FINANCIAL

SECTION

(unaudited)
Financial Section (Unaudited)

About the Financial Section

In FY 2023, the Department prepared its Consolidated Balance Sheet as a critical 

aspect of ensuring accountability and stewardship for the public resources entrusted 

to it. Preparation of this statement is an important part of the Department’s financial 

management goal of providing accurate and reliable information for decision-making.

Message From the Chief Financial Officer

The Chief Financial Officer message summarizes the Department’s FY 2023 

accomplishments and audit opinion.

Consolidated Balance Sheet and Related Notes

The Consolidated Balance Sheet summarizes the assets, liabilities, and net position by 

major category as of the reporting date. Intragovernmental assets and liabilities resulting 

from transactions between federal agencies are presented separately from assets and 

liabilities from transactions with the public.

The Notes to the Consolidated Balance Sheet provide information to explain the basis 

of the accounting and presentation used to prepare the statement and to explain specific 

items in the statement. They also provide information to support how particular accounts 

have been valued and computed.

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Note 1. Summary of Significant Accounting Policies

Note 2. Non-Entity Assets

Note 3. Fund Balance with Treasury

Note 4. Other Assets

Note 5. Loan Receivables, Net and Loan Guarantee Liabilities

Note 6. Liabilities Not Covered by Budgetary Resources

Note 7. Debt Associated with Loans

Note 8. Subsidy Due to Treasury

Note 9. Other Liabilities

Note 10. Commitments and Contingencies 

Report of the Independent Auditors

The results of the audit of the Department’s Consolidated Balance Sheet for FY 2023 

to comply with the Chief Financial Officers Act of 1990, as amended, are presented to 

be read in conjunction with the Financial Section in its entirety. The Department’s 

Office of Inspector General contracted with the independent certified public accounting 

firm KPMG LLP to audit the Consolidated Balance Sheet of the Department as of 

September 30, 2023.
FY 2023 AGENCY FINANCIAL REPORT 78 U.S. DEPARTMENT OF EDUCATION

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Message From the Chief Financial Officer

The Office of Finance and Operations (OFO) is committed to supporting the 

Department of Education’s mission to “promote student achievement and preparation 

for global competitiveness by fostering educational excellence and ensuring equal access.’’ 

Our Fiscal Year (FY) 2023 Agency Financial Report is a valuable tool the public can use 

to better understand the Department’s programs and how they effectuate this critical 

mission. In FY 2023, the Department continued to implement new programs geared 

toward improving student educational outcomes and helping student loan borrowers 

transition to their new loan repayment status. 

On January 24, 2023, Secretary Cardona announced the “Raise the Bar: Lead the 

World” initiative. This plan represents an opportunity to improve the nation’s education 

system from preschool through college. It focuses on three major areas: achieving 

academic excellence, boldly improving learning conditions, and creating pathways for 

global engagement. 

The Administration is also taking additional steps aimed at providing debt relief to 

eligible borrowers. Specifically, the agency initiated a rulemaking process aimed at offering 

an alternative path to debt relief for many working and middle-class borrowers. The 

Department also instituted a 12-month “on-ramp” to repayment, running from October 

1, 2023, to September 30, 2024, so that financially vulnerable borrowers who miss 

monthly payments during this period are not considered delinquent, reported to credit 

bureaus, placed in default, or referred to debt collection agencies.

OFO supports these initiatives by providing human capital, financial, acquisition and 

grants management services across all Departmental offices. In addition to supporting 

these programs, OFO continued working with leaders across the agency to ensure effective 

financial stewardship of taxpayer dollars. Over the course of FY 2023, the Department 

made process improvements to address issues identified in the FY 2022 financial statement 

audit. The FY 2022 disclaimer of opinion was largely related to the Broad-Based Debt 

Relief program and its impact on the agency’s financial statement re-estimates. This year, 

the independent auditor issued a disclaimer of opinion on the Department’s FY 2023 

balance sheet. The Department will develop and implement additional corrective action 

strategies to address the issues highlighted in the FY 2023 report. We remain committed to 

continually evaluating new programs, current business processes, and our internal controls 

for improvement opportunities in FY 2024 and beyond.

Through the hard work and dedication of our employees and partners we will continue 

to make improvements in our programs and operations. We will continue to serve as 

accountable and committed stewards supporting the Department’s mission on behalf of 

the public while enhancing our financial management capabilities.

Denise L. Carter

Delegated the authority to perform the functions and duties 

of the position of Chief Financial Officer

November 16, 2023
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FY 2023 AGENCY FINANCIAL REPORT 80 U.S. DEPARTMENT OF EDUCATION

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U.S. Department of Education

Consolidated Balance Sheet

As of September 30, 2023

(Dollars in Millions)

FY 2023 (Unaudited)

ASSETS (Note 2)

Intragovernmental:

Fund Balance with Treasury (Note 3) $ 244,029 

Other Assets (Note 4) 153 

Total Intragovernmental 244,182 

Other than Intragovermental:

Loan Receivables, Net (Note 5)

Direct Loan Program 1,030,912 

Federal Family Education Loan (FFEL) Program 39,314 

Other Credit Programs for Higher Education 2,766 

Cash and Other Monetary Assets 564 

Other Assets (Note 4) 311 

Total Other than Intragovermental 1,073,867 

Total Assets $ 1,318,049 

LIABILITIES (Note 6)

Intragovernmental:

Debt Associated with Loans (Note 7)

Direct Loan Program $ 1,127,011 

FFEL Program 60,896 

Other Credit Programs for Higher Education 1,056 

Accounts Payable 1 

Other Liabilities:

Subsidy Due to Treasury (Note 8) 1,630 

Guaranty Agency Funds Due to Treasury 564 

Other Liabilities (Note 9) 1,332 

Total Intragovernmental 1,192,490 

Other than Intragovermental:

Accounts Payable 3,895 

Loan Guarantee Liabilities (Note 5) 11,197 

Other Liabilities:

Accrued Grant Liabilities 5,137 

Other Liabilities (Note 9) 964 

Total Other than Intragovermental 21,193 

Total Liabilities $ 1,213,683 

Commitments and Contingencies (Note 10)

NET POSITION

Unexpended Appropriations $ 171,562 

Cumulative Results of Operations (67,196)

Total Net Position $ 104,366 

Total Liabilities and Net Position $ 1,318,049 

The accompanying notes are an integral part of this statement.
FY 2023 AGENCY FINANCIAL REPORT 81 U.S. DEPARTMENT OF EDUCATION

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Notes to the Consolidated Balance Sheet for

the Year Ended September 30, 2023 

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 a component of the U.S. government. For this reason, some of the 

assets and liabilities reported by the Department may be eliminated for governmentwide 

reporting because they are offset by assets and liabilities of another U.S. government 

entity. The Consolidated Balance Sheet should be read with the realization that it is for a 

component of the U.S. government. 

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 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, 

Parent Loan for Undergraduate Students (PLUS), and Consolidation Loans. Evidence of 

financial need is required for an undergraduate student to receive a subsidized Stafford 

loan. The other three loan programs are available to borrowers at all income levels. Loans 

can be used only to meet qualified educational expenses.

The FFEL Program, authorized by the HEA, operates through state and private, nonprofit 

guaranty agencies that provide loan guarantees on loans made by private lenders to eligible 

students with reinsurance and interest subsidies provided by the Department. The SAFRA 

Act, which was included in the Health Care and Education Reconciliation Act of 2010, 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 

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 
FY 2023 AGENCY FINANCIAL REPORT 82 U.S. DEPARTMENT OF EDUCATION

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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 (TEACH) Grant program, the Health Education Assistance Loan 

(HEAL) program, and facilities loan programs that include the Historically Black Colleges 

and Universities (HBCU) Capital Financing program, along with low-interest loans to 

IHEs for the building and renovating of their facilities. (See Note 5)

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, federal 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. 

