity Assets 114,446 1,210,434 109,979 1,146,364 

Total Assets $ 114,756 $ 1,213,226 $ 110,239 $ 1,149,004 

(Dollars in Millions)

The Department’s FY 2018 assets are predominantly entity assets (99.4 percent), leaving a small portion of assets 

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

accounts. Non-entity assets with the public primarily consist of guaranty agency reserves (77.9 percent), reported as 

Guaranty Agencies’ Federal Funds, and Federal Perkins Loan program loan receivables (19.7 percent), reported as credit 

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

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

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

Treasury, and other liabilities. (See Note 9)
44 FY 2018 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION

FINANCIAL SECTION | NOTES TO THE FINANCIAL STATEMENTS

NOTE 3. Fund Balance with Treasury 

(Dollars in Millions)

2018 2017

Unobligated Balance

 Available $ 14,495 $ 9,012

 Unavailable 24,907 24,402

Obligated Balance, Not Disbursed 137,680 135,219

Authority Temporarily Precluded from Obligation 1 1

Borrowing Authority Not Yet Converted to Fund Balance with Treasury (Note 11) (62,752) (58,701)

Other 274 241

Total Fund Balance with Treasury $ 114,605 $ 110,174

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

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

appropriations no longer available to incur new obligations. Total unavailable unobligated balance ($24,907 million) 

differs from unapportioned and expired amounts on the SBR ($27,083 million) due to the Guaranty Agencies’ Federal 

Funds ($2,176 million).
FY 2018 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION 45

NOTES TO THE FINANCIAL STATEMENTS | FINANCIAL SECTION

NOTE 4. Other Assets 

(Dollars in Millions)

2018 2017

Intragovernmental With the Public Intragovernmental With the Public

Guaranty Agencies’ Federal Funds $ - $ 2,176 $ - $ 2,077

Accounts Receivable, Net 1 154 1 172

Advances 150 15 64 1

Property and Equipment, Net - 29 - 33

Other - 3 - 2

Total Other Assets $ 151 $ 2,377 $ 65 $ 2,285

Included in the accounts receivable with the public are amounts owed as a result of criminal restitution orders that are to 

be collected by the Department of Justice on behalf of the Department of Education. Amounts collected for these criminal 

restitutions are generally returned to the Treasury General Fund. Gross receivables and the allowance for uncollectible 

amounts as of September 30, 2018, related to criminal restitutions totaled $78.8 million and ($70.5) million, respectively.
46 FY 2018 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION

FINANCIAL SECTION | NOTES TO THE FINANCIAL STATEMENTS

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

Liabilities for Loan Guarantees 

Credit Program Receivables

(Dollars in Millions)

Principal Accrued Interest

Allowance for 

Subsidy

(Present Value)

Net

2018

Direct Loan Program $ 1,083,735 $ 71,981 $ (40,663) $ 1,115,053

FFEL Program 95,083 21,116 (23,252) 92,947

Other Credit Programs for Higher Education 3,108 437 (696) 2,849

Total Credit Receivables $ 1,181,926 $ 93,534 $ (64,611) $ 1,210,849

2017

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

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

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

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

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

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

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

DIRECT LOAN PROGRAM. 

The federal government makes loans directly to students and parents through participating institutions of higher education 

under the Direct Loan program. Direct loans are originated and serviced through contracts with private vendors.

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

$1,155.7 billion in gross loan receivables, as of September 30, 2018, $84.9 billion (7.3 percent) in loan principal was in 

default and had been transferred to the Department’s defaulted loan servicer, compared to $70.7 billion (6.7 percent) as of 

September 30, 2017. 
FY 2018 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION 47

NOTES TO THE FINANCIAL STATEMENTS | FINANCIAL SECTION

Direct Loan Program Reconciliation of Allowance for Subsidy 

(Dollars in Millions)

2018 2017

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

Activity

 Fee Collections 1,696 1,694

 Loan Cancellations (7,521) (7,689)

 Subsidy Allowance Amortization 25,918 23,276

 Other (604) (513)

Total Activity 19,489 16,768

Subsidy Expense for Direct Loans Disbursed in the Current Year by Component

 Interest Rate Differential 1,614 (13,045)

 Defaults, Net of Recoveries 1,106 (133)

 Fees (1,747) (1,968)

 Other (4,103) 12,541

Total of the Above Subsidy Expense Components (3,130) (2,605)

Components of Loan Modifications

Loan Modification Costs 144 -

Modification Adjustment Transfers Gain (8) -

Loan Modifications 136 -

Components of Subsidy Re-estimates

 Interest Rate Re-estimates (4,573) (5,765)

 Technical and Default Re-estimates 11,936 13,699

Upward Subsidy Re-estimates 7,363 7,934

Ending Balance, Allowance for Subsidy $ 40,663 $ 16,805

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Direct Loan program.

