U.S. Department of Education

FY 2018 AGENCY 

FINANCIAL REPORT
U.S. Department of Education

Betsy DeVos

Secretary

Office of the Chief Financial Officer

Larry Kean

Delegated to Perform the Duties of Chief Financial Officer 

November 15, 2018

This report is in the public domain. Authorization to reproduce it in whole or in part is granted. While permission to 

reprint this publication is not necessary, the citation should be: U.S. Department of Education, Fiscal Year 2018 Agency 

Financial Report, Washington, D.C., 2018. 

NOTICE OF AVAILABILITY OF ALTERNATE FORMATS

This report is available at http://www.ed.gov/about/reports/annual/index.html. On request, the report also is 

available in alternative formats, such as Braille, large print, or compact disc. For more information, please contact our 

Alternate Format Center at 202-260-0852 or the 504 coordinator via e-mail at om_eeos@ed.gov. 

To become connected to the Department through social media, please visit the Department’s website at www.ed.gov. 

Our Twitter page is at @usedgov, and our blog is at Homeroom.

NOTICE TO LIMITED ENGLISH PROFICIENT PERSONS

Notice of Language Assistance: If you have difficulty understanding English, you may request language assistance 

services, free of charge, for this Department information by calling 1-800-USA-LEARN (1-800-872-5327) 

(TTY: 1-800-877-8339), or by e-mailing us at Ed.Language.Assistance@ed.gov. 

For Fiscal Year 2018, in addition to the Agency Financial Report (AFR), the Department will post to its website 

the Annual Performance Report (APR). The APR and the Congressional Budget Justification will be posted on the 

Department’s website at http://www.ed.gov/about/reports/annual/index.html with the FY 2020 budget.

Please submit your comments and questions regarding this report, and any suggestions to improve its usefulness to 

AFRComments@ed.gov or write to:

Office of the Chief Financial Officer

U.S. Department of Education

Washington, D.C. 20202-0600
FY 2018 AGENCY FINANCIAL REPORT i | U.S. DEPARTMENT OF EDUCATION

ABOUT THIS REPORT

The purpose of the United States Department of 

Education’s (the Department) Fiscal Year (FY) 2018 

Agency Financial Report (AFR) is to inform Congress, the 

President, other external stakeholders, and the American 

people on how the Department used the federal resources 

entrusted to it to promote student achievement and 

preparation for global competitiveness by fostering 

educational excellence and ensuring equal access. The 

Department accomplishes its mission and the related 

strategic goals and objectives by administering programs 

that range from preschool education through postdoctoral 

research; enforcing civil rights laws to provide equal access 

and treatment; and supporting research that examines ways 

that states, schools, districts, and postsecondary institutions 

can improve America’s education system. As evidenced by 

the information contained in this AFR, the Department has 

demonstrated that it is a good steward of financial resources 

and has put in place well-controlled and well-managed 

business and financial management systems and processes. 

The AFR also provides high-level financial and performance 

highlights, assessments of controls, a summary of 

challenges, and a demonstration of the Department’s 

stewardship. This report is required by legislation 

and complies with the requirements of the Office of 

Management and Budget’s (OMB) Circulars A-11, 

Preparation, Submission, and Execution of the Budget; 

A-123, Management’s Responsibility for Enterprise Risk 

Management and Internal Control; and A-136, Financial 

Reporting Requirements. The report satisfies the reporting 

requirements contained in the following legislation: 

 Improper Payments Elimination and 

Recovery Improvement Act of 2012 (IPERIA) 

 Improper Payments Elimination and 

Recovery Act of 2010 (IPERA)

 Government Performance and Results Act (GPRA) 

Modernization Act of 2010

 Federal Information Security Management 

Act of 2002

 Reports Consolidation Act of 2000

 Federal Financial Management Improvement 

Act of 1996 

 Government Management Reform Act of 1994 

 Chief Financial Officers Act of 1990 

 Federal Managers’ Financial Integrity Act of 1982 

 General Education Provisions Act

 Department of Education Organization 

Act of 1979

Federal Student Aid (FSA), a principal office of the 

Department and a designated Performance-Based 

Organization, also produces a separate Annual Report

that details their financial and program performance. 

Summary level information about FSA activities can be 

found in the applicable sections of this report. For more 

detail on FSA’s performance and financial information, 

refer to StudentAid.gov.