COVID-19. Congress passed multiple COVID-19 relief bills in fiscal year (FY) 2020 

and FY 2021 including the following that provided funding for educational purposes: the 

Coronavirus Aid, Relief, and Economic Security Act, of 2020 (CARES Act), the Coronavirus 

Response and Relief Supplemental Appropriations Act of 2021 (CRRSAA), and the American 

Rescue Plan Act of 2021 (ARP). The largest component of the education funding provided 

by the COVID-19 relief appropriations established the Education Stabilization Fund, 

which includes the (1) Elementary and Secondary School Emergency Relief Fund, (2) 

Higher Education Emergency Relief Fund, (3) Governor’s Emergency Education Relief 

Fund, and (4) funds for outlying areas. The Education Stabilization Fund is being 

distributed to recipients through various grant programs. The Department transferred 

$563 million of the funds to the Department of the Interior to be administered by the 

Bureau of Indian Education. (See Note 3)

The COVID-19 relief legislation and administrative actions also provided support for 

student loan borrowers by: 

• Temporarily suspending nearly all federal student loan payments, interest free.

• Authorizing Guaranty Agencies to reimburse themselves from the Federal 

Student Loan Reserve Fund for lost revenue that resulted from student loan 

repayment deferrals.

• Making temporary changes to the PSLF program to allow student borrowers to get 

credit for payments made while working for a qualifying employer.

• Addressing issues with IDR payment counting. 

Funding for these actions was provided through indefinite appropriations. 

Other regulatory flexibilities and incentives provided to help students through 

COVID-19 included:

• Stopping all federal wage garnishments and collection actions for borrowers with 

federally held loans in default.
FY 2023 AGENCY FINANCIAL REPORT 83 U.S. DEPARTMENT OF EDUCATION

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• Federal Supplemental Educational Opportunity Grants to provide emergency aid 

to students.

• Continuation of work-study payments, even if students can no longer work on-site.

• Pell Grants, financial aid, and loans originated for the spring 2020 term, which 

students who have had to leave college campuses will not have to pay back. Moreover, 

none of this aid will count against students’ financial aid lifetime limits.

• Waiving satisfactory academic progress requirements to help ensure that students do 

not lose academic standing and the ability to receive federal financial student aid.

• Tax credits that incentivize employers to help pay for student loans.

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 educational 

agencies (SEA) and local educational agencies (LEA) 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 LEAs 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 states, LEAs, and IHEs 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); and Office of English Language Acquisition (OELA). In addition, the Office for 

Civil Rights (OCR) works to ensure equal access to education through the vigorous 

enforcement of civil rights and the collection of data from public schools, promotes 

educational excellence throughout the nation, and serves student populations facing 

discrimination and the advocates and institutions promoting systemic solutions to civil 

rights issues. 
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Basis of Accounting and Presentation

The Consolidated Balance Sheet was prepared to report the financial position of the 

Department, as required by the Chief Financial Officers Act of 1990 and the Government 

Management Reform Act of 1994. The Consolidated Balance Sheet was prepared from the 

books and records of the Department, in accordance with Generally Accepted Accounting 

Principles (GAAP) accepted in the United States 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. FSA also 

issues a stand-alone Consolidated Balance Sheet that is included in their annual report.

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 

Balance Sheet. 

Accounting standards require all reporting entities to disclose that accounting standards 

allow certain presentations and disclosures to be modified, if needed, to prevent the 

disclosure of classified information.

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 (expense) 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 the U.S. Department of 

Treasury (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). 

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. 

• 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 reestimates of the subsidy cost of existing loans. 
FY 2023 AGENCY FINANCIAL REPORT 85 U.S. DEPARTMENT OF EDUCATION

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When a loan is placed in deferment or forbearance, loan repayment is temporarily 

suspended with the length of postponement different for each borrower. Interest accrues 

while a loan is in deferment or forbearance for all loan types except subsidized Direct Loans. 

Loans are canceled if a person dies, meets disability requirements, or occasionally through 

the bankruptcy courts. Loans are also canceled 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 

income-driven repayment plans under which borrowers may receive forgiveness of the 

remaining balance of their loans after 10, 20 or 25 years under certain rules.

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 sheets 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 records. (See Note 3)

Accounts Receivable

Accounts receivable are amounts due to the Department from other federal agencies 

(intragovernmental) and the public (other than intragovernmental). Other than 

intragovernmental receivables result from overpayments to recipients of grants and other 

financial assistance programs, as well as disputed costs resulting from audits of educational 

assistance programs. Amounts due from federal agencies result from reimbursable 

agreements entered into by the Department with other agencies to provide various goods 

and services. Accounts receivable are reduced to net realizable value by an allowance for 

uncollectible amounts. The estimate of an allowance for loss on uncollectible accounts is 

based on the Department’s experience in the collection of receivables and an analysis of 

the outstanding balances. (See Note 4)

Cash and Other Monetary Assets

Cash and other monetary assets are the federal government’s interest in the program assets 

held by state and nonprofit FFEL Program guaranty agencies (guaranty agencies’ federal 

funds). Section 422A of the HEA required FFEL guaranty agencies to establish federal 

student loan reserve funds. Guaranty agencies’ 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.
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The balance of guaranty agencies’ federal funds represents consolidated reserve balances of 

the 15 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 to comply with 

federal accounting principles and disclose funds held outside of Treasury.

Guaranty agencies’ federal funds are classified as other than intragovernmental non-entity 

assets and are offset by a corresponding liability due to Treasury on the Department’s 

balance sheets. The funds are held by the guaranty agencies but can only be used for 

certain specific purposes listed in the Department’s regulations. The guaranty agencies’ 

federal funds are the property of the United States and are reflected in the President’s 

Budget. 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 Note 2)

Loan Receivables, Net and Loan Guarantee Liabilities 

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 loan guarantee liabilities represent 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)
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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 contractor-owned, 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 10)

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 guarantee programs), and Federal Perkins Loan program balances due to be repaid to 

the Treasury General Fund. (See Note 6) 

Debt Associated with Loans

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 year-end. 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 30. 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

The Department must transfer to the Treasury General Fund all excess funding 

resulting from downward re-estimates 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 
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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. Other than 

intragovernmental accounts payable include in-process grant and loan disbursements. 

Accrued Grant Liabilities

The Department records grant expenses as grantees drawdown funding on their available 

grant balances. Some grant recipients incur allowable expenditures as of the end of an 

accounting period but have not yet drawn on their available balances to be reimbursed 

by the Department. The Department accrues liabilities for these allowable expenditures. 

The liability amounts are estimated using a combination of historical data and a statistical 

sample survey of current unliquidated balances. Some grantees drawdown funding in 

advance of incurring grant expenditures. A statistical estimate is made for these advance 

drawdowns and is recorded as other than intragovernmental advances (see Note 4).

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 in the Department’s 

Statements of Net Cost. These OPM imputed costs are offset by imputed financing 

sources from costs absorbed by others in the Department’s Statements of Changes in 

Net Position.
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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 U.S. Department of Labor (DOL), which pays valid claims and subsequently seeks 

reimbursement from the Department for these paid claims.

The FECA liability consists of two 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 an other than intragovernmental liability, 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 Position

The components of net position are classified on the Department’s Consolidated Balance 

Sheet as follows:

Unexpended Appropriations. Unexpended Appropriations is the portion of the 

Department’s appropriations received that are represented by undelivered orders or 

are unobligated.

Cumulative Results of Operations. Cumulative Results of Operations represents the 

accumulated net difference since inception between (1) expenses and (2) revenues and 

financing sources.

Allocation Transfers

The Department is a party to allocation transfers with other federal agencies as both a 

transferring (parent) entity and a receiving (child) entity. 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 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 activity (e.g. movement 

of unexpended appropriations which affect cumulative results of operations) performed by 

the child entity are charged to this allocation account as they execute the delegated activity 

on behalf of the parent entity. 