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

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

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

collection costs, program review collections, fees, loan forgiveness under PAYE and other accruals.
48 FY 2018 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION

FINANCIAL SECTION | NOTES TO THE FINANCIAL STATEMENTS

Direct Loan Program Subsidy Expense 

(Dollars in Millions)

2018 2017

Subsidy Expense for Direct Loans Disbursed in the Current Year

Interest Rate Differential $ 1,614 $ (13,045)

Defaults, Net of Recoveries 1,106 (133)

Fees (1,747) (1,968)

Other (4,103) 12,541 

Total Subsidy Expense for Direct Loans Disbursed in the Current Year (3,130) (2,605)

Loan Modifications 136 -

Upward Subsidy Re-estimates 7,363 7,934 

Direct Loan Subsidy Expense $ 4,369 $ 5,329 

Direct Loan Program Interest Expense and Revenues (See Note 10)

(Dollars in Millions)

2018 2017

Interest Expense on Treasury Borrowing $ 32,329 $ 31,286 

Total Interest Expense $ 32,329 $ 31,286 

Interest Revenue from the Public $ 54,157 $ 50,142 

Interest Revenue on Uninvested Funds 3,890 4,258 

Administrative Fees 200 162 

Amortization of Subsidy (25,918) (23,276)

Total Revenues $ 32,329 $ 31,286 

FY 2018 Direct Loan Program Modifications. The Department recognized net loan modifications totaling $136 

million in FY 2018. The FY 2018 modifications include the cost associated with the policy change related to forgiving 

accrued interest on borrower defense claims that have been denied and pending for more than one year. In addition, 

the Consolidated Appropriations Act, 2018 provided limited, additional conditions under which a borrower may become 

eligible for PSLF if some or all of the payments were made under a nonqualifying repayment plan. Finally, an $8 million 

upward modification was recorded based on the Bipartisan Budget Act of 2018 which gives the Department broad 

authority to forgive Direct Loans received by students who did not complete the period for which they enrolled as a result 

of hurricanes Maria and Irma that disrupted Puerto Rico and the U.S. Virgin Islands in 2017.

Upward Subsidy Re-estimates for All Prior Year Loan Cohorts. Direct Loan program re-estimated subsidy cost was 

adjusted upward by $7.4 billion in FY 2018. Re-estimated costs only include cohorts that are 90 percent disbursed; cohort 

years 1994–2017. In addition to the major assumption updates described below, the re-estimate reflects several other 

assumption updates, including interest rates provided by OMB, volume, and enter repayment rates.

 IDR Model Changes. In 2018, the Department updated several assumptions within its IDR submodel and refined the 

logic for borrowers switching between IDR plans. These updates led to a net downward re-estimate of $4.1 billion.

 Repayment Plan Selection. The Department incorporated new repayment plan data that showed a continuing 

increase in IDR plan usage. The update also reflects changes in interpretation of repayment plan codes for Direct Loan 

consolidations. Much of the consolidation loan volume that was previously classified as standard (ten-year fixed) is now 
FY 2018 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION 49

NOTES TO THE FINANCIAL STATEMENTS | FINANCIAL SECTION

classified as extended. Also, the Department changed the methodology for assigning and forecasting plans from an 

origination cohort basis to an enter repayment cohort basis. Lastly, the Department placed limits on forecasted growth 

of IDR participation to reflect an anticipated saturation point. The combined effect of these changes was a net upward 

re-estimate of $2.1 billion.

 Default Rates. The Department made updates to the default rate model in FY 2018, primarily reflecting updates in the 

data, which led to a net upward re-estimate of $14.8 billion.

With the increase in IDR participation, the Department also conducted sensitivities on incomes for students in IDR and 

PSLF plans. For example, a 5 percent upward increase in borrower incomes decreases costs by almost $1.3 billion for 

cohort 2017. A 5 percent increase in PSLF plan participation would increase costs by $0.4 billion for cohort 2017. 

Direct Loan Subsidy Rates—Cohort 2018

 Interest Differential Defaults Fees Other Total

Stafford -0.01% 1.84% -1.07% 7.54% 8.30%

Unsubsidized Stafford -19.55% 1.34% -1.07% 9.56% -9.72%

PLUS -33.15% 0.89% -4.26% 8.73% -27.79%

Consolidation 3.96% 0.37% 0.00% 9.85% 14.18%

Weighted Average Total -11.95% 0.86% -1.20% 8.92% -3.37%

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

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

subsidy in the FY 2018 cohort, cannot be applied to direct loans disbursed during the current reporting year to yield the 

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

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

a re-estimate of the current year cohort. The first re-estimate of this cohort will take place upon execution of the FY 2020 

President’s Budget.

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

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

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

on probabilistic interest rate scenario inputs developed and provided by OMB.
50 FY 2018 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION

FINANCIAL SECTION | NOTES TO THE FINANCIAL STATEMENTS

Direct Loan Program Loan Disbursements by Loan Type

(Dollars in Millions)

2018 2017

Stafford $ 20,343 $ 23,368 

Unsubsidized Stafford 49,009 51,410 

PLUS 23,117 18,695 

Consolidation 41,625 48,999 

Total Disbursements $ 134,094 $ 142,472 

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

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

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

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

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

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

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

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

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

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

Direct loan consolidations were $41.6 billion during FY 2018 and $49.0 billion during FY 2017. Under the FCRA, the 

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

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

past cohort year in which the loans were originated. 

FEDERAL FAMILY EDUCATION LOAN PROGRAM. 

As a result of the SAFRA Act, no new FFEL loans have been made since July 1, 2010. Federal guarantees on FFEL 

program loans and commitments remain in effect for loans made before July 1, 2010, unless they were sold to the 

Department through an ECASLA authority (acquired FFEL loans), consolidated into a direct loan, or otherwise satisfied, 

discharged, or cancelled. As of September 30, 2018 and 2017, total principal balances outstanding of guaranteed loans 

held by lenders were approximately $157 billion and $176 billion, respectively. As of September 30, 2018 and 2017, 

the estimated maximum government exposure on outstanding guaranteed loans held by lenders was approximately 

$154 billion and $173 billion, respectively. Of the insured amount, the Department would pay a smaller amount to the 

guaranty agencies. The rates range from 75 to 100 percent of the loan value depending on when the loan was made and 

the guaranty agency’s claim experience.
FY 2018 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION 51

NOTES TO THE FINANCIAL STATEMENTS | FINANCIAL SECTION

FFEL Program Loan Receivables 

(Dollars in Millions)