CERTIFICATE OF EXCELLENCE

The Department won its 14th award of 

the prestigious Certificate of Excellence in 

Accountability Reporting by the Association 

of Government Accountants for its 

FY 2017 AFR.
ii FY 2018 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION

HOW THIS REPORT IS ORGANIZED

The AFR is designed to focus on use of federal resources provided to or distributed by the Department to support its 

mission, with a particular emphasis on the challenges ahead.

MANAGEMENT’S 

DISCUSSION AND ANALYSIS

FINANCIAL SECTION

OTHER INFORMATION

APPENDICES

This section provides information about the Department’s mission and 

organizational structure as well as its high-level performance results, 

financial highlights, and management assurances regarding internal controls.

This section provides a message from the Chief Financial Officer, the 

financial statements and notes, required supplementary information 

and supplementary stewardship information, and the report from the 

independent auditors.

This section provides payment integrity reporting details, a summary of 

financial statement audit and management assurances, and the Office of 

Inspector General’s Management and Performance Challenges for FY 2019 

Executive Summary.

This section provides a listing of selected Department web links, 

education resources, and a glossary of acronyms and abbreviations.

MANAGEMENT’S 

DISCUSSION 

AND ANALYSIS

OTHER 

INFORMATION

APPENDICES

FINANCIAL 

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

KEY ACCOMPLISHMENTS

MANAGEMENT’S 

DISCUSSION AND ANALYSIS

MANAGEMENT’S 

DISCUSSION AND ANALYSIS

FINANCIAL SECTION

FINANCIAL SECTION

OTHER INFORMATION

OTHER INFORMATION

APPENDICES

APPENDICES

On February 12, 2018, the Department published 

its new Strategic Plan for Fiscal Years (FY) 2018–22, 

as well as a set of 4 new Agency Priority Goals (APGs). 

To read more on performance, see page 5.

On November 29, 2017, Federal Student Aid (FSA) 

announced the blueprint for its Next Generation 

Financial Services Environment (Next Gen FSA). 

To read more on the Department’s progress and 

plans for Next Gen FSA, see pages 7 and 25.

An education resource has been added to Appendix A, 

Education Resources Information Center (ERIC). 

ERIC is the world’s largest free digital library of 

education research.

A web link for the Regional Education Laboratory 

(REL) Program has been added to Appendix A. 

The REL Program supports the use of research and 

evidence to help improve student performance.

The Department received an unmodified or 

“clean” opinion on its financial statements for the 

17th consecutive year. Please see page 76 

for the Auditors Report.

The Statement of Net Cost and related notes 

were revised to align with the new goals in the 

Department’s Strategic Plan for FY 2018–22 and 

to significantly enhance cost transparency for the 

Department’s programs.

 In FY 2018, the Department developed a statisticallyvalid methodology to be implemented in FY 2019 to 

estimate improper payments for its risk susceptible 

programs. This new methodology will improve 

the accuracy of the estimates.

FSA has launched a new initiative to enable more 

comprehensive analysis of Office of Inspector General 

(OIG) fraud referrals. FSA will leverage resultant data 

analytics to identify risks and vulnerabilities to fraud. 

See page 115 for additional information.
iv FY 2018 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION

As we at the Department continue to focus on students 

and their success, I would like to note the Department’s 

accomplishments this past fiscal year, and plans for the 

next year. 

Our work is guided by four main priorities: supporting 

State and local efforts to improve learning outcomes 

for P–12 students; expanding postsecondary education 

options and improving outcomes; strengthening the 

quality, accessibility and use of education data; and 

reforming the effectiveness, efficiency and accountability 

of the Department. 

Our priority of supporting State and local efforts to 

improve learning outcomes for P–12 is premised on the 

fact that every student is an individual, with different 

experiences, different needs, different learning styles 

and different goals. Students can benefit from more 

freedom. State and local communities are starting to 

embrace the flexibility that the Every Student Succeeds 

Act (ESSA) affords. 

ESSA provides flexibilities for states to pilot different 

types of programs. One pilot is the Innovative 

Assessment Demonstration Authority (IADA) program, 

which was designed to lower barriers to innovation 

and encourages local involvement in the development 

of the next generation of assessments. States can 

pilot innovative assessments on a small scale, develop 

strategies for implementing those assessments statewide 

and avoid replicative testing of students. States can 

make assessments more relevant and connected to 

the classroom while still providing valid, reliable and 

transparent data on student achievement and growth. 