The Department is a party to allocation transfers as a parent entity to the Department 

of the Interior and receives allocation transfers as a child entity from the Department of 

Health and Human Services.
FY 2023 AGENCY FINANCIAL REPORT 90 U.S. DEPARTMENT OF EDUCATION

Financial Section (Unaudited)

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 the 

Consolidated Balance Sheet in conformity with GAAP. These estimates are reflected in the 

assets, liabilities, and net position of the Consolidated Balance Sheets and may differ from 

actual results. The Department’s estimates are based on management’s best knowledge 

of current events, best available data, economic assumptions, historical experiences, and 

other assumptions that are believed to be reasonable under the circumstances. Significant 

estimates reported on the Consolidated Balance Sheet include: allowance for subsidy for 

direct, defaulted guaranteed, and acquired loans; the liability for loan guarantees; and 

grant liability and advance accruals. (See Notes 4 and 5)

The Department’s estimates for credit programs are calculated using a series of assumption 

models that are updated using a statistically valid sample of National Student Loan 

Data System (NSLDS®) data, data from the Debt Management and Collection System, 

and economic assumptions provided by OMB. Actual results may differ from those 

assumptions and estimates. Differences between actual results and these estimates may 

occur in the valuation of credit program receivables and liabilities for loan guarantees 

under guidelines in the FCRA. The Department recognizes the sensitivity of credit reform 

modeling. Slight changes in modeling methodology or data used to derive assumptions 

can produce largely varied results. The Department therefore continually reviews its model 

factors and statistical modeling techniques to reflect the most accurate credit program 

costs possible in its annual financial statements. The Department updates its assumption 

models in accordance with its model update plan, which takes into consideration statutory 

or new program requirements, major changes to the model structure or methodology, 

and data updates. This level of granularity in the modeling methodology is essential to the 

financial reporting and budgeting processes so that the Department can forecast the costs 

of various program options when making policy decisions. (See Note 5)
FY 2023 AGENCY FINANCIAL REPORT 91 U.S. DEPARTMENT OF EDUCATION

Financial Section (Unaudited)

NOTE 2. Non-Entity Assets

(Dollars in Millions)

2023 (Unaudited)

Intragovernmental

 Other than 

Intragovernmental 

Non-Entity Assets

Fund Balance with Treasury $ 862 $ - 

Loans Receivable, Net - 1,386 

Cash and Other Monetary Assets - 564 

Accounts Receivable, Net - 36 

Total Non-Entity Assets 862 1,986 

Entity Assets 243,320 1,071,881 

Total Assets $ 244,182 $ 1,073,867 

The Department’s FY 2023 assets are predominantly entity assets (99.8 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 other 

than intragovernmental assets primarily consist of guaranty agency reserves (28.4 percent), 

reported as cash and other monetary assets, and Federal Perkins Loan program loan 

receivables (69.8 percent), reported as loan 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 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)

NOTE 3. Fund Balance with Treasury 

(Dollars in Millions)

2023 (Unaudited)

Appropriated Funds $ 102,088 

Revolving Funds 65,913 

Special Funds 9 

Non-Budgetary: Trust Funds 1 

COVID-19 Funds 75,263 

All Other Funds 755 

Total Fund Balance with Treasury $ 244,029 

In FY 2023, $523 million of unused funds from canceled appropriations was returned 

to Treasury. Such balances are excluded from the amount reported as Fund Balance with 

Treasury in accordance with Treasury guidelines.
FY 2023 AGENCY FINANCIAL REPORT 92 U.S. DEPARTMENT OF EDUCATION

Financial Section (Unaudited)

NOTE 4. Other Assets 

(Dollars in Millions)

2023 (Unaudited)

Intragovernmental

 Other than 

Intragovernmental 

Accounts Receivable, Net $ 6 $ 307 

Advances to Others and Prepayments 145 2 

Property and Equipment, Net - 2 

Other 2 - 

Total Other Assets $ 153 $ 311 

Included in the other than intragovernmental accounts receivable are amounts owed 

because 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, 2023, related to criminal 

restitutions totaled $138 million, and $127 million, respectively.

NOTE 5. Loan Receivables, Net and Loan Guarantee Liabilities

Loans Receivables

(Dollars in Millions)

2023 (Unaudited)

Principal Accrued Interest Allowance for Subsidy Net

Direct Loan Program $ 1,336,158 $ 83,439 $ (388,685) $ 1,030,912 

FFEL Program 78,991 20,840 (60,517) 39,314 

Other Credit Programs for Higher Education 2,874 562 (670) 2,766 

Total Loans Receivable $ 1,418,023 $ 104,841 $ (449,872) $ 1,072,992 

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. The emergency relief measures provided by 

Congress and the administration in response to the COVID-19 pandemic were recorded 

as loan modifications. Per OMB guidance, loan modifications were calculated using the 

President’s Budget formulation discount rates.

As the net loans receivable represents the net present value of future cash flows, it is not 

necessarily representative of the proceeds that might be expected if these loans were sold 

on the open market. 

What follows is additional analysis for each of the loan programs. 

DIRECT LOAN PROGRAM 

The federal government makes loans directly to students and parents through participating 

IHEs 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 $1,419.6 billion in gross loan receivables, as of September 30, 

2023, $76.5 billion (5.4 percent) in loan principal was in default and had been transferred 

to the Department’s defaulted loan servicer.
FY 2023 AGENCY FINANCIAL REPORT 93 U.S. DEPARTMENT OF EDUCATION

Financial Section (Unaudited)

Direct Loan Program Loan Disbursements by Loan Type

(Dollars in Millions)

2023 (Unaudited)

Stafford $ 15,671 

Unsubsidized Stafford 44,878 

PLUS 23,928 

Consolidation 37,792 

Total Disbursements $ 122,269 

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 $37.8 billion during FY 2023. The effect of the early payoff 

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

flows associated with that cohort.

Direct Loan Subsidy Rates—Cohort 2023 (Unaudited)

Interest 

 Differential Defaults Fees Other* Total

Stafford 24.63% 1.99% -1.06% -11.39% 14.17%

Unsubsidized Stafford 26.89% 1.81% -1.06% -16.16% 11.48%

PLUS 12.91% 1.20% -4.23% -16.56% -6.68%

Consolidation 26.33% 0.20% 0.00% 7.01% 33.54%

Weighted Average Total 23.89% 1.21% -1.29% -8.19% 15.62%

*The Other component reflects costs associated with loan cancelations and the interactive effects of payment plans on the components of subsidy.

The subsidy rates disclosed pertain only to the current year’s cohorts. These rates cannot be 

applied to the direct loans disbursed during the current reporting year to yield the subsidy 

expense. The subsidy expense for new loans reported in the current year could result from 

disbursements of loans from both current year cohorts and prior-year cohorts. The subsidy 

expense reported in the current year also includes modifications and re-estimates. 

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.
FY 2023 AGENCY FINANCIAL REPORT 94 U.S. DEPARTMENT OF EDUCATION

Financial Section (Unaudited)

Federal Family Education Loan Program

FFEL was established in FY 1965 and is a guaranteed 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 canceled.

FFEL Guaranteed Loans Outstanding

(Dollars in Billions)

2023 (Unaudited)

Outstanding Principal of Guaranteed Loans, Face Value $ 80.6 

Amount of Outstanding Principal Guaranteed $ 80.6 

As of September 30, 2023, the total principal value of guaranteed loans outstanding 

and the amount of that principal which is guaranteed is approximately $80.6 billion. 

Additionally, the FFEL Program guarantees outstanding interest balances. As of 

September 30, 2023, the interest balances outstanding for guaranteed loans held by 

lenders was approximately $3.8 billion. The Department’s total FFEL Program guarantees 

(principal and interest) are approximately $84.4 billion as of September 30, 2023. Of 

the total guaranteed amount, the Department would expect to pay a smaller amount to 

the guaranty agencies. The guarantee rates range from 75 to 100 percent of the principal 

and interest balance depending on the type of claim, when the loan was made, and the 

guaranty agency’s claim experience. For purposes of disclosing the Department’s total risk 

exposure for FFEL guarantees, the highest reimbursement rate of 100 percent is assumed.

Defaulted and acquired FFEL loans are accounted for as assets as shown in the 

following table.