Principal Accrued Interest

Allowance for 

Subsidy

(Present Value)

Net

2018

DEFAULTED FFEL GUARANTEED LOANS

FFEL GSL Program (Pre-1992) $ 3,917 $ 5,836 $ (8,077) $ 1,676

FFEL GSL Program (Post-1991) 33,849 7,802 (15,186) 26,465

Total Defaulted FFEL Guaranteed Loans 37,766 13,638 (23,263) 28,141

ACQUIRED FFEL LOANS

Loan Purchase Commitment 19,277 2,435 (21) 21,691

Loan Participation Purchase 36,475 4,713 458 41,646

ABCP Conduit 1,565 330 (426) 1,469

Total Acquired FFEL Loans 57,317 7,478 11 64,806

FFEL Program Loan Receivables $ 95,083 $ 21,116 $ (23,252) $ 92,947

2017

DEFAULTED FFEL GUARANTEED LOANS

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

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

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

ACQUIRED FFEL LOANS

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

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

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

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

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

FFEL Program Reconciliation of Liabilities for Loan Guarantees 

(Dollars in Millions)

2018 2017

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

Activity 

 Interest Supplement Payments (1,052) (810)

 Claim Payments (5,716) (5,819)

 Fee Collections 1,550 1,633

 Interest on Subsidy Amortization (1,099) (1,263)

 Other 6,476 7,459

Total Activity 159 1,200

Upward/(Downward) Subsidy Re-estimates (1,204) 1,019

Ending Balance, FFEL Financing Account Liability for Loan Guarantees 2,591 3,636

FFEL Liquidating Account Liability for Loan Guarantees 1 23

FFEL Liabilities for Loan Guarantees $ 2,592 $ 3,659
52 FY 2018 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION

FINANCIAL SECTION | NOTES TO THE FINANCIAL STATEMENTS

Liabilities for Loan Guarantees is included as a component of other liabilities on the balance sheet (see Note 9).

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

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

Allowance for Subsidy Reconciliation for Acquired FFEL Loans 

(Dollars in Millions)

Loan Purchase 

Commitment

Loan 

Participation 

Purchase

ABCP Conduit Total

2018

Beginning Balance, Allowance for Subsidy $ (1,656) $ (2,072) $ 400 $ (3,328)

Activity

 Subsidy Allowance Amortization 550 903 48 1,501

 Loan Cancellations (168) (314) (16) (498)

 Direct Asset Activities (44) (68) (6) (118)

Total Activity 338 521 26 885

Upward Subsidy Re-estimates 1,339 1,093 - 2,432

Ending Balance, Allowance for Subsidy $ 21 $ (458) $ 426 $ (11)

2017

Beginning Balance, Allowance for Subsidy $ (2,922) $ (4,347) $ 374 $ (6,895)

Activity

 Subsidy Allowance Amortization 635 1,219 53 1,907

 Loan Cancellations (203) (390) (19) (612)

 Direct Asset Activities (45) (67) (8) (120)

Total Activity 387 762 26 1,175

Upward Subsidy Re-estimates 879 1,513 - 2,392

Ending Balance, Allowance for Subsidy $ (1,656) $ (2,072) $ 400 $ (3,328)

FFEL Program Subsidy Expense 

(Dollars in Millions)

2018 2017

Upward/(Downward) Subsidy Re-estimates

FFEL Loan Guarantee Program $ (1,204) $ 1,019

Loan Purchase Commitment 1,339 879

Loan Participation Purchase 1,093 1,513

FFEL Program Subsidy Expense $ 1,228 $ 3,411

FFEL subsidy cost was adjusted upward by $1.2 billion in FY 2018. The net upward re-estimates in these programs were 

due primarily to interest rates provided by OMB and updated prepayment rates.
FY 2018 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION 53

NOTES TO THE FINANCIAL STATEMENTS | FINANCIAL SECTION

OTHER CREDIT PROGRAMS FOR HIGHER EDUCATION

Receivables, Net for Other Credit Programs for Higher Education 

(Dollars in Millions)

Principal Accrued Interest

Allowance for 

Subsidy

(Present Value)

Net

2018

Federal Perkins Loans $ 474 $ 297 $ (220) $ 551

TEACH Program Loans 746 91 (253) 584

HEAL Program Loans 397 32 (69) 360

Facilities Loan Programs 1,491 17 (154) 1,354

Total $ 3,108 $ 437 $ (696) $ 2,849

2017

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

TEACH Program Loans 723 95 (225) 593

HEAL Program Loans 398 30 (74) 354

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

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

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

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

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

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

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

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

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

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

service requirement, the grants are converted to direct unsubsidized Stafford Loans. The program is operated as a loan 

program under the FCRA for budget and accounting purposes since grants can be converted to direct loans.

TEACH Subsidy Rates—Cohort 2018

Interest Differential Defaults Fees Other Total

Subsidy Rates 16.92% 0.25% 0.00% 5.89% 23.06%

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

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

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

committed prior to 1992. All loan activity for 1992 and beyond is recorded in corresponding financing accounts.
54 FY 2018 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION

FINANCIAL SECTION | NOTES TO THE FINANCIAL STATEMENTS

NOTE 6. Liabilities Not Covered by Budgetary Resources 

(Dollars in Millions)

2018 2017

Intragovernmental With the Public Intragovernmental With the Public

Liabilities Not Covered by Budgetary Resources

 Other Liabilities

 Accrued Unfunded Annual Leave $ - $ 37 $ - $ 40

 FECA Liabilities 3 15 3 14

Total Liabilities Not Covered by Budgetary Resources 3 52 3 54

Liabilities Not Requiring Budgetary Resources

 Subsidy Due to Treasury General Fund 2,037 - 1,784 -

 Federal Perkins Loan Program 538 - 482 -

Miscellaneous Receipt, Deposit Funds and Clearing Accounts 34 317 52 270

Total Liabilities Not Requiring Budgetary Resources 2,609 317 2,318 270

Total Liabilities Covered by Budgetary Resources 1,267,654 8,541 1,187,396 12,042

Total Liabilities $ 1,270,266 $ 8,910 $ 1,189,717 $ 12,366

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

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

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

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

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

the principal and interest on bonds for loans in default. 