Also authorized under ESSA, the Student-Centered 

Funding Pilot Program allows local educational agencies 

to create a funding system designed to equitably allocate 

local, State and Federal resources based on student needs. 

This flexibility will allow school districts to combine 

eligible Federal funds with State and local funds to 

allocate resources to schools based on the number of 

students and the corresponding level of need.

In pursuing our priority of expanding postsecondary 

options and improving outcomes, we will provide 

prospective students with actionable, accurate 

information for college enrollment and borrowing 

decisions. The Department plans to utilize a web-based 

tool to provide program-level outcomes, including 

median debt and median earnings for all higher 

education programs, at all Title IV participating 

institutions. This tool will improve transparency by 

providing comparable information for all programs, 

which can help students understand what earnings 

they might expect based on those of prior graduates. 

Providing accurate and relevant data will also increase the 

accountability of institutions by making it more difficult 

for institutions to misrepresent program outcomes of 

prior graduates. 

The Department is also implementing a plan to 

transform Federal student aid and improve customer 

service by modernizing the technology and operational 

components supporting Federal student aid programs. 

On October 1, 2018, the office of Federal Student 

Aid (FSA) launched a redesigned, mobile-friendly Free 

Application for Federal Student Aid (FAFSA®) website. 

Students and parents can now complete and submit 

the FAFSA form on a mobile device in addition to a 

MESSAGE FROM THE SECRETARY

November 14, 2018
MESSAGE FROM THE SECRETARY

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

computer. FSA also launched the myStudentAid mobile 

app featuring the myFAFSA functionality that allows 

students and parents to submit a FAFSA® form. The 

fafsa.gov homepage was also integrated into StudentAid.

gov, making it easier to apply for financial aid directly 

from FSA’s leading online portal. To continue customer 

service improvement, FSA future plans also include 

consolidation of all of its customer-facing websites into a 

single, user-friendly hub to complement the new mobile 

platform and give students, parents and borrowers a 

seamless experience from application through repayment. 

To address future loan-servicing needs, FSA researched 

how world-class financial services organizations design 

and operationalize their customer service engagement 

practices, as well as web and mobile, middleware, data 

processing, analytics, storage and hosting capabilities. 

Through this market research, FSA is refining its strategy 

to implement the Next Generation Financial and Services 

Environment (Next Gen FSA).

Finally, the President’s promise to make the Federal 

government more efficient and effective has been initiated 

with his Executive Order “Comprehensive Plan for 

Reorganizing the Executive Branch.” The Department 

is enacting this order, with reform activities based on 

principles of: reducing redundancy and maximizing 

efficiency; maximizing transparency; leveraging staff 

expertise; and maximizing creative problem-solving and 

teamwork. As part of that reform, the Department is 

reorganizing itself by realigning functions and improving 

internal processes. The aim is that this reform will result 

in higher quality and more timely service to the public; 

improved policy and program coordination; greater focus 

on the Secretary’s priorities; and reduction of internal 

transactional costs. 

To meet the challenges of the 21st century economy, 

the proposed merger of the departments of Education 

and Labor would reduce the Federal footprint and make 

government more responsive to a wide range of needs 

faced by American students and workers.

Good stewardship of taxpayers’ funds is a priority for our 

Department, and I have been assured that the financial 

data included in this AFR are complete and reliable in 

accordance with Federal requirements. The financial 

report includes information and assurances about the 

Department’s financial management systems and controls 

as well as control and compliance challenges noted by the 

Department and its auditors. Similarly the Department’s 

Annual Performance Report and the Annual Performance 

Plan provides information on the completeness and 

reliability of the performance data.

While the Department has made strides this past fiscal 

year, the needs of communities, families and students 

remain great. Each and every student needs learning 

environments that are agile, relevant and exciting for a 

challenging, lifelong learning journey. Because students 

represent 100 percent of our future, those of us at the 

Department continue to strive to give them 100 percent 

of our effort every day.