FFEL Program Loan Receivables 

(Dollars in Millions)

2023 (Unaudited)

Principal Accrued Interest

Allowance 

for Subsidy 

(Present Value)

Net

DEFAULTED FFEL GUARANTEED LOANS

FFEL GSL Program (Pre-1992) $ 3,208 $ 5,029 $ (8,014) $ 223 

FFEL GSL Program (Post-1991) 37,829 8,044 (34,253) 11,620 

Total Defaulted FFEL Guaranteed Loans 41,037 13,073 (42,267) 11,843 

ACQUIRED FFEL LOANS

Loan Purchase Commitment 13,083 2,490 (8,204) 7,369 

Loan Participation Purchase 23,673 4,939 (9,879) 18,733 

ABCP Conduit 1,198 338 (167) 1,369 

Total Acquired FFEL Loans 37,954 7,767 (18,250) 27,471 

FFEL Program Loan Receivables $ 78,991 $ 20,840 $ (60,517) $ 39,314 
FY 2023 AGENCY FINANCIAL REPORT 95 U.S. DEPARTMENT OF EDUCATION

Financial Section (Unaudited)

Liabilities for Loan Guarantees 

(Dollars in Millions)

2023 (Unaudited)

Post-1991 FFEL Loan Guarantee Liability $ 11,084 

Pre-1992 FFEL Liquidating Account Liability for Loan Guarantees (138)

FFEL Liabilities for Loan Guarantees 10,946 

HEAL Liabilities for Loan Guarantees 251 

Total Ending Balance for Liabilities for Loan Guarantees $ 11,197 

Other Credit Programs for Higher Education

Loans Receivables, Other Credit Programs for Higher Education 

(Dollars in Millions)

2023 (Unaudited)

Principal Accrued Interest Allowance for Subsidy 

(Present Value) Net

Federal Perkins Loans $ 1,313 $ 467 $ (394) $ 1,386 

TEACH Program Loans 809 67 (322) 554 

HEAL Program Loans 368 25 (5) 388 

Facilities Loan Programs 384 3 51 438 

Total $ 2,874 $ 562 $ (670) $ 2,766 

Federal Perkins Loan Program. Loans made through the Federal Perkins Loan program 

were low-interest federal student loans for undergraduate and graduate students with 

exceptional financial needs. Schools made these Perkins loans to their students and are 

responsible for servicing the loans throughout the repayment term. Borrowers who 

undertake certain public, military, or teaching service employment are eligible to have all or 

part of their loans canceled. 

The Perkins Loan program was a revolving loan program where the loan repayments 

collected from former students were used to make new loans to current students. The 

Department provided most of the capital used by schools to make these loans to eligible 

students. Participating schools provided the remaining program funding. In some 

statutorily defined cases, funds were provided by the Department to reimburse schools for 

loan cancellations. The above schedule includes only Perkins loans that were assigned to 

the Department when schools discontinued their participation in the program. For these 

assigned Perkins loans, collections of principal, interest, and fees, net of amounts paid to 

cover contract collection costs totaled $343 million in FY 2023.

The Federal Perkins Loan Program Extension Act of 2015 (Extension Act) eliminated 

the authorization for schools to make new Perkins loan disbursements as of 

September 30, 2017, and ended all Perkins loan disbursements by June 30, 2018. 

Before the authority for new Perkins loans ended, collections made by the schools 

would go back into each school’s Perkins fund to be used to make more loans. Schools 

are required to return to the Department the federal share of any excess beyond what is 

needed (excess liquid capital). 

Schools are not required to liquidate and close out their programs now that no new Perkins 

loans are being made. Schools continue to take in collections and are required to return the 

federal share of the capital that is collected to the Department on an annual basis. Schools 

returned $521 million to the Department in FY 2023 for the federal share of collected cash. 
FY 2023 AGENCY FINANCIAL REPORT 96 U.S. DEPARTMENT OF EDUCATION

Financial Section (Unaudited)

Beginning with the 2023 reporting year, as part of the wind-down of the Federal Perkins 

Loan Program, the Secretary began requiring schools to assign to the Department all 

Perkins Loans that have been in default for more than two years for which there have 

been no current collections. While the mandatory assignment policy has driven more 

schools to liquidate, the majority of schools are continuing to service existing portfolios to 

recover the money they contributed to their Perkins funds and will do so for as long as it 

is feasible or until the eventual wind-down of their portfolios. Schools that liquidate and 

close out their programs must transfer any outstanding portfolio to the Department and 

liquidate any final cash. Most recent data from the 2024-25 FISAP shows a $1.6 billion 

outstanding principal balance on Perkins loans held by schools and the Department’s 

equity interest on this portfolio is $1.4 billion.

The amounts collected by the Department annually for defaulted Perkins loans and for 

the return of the federal share of schools’ Perkins capital contributions are returned to the 

Treasury General Fund. 

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

eligible undergraduate and graduate students who agree to serve as full-time mathematics, 

science, foreign language, bilingual education, special education, or reading teachers at 

high-need schools for four years within eight years of graduation. The maximum lifetime 

grant for students is $16,000 for undergraduate programs and $8,000 for graduate 

programs. For students failing to fulfill the service requirement, the grants are converted 

to direct unsubsidized Stafford loans. 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 2023 (Unaudited)

Interest Differential Defaults Fees Other Total

Subsidy Rates 76.72% 1.56% 0.00% -32.63% 45.65%

*The Other component reflects costs associated with loan cancelations and the interactive effects of payment plans on the components of subsidy.

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 before 1992. All loan activity for 1992 and beyond is recorded in 

corresponding financing accounts.

Facilities Loan Programs. The Department also administers the HBCU Capital 

Financing program. Since 1992, this program has given HBCUs access to financing for 

the repair, renovation, and in exceptional circumstances, the construction or acquisition of 

facilities, equipment, and infrastructure through federally insured bonds. The Department 

has authorized a designated bonding authority to make loans to eligible institutions, 

charge interest, and collect principal and interest payments. In compliance with HEA, as 

amended, the bonding authority maintains an escrow account to pay the principal and 

interest on bonds for loans in default. 

The total amount of support for HBCU programs, along with any accrued interest and 

unpaid servicing fees, will be capitalized to principal and be reamortized through the 

original maturity date of June 1, 2037. The Department has approximately $378 million 

in outstanding borrowing from the FFB to support loans made to HBCU institutions and 

$951 million obligated to support near term lending as of September 30, 2023.
FY 2023 AGENCY FINANCIAL REPORT 97 U.S. DEPARTMENT OF EDUCATION

Financial Section (Unaudited)

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 IHEs 

for the construction, reconstruction, and renovation of housing, academic, and other 

educational facilities.

NOTE 6. Liabilities Not Covered by Budgetary Resources

(Dollars in Millions)

2023 (Unaudited)

Intragovernmental

 Other than 

Intragovernmental 

Liabilities Not Covered By Budgetary Resources

Unfunded Leave $ - $ 55 

FECA Liabilities 4 14 

Total Liabilities Not Covered By Budgetary Resources 4 69 

Liabilities Not Requiring Budgetary Resources

Subsidy Due to Treasury General Fund 529 - 

Federal Perkins Loan Program 1,377 - 

Miscellaneous Receipt, Deposit Funds and Clearing 

Accounts (68) 865 

Custodial Liabilities 1 - 

Total Liabilities Not Requiring Budgetary Resources 1,839 865 

Total Liabilities Covered By Budgetary Resources 1,190,647 20,259 

Total Liabilities $ 1,192,490 $ 21,193 

NOTE 7. Debt Associated with Loans

(Dollars in Millions)

2023 (Unaudited)

Debt to the Bureau of Public Debt

Direct Loan Program $ 1,127,011 

FFEL Program 60,896 

Other Credit Programs for Higher Education 678 

Total Debt to the Bureau of Public Debt 1,188,585 

Debt to the Federal Financing Bank

Other Credit Programs for Higher Education 378 

Total Debt Associated with Loans $ 1,188,963 

The Department borrows from Treasury’s Bureau of the Public Debt and the FFB to 

fund the disbursement of new loans and the payment of credit program outlays and 

related costs. 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 94.8 percent of the Department’s debt, as of September 30, 2023, is 

attributable to the Direct Loan Program. 
FY 2023 AGENCY FINANCIAL REPORT 98 U.S. DEPARTMENT OF EDUCATION

Financial Section (Unaudited)

NOTE 8. Subsidy Due to Treasury 

(Dollars in Millions)

2023 (Unaudited)