The Department granted full forgiveness of $322 million in loans made to the four historically black colleges and universities 

that suffered damage after Hurricanes Katrina and Rita struck the Gulf Coast in 2005. Dillard University, Southern University at 

New Orleans, Tougaloo College, and Xavier University of Louisiana collectively borrowed more than $360 million through the 

HBCU Capital Financing Program in 2007. After struggling to repay the loans, the schools in 2013 received a five-year reprieve 

on payments that was set to expire in 2018. This additional disaster relief lifts a huge burden and enables the four HBCUs to 

continue their focus on serving their students and communities and provides one more step toward full recovery. 

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

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

approximately $1.5 billion in outstanding borrowing from the FFB to support loans made to HBCU institutions and 

$230 million obligated to support near term lending as of September 30, 2018.

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

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

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

and other educational facilities.
FY 2018 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION 55

NOTES TO THE FINANCIAL STATEMENTS | FINANCIAL SECTION

NOTE 7. Debt

(Dollars in Millions)

Beginning Balance Borrowing Repayments Ending Balance

2018

Direct Loan Program $ 1,061,559 $ 155,257 $ (66,206) $ 1,150,610

FFEL Program 116,290 227 (9,256) 107,261

Other Credit Programs for Higher Education 2,222 336 (464) 2,094

Total $ 1,180,071 $ 155,820 $ (75,926) $ 1,259,965

2017

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

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

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

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

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

and related costs. During FY 2018, debt increased 6.8 percent from $1,180.1 billion in the prior year to $1,260.0 billion. 

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

each cohort of loans, as mandated by the FCRA.

Approximately 91.3 percent of the Department’s debt, as of September 30, 2018, is attributable to the Direct Loan 

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

new Direct Loan disbursements.

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

2018, TEACH net borrowing of $15.3 million was used for the advance of new grants and repayments of principal made 

to Treasury. In FY 2018, debt in HBCU decreased by $97.6 million, or 6.2 percent. This total represents the aggregate of 

new bonds administered and repayments made on previously issued bonds.
56 FY 2018 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION

FINANCIAL SECTION | NOTES TO THE FINANCIAL STATEMENTS

NOTE 9. Other Liabilities

(Dollars in Millions)

2018 2017

Intragovernmental With the Public Intragovernmental With the Public

Accounts Payable $ 1 $ 3,792 $ 1 $ 4,191

Accrued Grant Liability - 1,914 - 3,959

Guaranty Agencies’ Funds Due to Treasury 2,176 - 2,077 -

Loan Guarantee Liability - 2,814 - 3,870

Federal Perkins Loan Program 538 - 482 -

Miscellaneous Receipt, Deposit Funds and Clearing Accounts 34 317 52 270

Advances from Others and Deferred Credits 7 4 10 7

Accrued Unfunded Annual Leave - 37 - 40

FECA Liabilities 3 15 3 14

Accrued Payroll and Benefits - 16 - 15

Employer Contributions and Payroll Taxes 5 1 8 -

Custodial Liabilities 1 - - -

Total Other Liabilities $ 2,765 $ 8,910 $ 2,633 $ 12,366

NOTE 8. Subsidy Due to Treasury General Fund 

(Dollars in Millions)

2018 2017

Credit Program Downward Subsidy Re-estimates

 Direct Loan Program $ 2,484 $ 5,010

 FFEL Program 3,015 219

Total Credit Program Downward Subsidy Re-estimates 5,499 5,229

Future Liquidating Account Collections

 FFEL Program 1,856 1,614

 Other Credit Programs for Higher Education 181 170

Total Future Liquidating Account Collections 2,037 1,784

Total Subsidy Due to Treasury General Fund $ 7,536 $ 7,013
FY 2018 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION 57

NOTES TO THE FINANCIAL STATEMENTS | FINANCIAL SECTION

NOTE 10. Net Cost of Operations

As required by the GPRA Modernization Act of 2010, the the Department’s programs have been aligned with the goals 

presented in the Department’s Strategic Plans. The Department updated its Strategic Plan in FY 2018, resulting in 

realigning how the activities of its program offices crosswalk to the revised Strategic Plan goals and the programs presented 

on the Statement of Net Cost as shown in the chart below. Goals 3 and 4 in the revised Strategic Plan are considered 

crosscutting goals, and therefore costs and revenues associated with these activities are included in the net cost programs 

associated with goals 1 and 2. 

The Department elected not to reclassify the FY 2017 Statement of Net Cost that was aligned with its previous 

2014 – 2018 Strategic Plan, as shown below.

Program Offices Strategic Goal Net Cost Program

FY 2018 NET COST STATEMENT PROGRAM ALIGNMENT WITH STRATEGIC PLAN 2018 – 2022

OESE

OSERS

Other:

 OCTAE

 IES

 OELA

 OII

 OCR

Goal 1: Support state and local efforts to improve learning outcomes for all P–12 students in 

every community.

Improve learning 

outcomes for all 

P–12 students

FSA

OSERS

Other:

 OCTAE

 IES

 OPE

 OCR

Goal 2: Expand postsecondary education opportunities, improve outcomes to foster economic 

opportunity and promote an informed, thoughtful, and productive citizenry.