Betsy DeVos
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FY 2018 AGENCY FINANCIAL REPORT vii | U.S. DEPARTMENT OF EDUCATION

CONTENTS

About This Report ...........................i

How This Report Is Organized ................... ii

Key Accomplishments ............................iii

Message from the Secretary .................. iv

MANAGEMENT’S DISCUSSION AND ANALYSIS 

(UNAUDITED)

About the Management’s 

Discussion and Analysis .................... .2

About the Department .......................3

The Department’s Approach 

to Performance ............................5

Financial Highlights .........................9

Analysis of Systems, 

Controls, and Legal Compliance ............... 16

Secretary’s Statement of Assurance ...........16

Forward-Looking Information ............... .22

FINANCIAL SECTION

About the Financial Section .................28

Financial Statements ..................... 30

Notes to the Financial Statements ........... 35

Required Supplementary Information

(Unaudited) ............................... .68

Required Supplementary Stewardship 

Information (Unaudited) ................... 72

Report of the Independent Auditors .......... 76

OTHER INFORMATION (UNAUDITED)

About the Other Information Section ............ 91

Memorandum from the 

Office of Inspector General .................. 92

Office of Inspector General’s (OIG) 

Management and Performance 

Challenges for Fiscal Year 2019 

Executive Summary .......................... 93

Summary of Financial Statement 

Audit and Management Assurances .......... 100

Payment Integrity ......................... 101

Fraud Reduction Report ...................... 115

Reduce the Footprint ....................... 116

Civil Monetary Penalty 

Adjustment for Inflation ....................... .117

The Grants Oversight And New Efficiency 

(GONE) Act of 2016 ......................... 118

APPENDICES

Appendix A: Selected Department 

Web Links and Education Resources ......... 120

Appendix B: Glossary of 

Acronyms and Abbreviations .................123
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MANAGEMENT’S 

DISCUSSION 

AND ANALYSIS
2 FY 2018 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION

MANAGEMENT’S DISCUSSION AND ANALYSIS

The U.S. Department of Education (the 

Department) continued to enhance the content 

quality, report layout, and public accessibility 

of the Fiscal Year (FY) 2018 Agency Financial Report 

(AFR) by improving graphics and providing more useful, 

balanced, and easily understood information about 

the Department’s loan programs, including additional 

cost and risk information. Additionally, we augmented 

information provided in the body of the AFR with 

relevant web content to provide users with additional 

information about the Department’s operations and 

performance. To take advantage of the hyperlinks 

embedded in the report, the Department recommends 

reading it on the Internet. To help us continue to 

improve the quality and usefulness of information 

provided in our AFR, we encourage our public and other 

stakeholders to provide feedback and suggestions at 

AFRComments@ed.gov.

This section highlights information on the Department’s 

performance, financial statements, systems and controls, 

compliance with laws and regulations, and actions taken 

or planned to address select challenges.

MISSION AND ORGANIZATIONAL STRUCTURE

This section provides information about the Department’s 

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

active links include the organization chart and principal 

offices and a link to the full list of Department offices

with a description of selected offices by function.

THE DEPARTMENT’S APPROACH 

TO PERFORMANCE

This section provides a brief summary of the 

Department’s performance goals and results for FY 2018. 

Since the Department has chosen to produce separate 

financial and performance reports, a detailed discussion 

of performance information for FY 2018 will be provided 

in the Department’s Annual Performance Report to be 

released online at the same time as the President’s 

FY 2020 Budget in February 2019. For more information, 

prior-year performance reports can be found on the 

Department’s website. We also urge readers to seek 

programmatic data as it is reported in the Congressional 

Budget Justification, as well as on the web pages of 

individual programs. Any questions or comments 

about the Department’s performance reporting should 

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

performance, please refer to the Department’s budget and 

performance web page at www.Performance.gov.

FORWARD-LOOKING INFORMATION

The Forward-Looking Information section describes 

the challenges that the Department aims to address to 

achieve progress on Enterprise Risk Management (ERM), 

Direct Loans, Next Gen FSA, Technology Business 

Management Solutions (TBMS), and Shared Services.

FINANCIAL HIGHLIGHTS

The Department expends a substantial portion of its 

budgetary resources and cash on multiple loan and grant 

programs intended to support state and local efforts 

to improve learning outcomes for all prekindergarten 

through 12th grade (P–12) students in every community 

and to expand postsecondary education options and 

improve outcomes to foster economic opportunity 

and informed, thoughtful, and productive citizens. 

Accordingly, the Department included more highlevel details about sources and uses of the federal funds 

received and net costs by program.