Credit Program Downward Subsidy Re-estimates

Direct Loan Program $ 585 

FFEL Program 516 

Total Credit Program Downward Subsidy Re-estimates 1,101 

Future Liquidating Account Collections

FFEL Program 529 

Total Future Liquidating Account Collections 529 

Total Subsidy Due to Treasury General Fund $ 1,630 

NOTE 9. Other Liabilities

(Dollars in Millions)

2023 (Unaudited)

Intragovernmental

 Other than 

Intragovernmental 

Federal Perkins Loan Program $ 1,377 $ - 

Miscellaneous Receipt, Deposit Funds and Clearing Accounts (68) 865 

Liability for Advances and Prepayments 2 - 

Accrued Funded Payroll and Leave - 28 

Accrued Unfunded Annual Leave - 55 

Employer Contributions and Payroll Taxes Payable 16 2 

FECA Liabilities 4 14 

Custodial Liabilities 1 - 

Total Other Liabilities $ 1,332 $ 964 
FY 2023 AGENCY FINANCIAL REPORT 99 U.S. DEPARTMENT OF EDUCATION

Financial Section (Unaudited)

NOTE 10. 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)

2023 (Unaudited)

2024 $ 54 

2025 47 

2026 48 

2027 49 

2028 50 

After 2028 51 

Total $ 299 

The Department leases from the GSA all or a portion of 15 privately owned and 10 

publicly owned buildings in 20 cities. The table above presents the estimated future 

minimum lease payments for these privately and publicly owned buildings. The decrease 

in the estimated future minimum lease payments is due to anticipated releases of building 

and floor rentals.

Guaranty Agencies

The Department may assist guaranty agencies experiencing financial difficulties. The 

Department has not done so in FY 2023 and does not expect to in future years. No 

provision has been made in the financial statements for potential liabilities.

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. As appropriate, the Department would 

seek recovery from Treasury’s Judgment Fund for any loss in litigation that may occur. 

The Judgment Fund is a permanent, indefinite appropriation available to pay judgments 

against the government if appropriated funds cannot be used. 

The cost of loan forgiveness related to borrower defense claims reflected in the accompanying 

financial statements is limited to loans originated through September 30, 2023. The final 

disposition of claims filed and those yet to be filed from loans originated before September 

30, 2023, is not expected to have a material impact on these financial statements.
FY 2023 AGENCY FINANCIAL REPORT 100 U.S. DEPARTMENT OF EDUCATION

Financial Section (Unaudited)

Report of the Independent Auditors

UNITED STATES DEPARTMENT OF EDUCATION

OFFICE OF INSPECTOR GENERAL

THE INSPECTOR GENERAL

400 MARYLAND AVENUE, S.W., WASHINGTON, DC 20202-1510

Promoting the efficiency, effectiveness, and integrity of the Department’s programs and operations.

November 16, 2023

The Honorable Miguel Cardona

Secretary of Education

Washington, D.C. 20202

Dear Secretary Cardona:

The enclosed Independent Auditors’ Report (report) covers the consolidated balance sheet of 

the United States Department of Education (Department) as of September 30, 2023, and the 

related notes (the consolidated financial statement), to comply with the Chief Financial Officers 

Act of 1990, as amended. The report should be read in conjunction with the Department’s 

consolidated financial statement to fully understand the context of the information contained 

therein.

We engaged the independent certified public accounting firm KPMG LLP (KPMG) to audit the 

consolidated financial statement of the Department as of September 30, 2023. The contract 

requires that the audit be performed in accordance with U.S. generally accepted government 

auditing standards and Office of Management and Budget bulletin, Audit Requirements for 

Federal Financial Statements. Following is a summary of the results reported in the

Independent Auditors’ Report.

Report on the Audit of the Consolidated Financial Statement

Disclaimer of Opinion

KPMG has not been able to obtain sufficient appropriate audit evidence to provide a 

basis for an audit opinion because of unresolved errors KPMG identified in the 

underlying data used to calculate the subsidy re-estimates for the Department’s direct 

loan and loan guaranty programs.

Report on Internal Control Over Financial Reporting

Material Weakness (Exhibit A)

Controls over the Relevance and Reliability of Underlying Data Used in Credit Reform 

Estimates Need Improvement.

Significant Deficiencies (Exhibit B)

Information Technology Controls Need Improvement, and

Entity Level Controls Need Improvement.
FY 2023 AGENCY FINANCIAL REPORT 101 U.S. DEPARTMENT OF EDUCATION

Financial Section (Unaudited)

Page 2 – Independent Auditors’ Report

Report on Compliance and Other Matters 

Compliance and Other Matters (Exhibit C) 

Federal Managers’ Financial Integrity Act of 1982 (FMFIA)

Federal Financial Management Improvement Act of 1996 (FFMIA)

In connection with the contract, the Office of Inspector General reviewed KPMG’s report and 

related documentation and inquired of its representatives. Our review, as differentiated from 

an audit of the consolidated financial statement in accordance with U.S. generally accepted 

government auditing standards, was not intended to enable us to express, and we do not 

express, opinions on the Department’s consolidated financial statement or internal control over 

financial reporting, or conclusions on whether the Department’s financial management systems 

complied substantially with the three FFMIA requirements, or on compliance with laws and 

other matters. KPMG is responsible for the report dated November 16, 2023, and the 

conclusions expressed therein. However, our review disclosed no instances where KPMG did 

not comply, in all material respects, with U.S. generally accepted government auditing 

standards. 

We appreciate the cooperation given KPMG and my office during the audit. If you have any 

questions or would like to discuss the report, please contact me at (202) 245-6900.

Sincerely, 

Sandra D. Bruce

Inspector General

Enclosure
FY 2023 AGENCY FINANCIAL REPORT 102 U.S. DEPARTMENT OF EDUCATION

Financial Section (Unaudited)

Independent Auditors’ Report

Inspector General 

United States Department of Education

Secretary

United States Department of Education:

Report on the Audit of the Consolidated Financial Statement

Disclaimer of Opinion

We were engaged to audit the consolidated balance sheet of the United States Department of Education 

(Department) as of September 30, 2023, and the related notes (the consolidated financial statement).

We do not express an opinion on the accompanying consolidated financial statement of the Department.

Because of the significance of the matter described in the Basis for Disclaimer of Opinion section of our report, 

we have not been able to obtain sufficient appropriate audit evidence to provide a basis for an audit opinion on 

the consolidated financial statement.

Basis for Disclaimer of Opinion 

During fiscal year 2023, we identified errors in the underlying data used to develop assumptions used to 

calculate the subsidy re-estimates for the Department’s direct loan and loan guaranty programs. Management 

was unable to determine the extent of the impact of these issues on the balance sheet and related notes. As a 

result of this matter, we are unable to determine whether any adjustments to the balance sheet might have 

been necessary with respect to the fiscal year 2023 Loan Receivables, Net – Direct Loan Program; Loan 

Receivables, Net – Federal Family Education Loan (FFEL) Program; Subsidy Due to Treasury; Loan 

Guarantee Liabilities; Unexpended Appropriations; Cumulative Results of Operations; and the related notes.

Other Matter - Interactive Data

Management has elected to reference to information on websites or other forms of interactive data outside the 

fiscal year 2023 Agency Financial Report to provide additional information for the users of its consolidated 

financial statement. Such information is not a required part of the consolidated financial statement or 

supplementary information required by the Federal Accounting Standards Advisory Board. The information on 

these websites or the other interactive data has not been subjected to any of our auditing procedures, and 

accordingly we do not express an opinion or provide any assurance on it.

Responsibilities of Management for the Consolidated Financial Statement

Management is responsible for the preparation and fair presentation of the consolidated financial statement in 

accordance with U.S. generally accepted accounting principles, and for the design, implementation, and 

maintenance of internal control relevant to the preparation and fair presentation of the consolidated financial 

statement that is free from material misstatement, whether due to fraud or error.