Expand 

postsecondary 

opportunities, improve 

outcomes to foster 

economic opportunity, 

and promote 

productive citizenry

All Offices Goal 3: Strengthen the quality, accessibility, and use of education data through better 

management, increased privacy protections, and transparency.

Crosscutting Goal

All Offices Goal 4: Reform the effectiveness, efficiency, and accountability of the Department. Crosscutting Goal

FY 2017 NET COST STATEMENT PROGRAM ALIGNMENT WITH STRATEGIC PLAN 2014 – 2018

FSA

OPE

OCTAE

Goal 1: Postsecondary Education, Career and Technical Education, and Adult Education. 

Increase college access, affordability, quality, and completion by improving postsecondary 

education and lifelong learning opportunities for youths and adults.

Increase College 

Access, Quality, 

and Completion

OESE Goal 2: Elementary and Secondary Education. Improve the elementary and secondary 

education system’s ability to consistently deliver excellent instruction aligned with rigorous 

academic standards while providing effective support services to close achievement and 

opportunity gaps, and ensure all students graduate high school college- and career-ready.

Goal 3: Early Learning. Improve the health, social-emotional, and cognitive outcomes for all 

children from birth through 3rd grade, so that all children, particularly those with high needs, are 

on track for graduating from high school college- and career-ready.

Improve Preparation 

for College and 

Career from Birth 

Through 12th Grade, 

Especially for Children 

with High Needs

OELA

OCR

OSERS

Goal 4: Equity. Increase educational opportunities for underserved students and reduce 

discrimination so that all students are well-positioned to succeed.

Ensure Effective 

Educational 

Opportunities for 

All Students

IES

OII

Goal 5: Continuous Improvement of the U.S. Education System. Enhance the education 

system’s ability to continuously improve through better and more widespread use of data, 

research and evaluation, evidence, transparency, innovation, and technology.

Enhance the 

Education 

System’s Ability to 

Continuously Improve

All Other Offices Goal 6: U.S. Department of Education Capacity. Improve the organizational capacities of the 

Department to implement this Strategic Plan.

Crosscutting Goal
58 FY 2018 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION

FINANCIAL SECTION | NOTES TO THE FINANCIAL STATEMENTS

Gross Costs and Earned Revenue by Program 

(Dollars in Millions)

2018

FSA OESE OSERS Other Total

IMPROVE LEARNING OUTCOMES FOR ALL P–12 STUDENTS

Gross Cost

 Grants $ - $ 20,856 $ 13,073 $ 2,526 $ 36,455

 Other - 58 1 763 822

Earned Revenue - - - (82) (82)

Net Program Costs - 20,914 13,074 3,207 37,195

EXPAND POSTSECONDARY OPPORTUNITIES, IMPROVE OUTCOMES TO FOSTER ECONOMIC OPPORTUNITY, AND PROMOTE 

PRODUCTIVE CITIZENRY

Direct Loan Program

 Gross Cost

 Credit Program Interest Expense 32,329 - - - 32,329

 Subsidy Expense 4,369 - - - 4,369

 Administrative Expenses 1,267 - - - 1,267

 Earned Revenue

 Interest & Administrative Fees (58,247) - - - (58,247)

 Subsidy Amortization 25,918 - - - 25,918

Net Cost of Direct Loan Program 5,636 - - - 5,636

FFEL Program

 Gross Cost

 Credit Program Interest Expense 4,233 - - - 4,233

 Subsidy Expense 1,228 - - - 1,228

 Subsidy Amortization (Guaranteed Loans) (1,099) - - - (1,099)

 Guaranty Agencies 96 - - - 96

 Administrative Expenses 141 - - - 141

 Earned Revenue

 Interest & Administrative Fees (4,635) - - - (4,635)

 Subsidy Amortization (Acquired FFEL Loans) 1,501 - - - 1,501

 Guaranty Agencies (202) - - - (202)

Net Cost of FFEL Program 1,263 - - - 1,263

Other Credit Programs for Higher Education

 Gross Cost

 Credit Program Interest Expense 19 - - 54 73

 Subsidy Expense 56 - - 168 224

 Administrative Expenses 1 - - - 1

 Earned Revenue

 Interest & Administrative Fees (48) - - (60) (108)

 Subsidy Amortization 29 - - 6 35

 Other (540) - - (8) (548)

Net Cost of Other Credit Programs for Higher Education (483) - - 160 (323)

Non-Credit Programs

 Gross Cost

 Grants 28,456 1 3,476 3,438 35,371

 Other 136 - 2 255 393

Earned Revenue - - - (10) (10)

Net Cost of Non-Credit Programs 28,592 1 3,478 3,683 35,754

Net Program Costs 35,008 1 3,478 3,843 42,330

Total Gross Costs 71,232 20,915 16,552 7,204 115,903

Total Earned Revenues (36,224) - - (154) (36,378)

Net Cost of Operations $ 35,008 $ 20,915 $ 16,552 $ 7,050 $ 79,525
FY 2018 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION 59

NOTES TO THE FINANCIAL STATEMENTS | FINANCIAL SECTION

2017

FSA OESE OSERS Other Total

INCREASE COLLEGE ACCESS, QUALITY, AND COMPLETION

Gross Cost

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

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

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

Earned Revenue

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

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

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

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

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

HIGH NEEDS

Gross Cost

 Intragovernmental - 176 - - 176

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

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

Earned Revenue

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

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

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

ENSURE EFFECTIVE EDUCATIONAL OPPORTUNITIES FOR ALL STUDENTS

Gross Cost

 Intragovernmental - - 16 36 52

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

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

Earned Revenue

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

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

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

ENHANCE THE EDUCATION SYSTEM’S ABILITY TO CONTINUOUSLY IMPROVE

Gross Cost

 Intragovernmental - - - 85 85

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

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

Earned Revenue

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

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

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

Net Cost of Operations $ 37,946 $ 22,566 $ 16,376 $ 7,391 $ 84,279

Gross Costs and Earned Revenue by Program 

(Dollars in Millions)
60 FY 2018 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION

FINANCIAL SECTION | NOTES TO THE FINANCIAL STATEMENTS

Gross Interest 

Expense

Subsidy 

Amortization

Net Interest 

Expense

Gross Interest and Administrative 

Fee Revenue

Subsidy 

Amortization

Net Revenue

Intragovernmental With the Public Intragovernmental With the Public With the Public

2018

Direct Loan Program $ 32,329 $ - $ 32,329 $ 3,890 $ 54,357 $ (25,918) $ 32,329

FFEL Program 4,233 (1,099) 3,134 1,032 3,603 (1,501) 3,134

Other Credit Programs 

for Higher Education 73 - 73 23 85 (35) 73

Total $ 36,635 $ (1,099) $ 35,536 $ 4,945 $ 58,045 $ (27,454) $ 35,536

2017

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

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

Other Credit Programs 

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

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

Credit Program Interest Expense and Revenues 

(Dollars in Millions)

Interest expense equals interest revenue plus administrative fees accrued for all credit programs due to subsidy 

amortization. Subsidy amortization is required by the FCRA and accounts for the difference between interest expense 

and revenue cash flows. For direct loans, the allowance for subsidy is adjusted with the offset to interest revenue. For 

guaranteed loans, the liability for loan guarantees is adjusted with the offset to interest expense.
FY 2018 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION 61

NOTES TO THE FINANCIAL STATEMENTS | FINANCIAL SECTION

2018

IMPROVE LEARNING OUTCOMES FOR ALL P–12 STUDENTS

Education for the Disadvantaged $ 15,243

Special Education—Individuals With Disabilities Act (IDEA) Grants 13,073

School Improvement Programs 3,614

Impact Aid 1,466

Innovation and Improvement 1,201

English Language Acquisition 693

Career, Technical, and Adult Education 445

Institute of Educational Sciences 187

Other 533

 Subtotal 36,455

EXPAND POSTSECONDARY OPPORTUNITIES, IMPROVE OUTCOMES TO FOSTER ECONOMIC OPPORTUNITY, AND PROMOTE 

PRODUCTIVE CITIZENRY

 Student Financial Assistance

 Pell Grants 26,672

 Federal Work-Study Program 1,015

 Federal Supplemental Educational Opportunity Grants 769

 Rehabilitation Services 3,130

 Higher Education 2,027

 Career, Technical, and Adult Education 1,135

 Special Education—Individuals With Disabilities Act (IDEA) Grants 120

 Institute of Educational Sciences 43

 Other 460

 Subtotal 35,371

Total Grant Costs $ 71,826

Grant Expenses by Appropriation 

(Dollars in Millions)

The Department has more than 100 grant programs (www.ed.gov/programs/inventory.html). Descriptions of the major 

grant programs are as follows: 

Student Financial Assistance

 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.

 Federal Work-Study Program—provides funds 

by formula to enable eligible institutions to offer 

employment to students based on financial needs. 

The program is available to full-time or part-time 

students and encourages community service work. 

The work is often related to the student’s course of 

study. This program is administered by the schools 

that participate in the Federal Work-Study program. 

Hourly earnings under this program must be at 

least the Federal minimum wage. Federal funding, 

in most cases, pays 75% of a student’s hourly wage, 

with the remaining 25% paid by the employer.

 Federal Supplemental Educational Opportunity 

Grants—provides funds by formula to enable 

eligible institutions to offer grants to students based 

on need. Federal grants distributed under this 

program are administered directly by the financial 

aid office at each participating school.
62 FY 2018 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION

FINANCIAL SECTION | NOTES TO THE FINANCIAL STATEMENTS

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 funds to states to 

support educational services to children of migratory 

farmworkers and fishers, and to neglected or delinquent 

children and youth in State-run institutions, attending 

community day programs, and correctional facilities.

Special Education—consists primarily of 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 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. 

School Improvement Programs—provides funds to state 

educational agencies to make competitive subgrants to 

local educational agencies that demonstrate the greatest 

need for the funds and the strongest commitment to 

use the funds to provide adequate resources in order to 

substantially raise the achievement of students in their 

lowest-performing schools.

Rehabilitation Services—provides funds to states and 

other agencies to support vocational rehabilitation and 

other services to individuals with disabilities to maximize 

their employment, independence, and integration into 

the community and the competitive labor market.

Higher Education—includes Institutional Service 

grants designed to improve academic quality, 

institutional management and fiscal stability, and 

strengthen physical plants and endowments of 

institutions of higher education, with an emphasis on 

institutions that enroll large proportions of minority 

and financially disadvantaged students. Also includes 

Student Service grant programs supporting lowincome, first-generation students and individuals with 

disabilities as they progress through the academic 

pipeline from middle school to graduate school, in 

addition to programs focused on college readiness, 

campus-based child care, and graduate fellowships. Also 

includes International and Foreign Language Education 

grant and fellowship programs that strengthen foreign 

language instruction, area/international studies teaching 

and research, professional development for educators, 

and curriculum development at the K–12, graduate, 

and postsecondary levels.

Career, Technical, and Adult Education—includes 

programs that are related to adult education and literacy, 

career and technical education, and community colleges.