Auditors’ Responsibilities for the Audit of the Consolidated Financial Statement

Our responsibility is to conduct an audit of the Department’s consolidated financial statement in accordance 

with auditing standards generally accepted in the United States of America (GAAS), Government Auditing 

Standards, issued by the Comptroller General of the United States, and Office of Management and Budget 

KPMG LLP

Suite 12000

1801 K Street, NW

Washington, DC 20006

KPMG LLP, a Delaware limited liability partnership and a member firm of 

the KPMG global organization of independent member firms affiliated with 

KPMG International Limited, a private English company limited by guarantee. 
FY 2023 AGENCY FINANCIAL REPORT 103 U.S. DEPARTMENT OF EDUCATION

Financial Section (Unaudited)

2

(OMB) Bulletin No. 24-01, Audit Requirements for Federal Financial Statements, and to issue an auditors’

report. However, because of the matter described in the Basis for Disclaimer of Opinion section of our report, 

we were not able to obtain sufficient appropriate audit evidence to provide a basis for an audit opinion on this

consolidated financial statement.

We are required to be independent of the Department and to meet our other ethical responsibilities, in 

accordance with the relevant ethical requirements relating to our audit.

Required Supplementary Information

U.S. generally accepted accounting principles require that the information in the Management’s Discussion and 

Analysis and Required Supplementary Information sections be presented to supplement the basic consolidated 

financial statement. Such information is the responsibility of management and, although not a part of the basic 

consolidated financial statement, is required by the Federal Accounting Standards Advisory Board who 

considers it to be an essential part of financial reporting for placing the basic consolidated financial statement in 

an appropriate operational, economic, or historical context. We were unable to apply certain limited procedures 

to the required supplementary information in accordance with GAAS because of the significance of the matter 

described in the Basis for Disclaimer of Opinion paragraph. We do not express an opinion or provide any 

assurance on the information.

Report on Internal Control Over Financial Reporting

In connection with our engagement to audit the Department’s consolidated financial statement as of 

September 30, 2023, we considered the Department’s internal control over financial reporting (internal control) 

as a basis for designing audit procedures that are appropriate in the circumstances for the purpose of 

expressing an opinion on the consolidated financial statement, but not for the purpose of expressing an opinion 

on the effectiveness of the Department’s internal control. Accordingly, we do not express an opinion on the 

effectiveness of the Department’s internal control. We did not test all internal controls relevant to operating 

objectives as broadly defined by the Federal Managers’ Financial Integrity Act of 1982.

Our consideration of internal control was for the limited purpose described in the preceding paragraph and was 

not designed to identify all deficiencies in internal control that might be material weaknesses or significant 

deficiencies and therefore, material weaknesses or significant deficiencies may exist that were not identified. 

However, as described in the accompanying Exhibits, we identified certain deficiencies in internal control that 

we consider to be a material weakness and significant deficiencies.

A deficiency in internal control exists when the design or operation of a control does not allow management or 

employees, in the normal course of performing their assigned functions, to prevent, or detect and correct, 

misstatements on a timely basis. A material weakness is a deficiency, or a combination of deficiencies, in 

internal control, such that there is a reasonable possibility that a material misstatement of the entity’s financial 

statement will not be prevented, or detected and corrected, on a timely basis. We consider the deficiencies 

described in the accompanying Exhibit A, Controls over the Relevance and Reliability of Underlying Data Used 

in Credit Reform Estimates Need Improvement, to be a material weakness.

A significant deficiency is a deficiency, or a combination of deficiencies, in internal control that is less severe 

than a material weakness, yet important enough to merit attention by those charged with governance. We 

consider the deficiencies described in the accompanying Exhibit B, Information Technology Controls Need 

Improvement and Entity Level Controls Need Improvement, to be significant deficiencies.

Report on Compliance and Other Matters

In connection with our engagement to audit the Department’s consolidated financial statement as of

September 30, 2023, we performed tests of its compliance with certain provisions of laws, regulations, 

contracts, and grant agreements, noncompliance with which could have a direct and material effect on the 

consolidated financial statement. However, providing an opinion on compliance with those provisions was not 

an objective of our engagement, and accordingly, we do not express such an opinion. The results of our tests 
FY 2023 AGENCY FINANCIAL REPORT 104 U.S. DEPARTMENT OF EDUCATION

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disclosed instances of noncompliance or other matters that are required to be reported under Government 

Auditing Standards or OMB Bulletin No. 24-01, and which are described in Exhibit C.

We also performed tests of the Department’s compliance with certain provisions referred to in Section 803(a) of 

the Federal Financial Management Improvement Act of 1996 (FFMIA). Providing an opinion on compliance with 

FFMIA was not an objective of our engagement, and accordingly, we do not express such an opinion. The 

results of our tests disclosed instances in which the Department’s financial management systems did not 

substantially comply with the (1) Federal financial management systems requirements and (2) applicable 

Federal accounting standards. The results of our tests disclosed no instances in which the Department’s 

financial management systems did not substantially comply with the United States Government Standard 

General Ledger at the transaction level.

Additionally, if the scope of our work had been sufficient to enable us to express an opinion on the consolidated 

financial statement, other instances of noncompliance or other matters may have been identified and reported 

herein.

Department’s Response to Findings

Government Auditing Standards requires the auditor to perform limited procedures on the Department's 

response to the findings identified in our engagement and described in Exhibit D. The Department’s response 

was not subjected to the other auditing procedures applied in the engagement to audit the consolidated 

financial statement and, accordingly, we express no opinion on the response.

Purpose of the Reporting Required by Government Auditing Standards

The purpose of the communication described in the Report on Internal Control Over Financial Reporting and 

the Report on Compliance and Other Matters sections is solely to describe the scope of our testing of internal 

control and compliance and the results of that testing, and not to provide an opinion on the effectiveness of the 

Department’s internal control or compliance. Accordingly, this communication is not suitable for any other 

purpose.

Washington, D.C.

November 16, 2023
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Exhibit A

Material Weakness

Controls over the Relevance and Reliability of Underlying Data Used in Credit Reform Estimates Need 

Improvement 

Background:

The material weakness under this section is related to the Department’s Direct and FFEL student loan 

portfolios. 

The Department is required to perform interest rate and technical re-estimates of the subsidy costs (commonly 

referred to as subsidy re-estimates) of its direct loan and loan guaranty programs as of September 30 every 

year. 

These subsidy re-estimates are calculated using an internally developed cash flow model, the Student Loan 

Model (SLM). The SLM utilizes assumptions based on internally sourced data elements from Information 

Technology (IT) systems. The future cash flow outputs generated from the SLM are input into the format 

required by the Office of Management and Budget (OMB) Credit Subsidy Calculator (CSC), a required present 

value discount tool for agencies with credit reform programs, to produce the subsidy re-estimates. 

Condition:

Management did not design and implement sufficiently precise controls over the relevance and reliability of

certain data used in key assumptions for the SLM.

Cause/Effect:

Management’s risk assessment process was not sufficient to identify the risk related to the relevance and 

reliability of the underlying data used in significant assumptions for the subsidy re-estimates. Additionally, 

management did not sufficiently communicate errors in the underlying data internally to those responsible for 

calculating the subsidy re-estimates. Inadequate controls over the relevance and reliability of the underlying 

data used to develop the subsidy re-estimates led to errors which increases the risk that the balance sheet and 

related notes could be materially misstated.

Criteria:

The following criteria were considered in the evaluation of the material weakness presented in this exhibit:

• The Standards for Internal Control in the Federal Government issued by the Comptroller General of the 

United States (the Green Book), Principle 6, Define Objectives and Risk Tolerances; Principle No. 10, 

Design Control Activities; Principle No. 13, Use Quality Information; Principle No. 14, Communicate 

Internally. 

• FASAB Technical Release 6, Preparing Estimates for Direct Loan and Loan Guarantee Subsidies under the 

Federal Credit Reform Act – Amendments to Technical Release No. 3 Preparing and Auditing Direct Loan 

and Loan Guarantee Subsidies under the Federal Credit Reforms Act, Paragraph 20.

Recommendation:

We recommend that management design and implement controls that require the validation of the relevance

and reliability of underlying data used in developing the assumptions related to the subsidy re-estimates. Such 

review should be documented and maintained. 
FY 2023 AGENCY FINANCIAL REPORT 106 U.S. DEPARTMENT OF EDUCATION

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Exhibit B

Significant Deficiencies

A. Information Technology Controls Need Improvement

The following control deficiencies in the areas of Information Technology (IT) logical access, security 

management, segregation of IT duties, application change management, and computer operations are related 

to both the Department and Federal Student Aid (FSA) systems. 

Conditions:

In prior years, we reported a significant deficiency related to the Department and FSA’s IT controls due to 

persistent unmitigated IT control deficiencies. During FY 2023, the FSA management demonstrated progress 

implementing corrective actions to remediate some prior-year deficiencies, such as change and configuration 

management controls. However, the Department management and FSA management have not fully 

remediated prior-year deficiencies related to logical access administration, separated and transferred user 

access removal, user access reviews and recertification, configuration management, and computer operations. 

New and existing IT control deficiencies related to security management, access controls, and segregation of IT 

duties for the Department’s core financial management system, three of FSA’s financial and mixed systems, 

and one identity and access management support system are as follows:

Department:

1. Deficiencies in IT security management controls: System deficiencies, including those identified during 

external audits, for the Department’s core financial management system were not documented in Plan of 

Action and Milestones (POA&M) and tracked in the security management tool, as required by Department 

policies and guidance. 

2. Deficiencies in IT logical access controls: Access controls for new and separated contractors were not 

consistently and accurately performed, including the inconsistent reporting of start and termination effective 

dates. Further, the access controls were not consistently followed for the Department’s core financial 

management system. Specifically,

a. documentation supporting the completed security awareness training for new and modified users could 

not be provided; 

b. evidence supporting complete and accurate access reviews and recertifications was not provided or 

retained;

c. password controls were not designed to meet the Department’s requirements; and 

d. the Department’s requirement for the use and monitoring of generic and shared accounts for two of 

three of the Department’s financially relevant applications was not met for all accounts.

3. Deficiencies in IT controls related to the segregation of IT duties: For one of the Department’s core financial 

management systems, users with developer access had access greater than read-only to the system’s 

production environment.

4. Deficiencies in IT application change management and patch management controls: The application 

change management and patch management policies and controls were not consistently followed for the 

Department’s core financial management system in accordance with Department policy. The Department 

did not provide sufficient evidence supporting tracking, security assessment, and approval for certain 

application changes and patches. 
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5. Deficiencies in IT computer operations controls: Controls over computer operations were not properly 

designed and implemented. Specifically, 

a) changes to the job processing and scheduling tools were not centrally tracked; 

b) changes were made directly in the production environment; and

c) the use and monitoring of generic and shared accounts for the job scheduling tool did not follow the 

Department’s requirements.

FSA:

1. Deficiencies in IT security management controls: Management did not effectively operate corrective action, 

remediation, and quality review controls for IT security weaknesses. Specifically, Plan of Action and 

Milestone (POA&M) closure documentation for three FSA systems and one identity and access 

management system did not always address the root cause of the deficiencies, thereby increasing the 

potential of IT control deficiencies reoccurring in the future. 

2. Deficiencies in IT logical access controls: The access control processes were not consistently followed for 

three FSA systems and one identity and access management system. Specifically,

a. evidence supporting complete and accurate access listings and evidence supporting new, modified, or 

separated users was not provided or was provided with missing required information and/or approvals;

b. unauthorized access was provisioned and/or access was provisioned without adhering to the least 

privileged principle;

c. evidence supporting complete and accurate access reviews and recertification controls was 

unavailable or was retained; and

d. the Department’s requirement for multi-factor authentication control was not implemented for all internal 

system users.

Cause/Effect:

Management has not performed effective risk assessments and there was a lack of effective monitoring 

controls over the effectiveness of designed control activities by the Department and FSA to ensure the 

following:

1. All system deficiencies, including those identified during external audits, have a documented POA&M and 

are tracked in the required security management tool. Additionally, corrective actions to remediate 

prior-year conditions and associated causes are fully implemented, as well as verifying and validating that 

these corrective actions were effectively addressing the weakness with adequately documented supporting 

evidence.

2. Systems and support processes consistently adhered to documented agency-wide policies and procedures 

for the financial and mixed systems hosted and managed by FSA and the Department.

3. The established logical access control process is followed and requests and related evidence for new, 

modified, or separated users were retained, documented completely and accurately, and approved.

4. Complete and accurate access reviews are performed to detect and mitigate the risk of unauthorized 

accounts, access that is not commensurate with job responsibilities or least privilege, and access 

permissions not being revoked timely.
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5. Password controls are designed to meet the Department’s requirements.

6. The requirements for the use and monitoring of generic and shared accounts controls are followed and 

enforced. 

7. Segregation of duties and least privilege principles are followed and enforced.

8. The established change process and patch management process are followed.

9. The established process for job processing changes is followed and the requirements for the use and 

monitoring of generic/shared accounts controls for the job scheduling tool are followed and enforced. 

10. The established computer operations process detects and/or prevents unauthorized changes to the job 

processing tool and schedules within the core financial system environment. 

Ineffective IT controls increases the risk of unauthorized use, disclosure, disruption, modification, or destruction 

of information, and information systems that could impact the integrity and reliability of information processed in 

the associated applications which may lead to misstatements of the financial statements.

Criteria:

The following criteria were considered in the evaluation of the significant deficiency presented in this exhibit:

• The Departmental Directive OCIO 3-112, Cybersecurity Policy.

• Department Information Technology (IT) System Access Control Standard.

• Department IT Identification and Authentication (IA) Standard.

• EDCAPS System Security Plan (SSP) control requirements.

• FMS SSP control requirements.

• EDCAPS Configuration Management Plan (CMP).

• Department Information Technology System and Information Integrity (SI) standard policy section 2.2 

control SI-2, Flaw Remediation.

• EDCAPS Patch Management Plan, section 4.7 Patch Maintenance.

• Department Baseline Cybersecurity Standard, OCIO-STND-01, dated September 23, 2021, Section 3.15. 

Acceptable Use. 

• Office of the Chief Information Officer (OCIO), Information Assurance Services (IAS) Plan of Action and 

Milestones, Standard Operating Procedures (SOP), Version 2.8 dated July 7, 2022, Section 1.4 POA&M 

Management and Section 4.7 CAP POA&M Workflow.

• Cybersecurity Policy, Departmental Directive ACSD-OCIO-004, section V. Responsibilities.

• Information Technology (IT) System Security Assessment and Authorization (CA) Standard dated 

January 31, 2023, Section 2.4 CA-5 Plan of Action and Milestones (POA&M) (P, L, M, H and Control 

Overlay).

• IT Program Management (PM) Standard dated January 31, 2023, section 2.4 PM-4 Plan of Action and 

Milestones Process (P, Deployed Organization-Wide).

• The Green Book, Principle No. 2, Exercise Oversight Responsibility, Principle No. 3 Establish Structure, 

Responsibility, and Authority, Principle No. 4, Demonstrate Commitment to Competence, Principle No. 7, 

Identify, Analyze, and Respond to Risks, Principle No. 8 Assess Fraud Risk, Principle No.10, Design 

Control Activities, Principle No. 11, Design Activities for the Information System, Principle No. 13, Use 
FY 2023 AGENCY FINANCIAL REPORT 109 U.S. DEPARTMENT OF EDUCATION

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Quality Information, Principle No.16, Perform Monitoring Activities, Principle No.17, Evaluate Issues and 

Remediate Deficiencies. 

• Federal Information Processing Standards (FIPS) 200, Minimum Security Requirements for Federal 

Information and Information Systems.

• National Institute of Standards and Technology Special Publication 800-53, Security and Privacy Controls 

for Federal Information Systems and Organizations, Revision 5, specifically security control requirements 

CA-5 Plan of Action and Milestones, PM-4 Plan of Action and Milestone Process, AC-2 Account 

Management, AC-5 Separation of Duties, AC-6 Least Privilege, AT-3 Role-based Training, AT-4 Training 

records, IA-2 Identification and Authentication (Organizational Users); CM-3 Configuration Change Control, 

and SI-2 Flaw Remediation. 