Impact Aid—provides funds to local educational agencies 

to replace the lost local revenue that would otherwise 

be available to educate federal connected children. (The 

property on which the children live and their parents 

work is exempt from local property taxes, limiting a 

central source of revenue used by most communities to 

finance education.)

Innovation and Improvement—includes programs that 

support nontraditional programs that improve student 

achievement and attainment; supports the development 

of educational television and digital media programs 

targeted at preschool and early elementary school 

children and their families to promote early learning and 

school readiness, with a particular interest in reaching 

low-income children; and supports local educational 

agencies and their partners in implementing, evaluating, 

and refining tools and approaches for developing the 

non-cognitive skills of middle-grades students in order to 

increase student success.

English Language Acquisition—provides funds 

primarily by formula to states to improve services 

for English learners. Also provides funds to support 

national activities, including professional development 

to increase the supply of high-quality teachers of 

English learners and a national clearinghouse on English 

language acquisition.

Institute of Educational Sciences—provides funding 

to: support research, development, and dissemination 

activities that provide parents, teachers, and schools with 

evidence-based information on effective educational 

practices; support statistical data collection activities 

conducted by the National Center for Education 

Statistics; support the ongoing National Assessment 

of Educational Progress and the National Assessment 

Governing Board; support research to build the 

evidence base on improving special education and early 

intervention services and outcomes for infants, toddlers, 

and children with disabilities; and support studies, 

evaluations, and assessments related to IDEA.
FY 2018 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION 63

NOTES TO THE FINANCIAL STATEMENTS | FINANCIAL SECTION

NOTE 11. Statements of Budgetary Resources

The SBR compares budgetary resources with the status of those resources. As of September 30, 2018, budgetary resources 

were $358.5 billion and net agency outlays were $146.8 billion. As of September 30, 2017, budgetary resources were 

$398.5 billion and net agency outlays were $152.2 billion.

2018 2017

DIRECT:

 Category A $ 2,320 $ 2,186

 Category B 314,446 360,781

 Exempt from Apportionment 96 13

Total Direct Apportionment 316,862 362,980

REIMBURSABLE:

 Category A 4 3

 Category B 60 55

New Obligations Incurred and Upward Adjustments $ 316,926 $ 363,038

New Obligations Incurred and Upward Adjustments by Apportionment Type and Category 

(Dollars in Millions)

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

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

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

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

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

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

addition, some resources are available without apportionment by OMB.

Unused Borrowing Authority 

(Dollars in Millions)

2018 2017

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

Current Year Borrowing Authority 167,897 166,601

Funds Drawn from Treasury (155,820) (160,763)

Borrowing Authority Withdrawn (8,026) (8,128)

Ending Balance, Unused Borrowing Authority $ 62,752 $ 58,701

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

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

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

withdrawal of unused amounts.
64 FY 2018 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION

FINANCIAL SECTION | NOTES TO THE FINANCIAL STATEMENTS

Undelivered Orders

(Dollars in Millions)

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

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

performance has not yet occurred.

FY 2018 changes in OMB Circular A-136 included new requirements to provide a breakout of both unpaid and paid 

undelivered orders between Federal and With the Public. These new requirements were not applied retroactively to the 

FY 2017 amounts above.

Distributed Offsetting Receipts

(Dollars in Millions)

2018 2017

Negative Subsidies and Downward Re-estimates of Subsidies:

 Direct Loan Program $ 26,539 $ 18,849

 FFEL Program 236 370

 Facilities Loan Programs 9 55

 HEAL Program 8 18

 Total Negative Subsidies and Downward Re-estimates 26,792 19,292

Other 578 270

Distributed Offsetting Receipts $ 27,370 $ 19,562

The majority of the distributed offsetting receipts line item on the SBR represents amounts paid from the Direct Loan 

program and FFEL program financing accounts to Treasury General Fund receipt accounts for downward current fiscal 

year executed subsidy re-estimates and negative subsidies.

2018

Intragovernmental With the Public

Unpaid $ 159 $ 132,716

Paid 238 120

Undelivered Orders $ 397 $ 132,836

2017

Budgetary $ 52,390

Non-Budgetary 75,665

Undelivered Orders (Unpaid) $ 128,055
FY 2018 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION 65

NOTES TO THE FINANCIAL STATEMENTS | FINANCIAL SECTION

Reconciliation of SBR to Budget of the United States Government

(Dollars in Millions)

Budgetary 

Resources

Obligations 

Incurred

Distributed Offsetting 

Receipts Net Outlays

Combined Statements of Budgetary Resources $ 398,529 $ 363,038 $ 19,562 $ 152,172 

 Expired Funds (5,102) (3,935) - - 

 FFEL Guaranty Agency Amounts Included in the 

President’s Budget 7,266 7,276 - - 

 Distributed Offsetting Receipts - - - 19,562 

 Other (5) (3) 9 (3)

Budget of the United States Government1 $ 400,688 $ 366,376 $ 19,571 $ 171,731 

1

 Amounts obtained from the Appendix, Budget of the United States Government, FY 2019.

The FY 2020 Budget of the United States Government (President’s Budget), which presents the actual amounts for the 

year ended September 30, 2018, has not been published as of the issue date of these financial statements. The FY 2020 

President’s Budget is scheduled for release in February 2019. The table above reconciles the FY 2017 SBR to the FY 2019 

President’s Budget (FY 2017 actual amounts) for budgetary resources, obligations incurred, distributed offsetting receipts, 

and net outlays.