Recommendations:

We recommend that the Department:

1. Improve the risk assessment process over IT to help ensure the Department is appropriately defining 

objectives to enable the identification of risks and associated controls to help mitigate the risks.

2. Communicate control issues and/or weaknesses through established tools and relevant reporting lines to 

the appropriate parties on a timely basis to enable prompt evaluation and resolution of the issues and/or 

weaknesses.

3. Evaluate, design, and implement controls to track and report all new and separated contractors.

4. Ensure separated contractors are off-boarded and system personnel are notified in a timely manner to 

disable or remove access to IT resources.

5. Provide training and oversight to the Department’s personnel with on/off-boarding controls to help ensure 

new/separated contractors are properly tracked.

6. Update access review procedures to require the reviewers to verify the access lists received to be used in 

the performance and operation of the access reviews is complete and accurate and not modified prior to 

commencing the access reviews.

7. Identify, design, and implement controls requiring a reviewer to validate the population generated for review 

is complete and accurate. 

8. Enforce established access authorization controls and ensure all requirements are met prior to granting 

system access. Formally perform and document the periodic reviews of all database user accounts in 

accordance with Department policy to confirm access is current, authorized, and commensurate with job 

responsibilities.

9. Ensure the application and database server access review controls include the verification of access 

privileges assigned to the user accounts are commensurate with job responsibilities and follow the concept 

of least privilege.

10. Ensure the database and server layer controls comply and operate with the disabling of inactive accounts 

and account lockout duration password setting requirements, as required by Department Policy. 

11. Adhere to the SSP control requirements and avoid the use of generic and shared accounts. If generic and 

shared accounts are required, obtain a formal risk acceptance and develop a policy and procedure to:

a. Authorize the use of these accounts by approved personnel, 
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b. Control who can access the generic/shared accounts and those sensitive actions performed by the 

accounts are logged and reviewed every time the accounts are used, and

c. Require that generic/shared accounts’ passwords are changed each time approved personnel separate 

or transfer from the Department. 

We recommend that FSA:

12. Design and implement improvements for the risk assessment process over IT to help ensure the FSA is 

appropriately defining objectives to enable the identification of risks and associated controls to help mitigate 

the risks.

13. Design and implement controls to evaluate the magnitude of impact, likelihood of occurrence, and nature of 

the deficiency in order to tailor the corrective actions to remediate the risk and address the root cause. 

Further, update guidance to ensure that quality reviews over the POA&M closure documentation are 

conducted to confirm the noted deficiencies are fully addressed to help prevent future reoccurrences.

14. Formally develop and implement a quality control review process to ensure that logical access control 

processes are followed completely and accurately to validate logical access requests, reviews, and 

recertifications.

15. Ensure segregation of duties and least privilege principles are adhered to when granting user access. 

16. Evaluate and update the access review controls based on risk and enforce segregation of duties. 

17. Reconcile the list of users’ roles and responsibilities from the identity and access software tools to the lists 

that reside in each system accessed by such users. 

18. Update access review policies and controls to require the reviewer to verify the access list, received to be 

used in the performance of the access reviews, is complete and accurate and not modified prior to 

commencing the access reviews.

19. Enforce the operation of established access authorization controls and ensure all requirements are met 

prior to granting access to systems.
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B. Entity Level Controls Need Improvement

A key factor in improving accountability in achieving an entity’s mission is to implement an effective internal 

control system. The control environment sets the tone of an organization by influencing the control 

consciousness of its personnel. It is also the foundation for all components of internal control, providing 

discipline and structure. The Department and FSA need to address weaknesses in its entity-wide control 

environment as we have observed, through our procedures, two entity-wide control environment conditions in 

the areas of risk assessment and monitoring activities that have a pervasive influence on the effectiveness of 

controls. 

Conditions:

1. Risk Assessment- The Department and FSA’s entity level controls were not designed and implemented 

appropriately in order to define objectives related to financial reporting processes to enable the 

identification of risks, define risk tolerances and identify controls responsive to those risks.

2. Monitoring Activities- The Department and FSA’s entity level controls were not designed and implemented 

appropriately in order to remediate identified internal control deficiencies in a timely manner.

Cause/Effect: 

1. Inadequate risk assessment throughout the Department and FSA prevented the proper identification and 

analysis of certain risks related to the financial reporting process at the Department and FSA, and from 

designing appropriate risk responses. 

2. Insufficient monitoring prevented the Department and FSA from implementing corrective action plans and 

remediating control deficiencies timely.

The conditions noted above contributed to the control deficiencies described earlier in Exhibits A and B.A and 

could lead to other weaknesses in internal control over financial reporting. 

Criteria: 

The following criteria were considered in the evaluation of the significant deficiency presented in this Exhibit:

• The Green Book Principle 6, Define Objectives and Risk Tolerances. 

• The Green Book Principle 17, Evaluate Issues and Remediate Deficiencies. 

Recommendations: 

We recommend that management:

1. Improve the risk assessment process at the financial statement assertion level and at the process level to 

ensure the department is appropriately defining objectives to enable the identification of risks and define 

risk tolerances.

2. Implement key monitoring controls to ensure that corrective action plans are implemented to timely 

remediate control deficiencies identified. In addition, increase oversight, review, and accountability over the 

process among various offices and directorates within the Department and FSA. 
FY 2023 AGENCY FINANCIAL REPORT 112 U.S. DEPARTMENT OF EDUCATION

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Exhibit C

Compliance and Other Matters

A. Federal Managers’ Financial Integrity Act of 1982 (FMFIA)

Condition:

Management performed an internal control assessment as required under FMFIA; however, management’s 

assessment did not substantially comply with FMFIA and the related OMB A-123 requirements. Specifically,

management did not consistently identify and document financial statement and process level risks and key 

controls. 

Cause/Effect:

Management did not substantially meet FMFIA requirements due to a lack of adequate risk assessments over 

key processes and data used in the consolidated financial statement. In addition, management did not 

sufficiently consider FMFIA and OMB Circular No. A-123 requirements when performing their evaluation of

internal controls.

This resulted in the lack of timely identification of errors in data that impacted subsidy re-estimates in the 

consolidated financial statement. Furthermore, management could not determine the effect of these errors on 

the consolidated financial statement. 

Criteria:

The following criteria were considered in the evaluation of the compliance matter presented in this Exhibit:

• Section 2 of FMFIA.

• OMB Circular No. A-123, Management’s Responsibility for Enterprise Risk Management and Internal 

Control

Recommendation:

We recommend that management update the risk assessment regarding the evaluation of internal controls to 

ensure it includes all key processes, key data, and other material line items on the consolidated financial 

statement. 
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B. Federal Financial Management Improvement Act of 1996 (FFMIA)

Condition:

Management did not establish and maintain financial management systems that substantially comply with the 

following FFMIA requirements: 

1. Federal Financial Management Systems Requirements. As discussed in Exhibit A, deficiencies in controls 

to prevent or detect errors in data used to calculate subsidy re-estimates prevented management from 

issuing reliable and accurate financial reporting. Specifically, management was unable to produce an 

auditable financial statement based on the data from the agency’s financial system.

2. Federal Accounting Standards. As discussed in Exhibit A, the control deficiencies identified during the audit 

provide an indication that the Department’s financial management systems were substantially noncompliant 

with applicable federal accounting standards. Specifically, management was unable to provide evidence 

that the cash flow projections for the subsidy re-estimates were based on sufficient relevant and reliable 

data preventing the agency’s ability to prepare an auditable financial statement.

Cause/Effect:

Management did not substantially meet FFMIA requirements due to an inadequate risk assessment over key 

processes and data used in the consolidated financial statement.

This increases the risk that transactions are incorrectly recorded to the general ledger, impacting the 

completeness, existence, and accuracy of the balances in the consolidated financial statement.

Criteria: 

The following criteria were considered in the evaluation of the compliance matter presented in this Exhibit:

• Section 803(a) of FFMIA.

• Appendix D to OMB Circular No. A-123, Compliance with the Federal Financial Management Improvement 

Act of 1996 

Recommendation:

We recommend that management implement the recommendation presented in the material weakness in 

Exhibit A. 
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Exhibit D 

Att: Management’s Response