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

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

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

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

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

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

combining all guaranty agencies’ annual reports to determine a net valuation amount for the federal fund.
66 FY 2018 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION

FINANCIAL SECTION | NOTES TO THE FINANCIAL STATEMENTS

NOTE 12. Reconciliation of Net Cost of Operations to Budget

(Dollars in Millions)

2018 2017

RESOURCES USED TO FINANCE ACTIVITIES

New Obligations Incurred and Upward Adjustments $ 316,926 $ 363,038

 Spending Authority from Offsetting Collections & Recoveries (139,939) (186,509)

 Offsetting Receipts (27,370) (19,562)

 Net Budgetary Resources Obligated 149,617 156,967

 Imputed Financing From Costs Absorbed by Others 38 27

 Other Financing Sources (27,784) (25,461)

 Net Other Resources (27,746) (25,434)

Net Resources Used to Finance Activities 121,871 131,533

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

 (Increase)/Decrease in Budgetary Resources Obligated but Not Yet Provided (4,941) (3,777)

 Resources that Fund Subsidy Re-estimates Accrued in Prior Period (134) (28,006)

 Credit Program Collections 97,660 142,011

 Acquisition of Fixed Assets (1) (10)

 Acquisition of Net Credit Program Assets or Liquidation of Liabilities for Loan Guarantees (170,208) (171,770)

 Resources from Non-Entity Activity 27,766 25,476

 Net Resources That Do Not Finance the Net Cost of Operations (49,858) (36,076)

Net Resources Used to Finance the Net Cost of Operations 72,013 95,457

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

 Change in Depreciation 5 1

Subsidy Amortization and Interest on the Liability for Loan Guarantees 26,353 23,953

Other (5) 2

 Total Components Not Requiring or Generating Resources 26,353 23,956

 Increase in Annual Leave Liability (3) -

Accrued Re-estimates of Credit Subsidy Expense 17,954 134

Increase in Exchange Revenue Receivable from the Public (36,792) (35,155)

Accrued Interest with Treasury - 1

Other (+/-) - (114)

 Total Components Requiring or Generating Resources in Future Periods (18,841) (35,134)

Total Components That Will Not Require or Generate Resources in the Current Period 7,512 (11,178)

Net Cost of Operations $ 79,525 $ 84,279

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

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

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

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

Reconciling Budgetary and Financial Accounting. 

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

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

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

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

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

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

amortization, interest on the liability for loan guarantees, and increases in exchange revenue receivable from the public.
FY 2018 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION 67

NOTES TO THE FINANCIAL STATEMENTS | FINANCIAL SECTION

NOTE 13. Commitments and Contingencies

The Department discloses contingencies where any of 

the conditions for liability recognition are not met and 

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

additional loss may have been incurred in accordance 

with FASAB Standard No. 5, Accounting for Liabilities of 

the Federal Government. The following commitments are 

amounts for contractual arrangements that may require 

future financial obligations.

Future Minimum Lease Payments

(Dollars in Millions)

2018 2017

FY Amount FY Amount

2019 $ 73 2018 $ 73 

2020 73 2019 77 

2021 77 2020 79 

2022 81 2021 81 

2023 82 2022 85 

After 2023 83 After 2022 86 

 Total $ 469 Total $ 481 

The Department leases from the General Services 

Administration all or a portion of 17 privately owned and 

12 publicly owned buildings in 20 cities. The table above 

presents the estimated future minimum lease payments 

for these privately and publicly owned buildings.

GUARANTY AGENCIES

The Department may assist guaranty agencies 

experiencing financial difficulties. The Department has 

not done so in fiscal years 2018 or 2017 and does not 

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

the financial statements for potential liabilities.

FEDERAL PERKINS LOAN PROGRAM

The Federal Perkins Loan program provides financial 

assistance to eligible postsecondary school students. In FY 

2018, the Department provided funding of 83.2 percent of 

the capital used to make loans to eligible students through 

participating schools at 5 percent interest. The schools 

provided the remaining 16.8 percent of program funding. 

For the latest academic year that ended June 30, 2018, 

approximately 356 thousand loans were made totaling 

$886.3 million at 1,272 institutions, making an average 

of $2,491 per loan. The Department’s equity interest was 

approximately $6.3 billion as of June 30, 2018.

Federal Perkins Loan program borrowers who meet 

statutory eligibility requirements—such as those who 

provide service as teachers in low-income areas or as Peace 

Corps or AmeriCorps VISTA volunteers, as well as those 

who serve in the military, law enforcement, nursing, or 

family services—may receive partial loan forgiveness for 

each year of qualifying service.

The Federal Perkins Loan program was scheduled to 

officially end on September 30, 2015. However, the 

program was extended through September 30, 2017 

by the Federal Perkins Loan Program Extension Act of 

2015 (Extension Act). The Extension Act eliminated 

the Perkins Loan grandfathering provisions that the 

Department had put in place, and establishes new 

eligibility requirements for undergraduate and graduate 

students to receive Perkins Loans. As of September 30, 

2017, the Department is no longer authorized to make 

new Perkins Loans.

LITIGATION AND OTHER CLAIMS 

The Department is involved in various lawsuits incidental 

to its operations. In the opinion of management, the 

ultimate resolution of pending litigation will not have a 

material impact on the Department’s financial position. 

The cost of loan forgiveness related to borrower defense 

claims reflected in the accompanying financial statements 

is limited to loans originated through September 30, 

2018. The final disposition of claims filed and those yet 

to be filed from loans originated before September 30, 

2018, is not expected to have a material impact on these 

financial statements.

OTHER MATTERS 

Some portion of the current-year financial assistance 

expenses (grants) may include funded recipient 

expenditures that are subsequently disallowed through 

program review or audit processes. In the opinion of 

management, the ultimate disposition of these matters 

will not have a material effect on the Department’s 

financial position.