ANALYSIS OF SYSTEMS, CONTROLS, AND 

LEGAL COMPLIANCE

The Department’s internal control framework 

and its assessment of controls, in accordance with 

Office of Management and Budget (OMB) Circular 

A-123, Management’s Responsibility for Enterprise Risk 

Management and Internal Control, provide assurance to 

Department leadership and external stakeholders that 

financial data produced by the Department’s business and 

financial processes and systems are complete, accurate, 

and reliable. 

ABOUT THE MANAGEMENT’S DISCUSSION AND ANALYSIS
FY 2018 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION 3

MANAGEMENT’S DISCUSSION AND ANALYSIS

OUR MISSION

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

preparation for global competitiveness by fostering educational excellence and 

ensuring equal access.

Who We Are. In 1867, the federal government 

recognized that furthering education was a national 

priority and created a federal education agency to 

collect and report statistical data. The Department was 

established as a cabinet-level agency in 1980. Today, the 

Department supports programs in every area and level of 

education from preschool through postdoctoral research.

The Department makes funds and information 

available to individuals pursuing education, colleges and 

universities, state education agencies, and school districts 

by engaging in four major types of activities:

 establishing policies related to federal education 

funding, including distributing funds, collecting on 

student loans, and using data to monitor the 

use of funds;

 supporting data collection and research on 

America’s schools;

 identifying major issues in education and focusing 

national attention on them; and

 enforcing federal laws promoting equal access and 

prohibiting discrimination in programs that receive 

federal funds.

Our Public Benefit. The Department executes the 

laws passed by Congress to promote student academic 

achievement and preparation for global competitiveness. 

The Department works with students, parents, 

educational institutions, school districts, and states to 

foster educational excellence and to ensure equal access 

to a high quality education for all students. While 

recognizing the primary role of states and school districts 

in providing high quality education, the Department 

is committed to helping ensure students throughout 

the nation develop skills to succeed in school, pursue 

postsecondary options, and transition to the workforce. 

The Department’s vision is to improve educational 

outcomes for all students.

Many of the Department’s programs involve awarding 

grants to state and local educational agencies and 

providing grants and loans to postsecondary students. 

The Department’s largest outlays are for its portfolio of 

student loans (see the Financial Highlights and Notes

sections). Grant programs constitute the second-largest 

driver of outlays. The grant programs include: student 

aid to help pay for college through Pell Grants, Work 

Study, and other campus-based programs; grants awarded 

based on statutory formulas mostly for elementary and 

secondary education; and competitive grant programs 

to promote innovation. The Department also supports 

research, collects education statistics, and enforces civil 

rights statutes. We manage and spend financial resources 

on programs designed to support parents, teachers, 

principals, school leadership, institutions, and states in 

the pursuit of instilling knowledge and transferring skills 

to students.

ABOUT THE DEPARTMENT
4 FY 2018 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION

MANAGEMENT’S DISCUSSION AND ANALYSIS

OUR ORGANIZATION IN FISCAL YEAR 2018

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

and text versions of the FY 2018 coordinating structure of the Department are available.
FY 2018 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION 5

MANAGEMENT’S DISCUSSION AND ANALYSIS

PERFORMANCE MANAGEMENT FRAMEWORK

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

starts with the four-year Strategic Plan, which serves as the foundation for establishing long-term priorities. It also supports 

the development of performance goals, objectives, and measures by which the Department can gauge achievement of 

its stated outcomes. In coordination with the Strategic Plan, the Department established two-year Agency Priority Goals 

(APGs). Progress towards the Department’s Strategic Plan and its APGs are measured using data-driven review and 

analysis. Additional information is available in the Annual Performance Report and Annual Performance Plan.

The FY 2018–22 Strategic Plan is comprised of four strategic goals. The Department continues to welcome input from 

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

about the Strategic Plan should be emailed to PIO@ed.gov.

THE DEPARTMENT’S APPROACH 

TO PERFORMANCE

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

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

their needs.

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

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

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

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

capacity of school staff and families to support students’ academic performance.

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

informed, thoughtful and productive citizenry.

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

lifelong learning and career, technical and adult education.

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

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

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

careers by providing postsecondary credentials or job-ready skills.

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

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

relevant tools and manageable repayment options.

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

and transparency.

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

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

education community.

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

education community.

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

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

processes and policies and working to improve or eliminate them, while continuing to protect taxpayers from 

waste and abuse.

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

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

systems and data.

Strategic Objective 4.4 Improve the engagement and preparation of the Department’s workforce using professional development and 

accountability measures.

FY 2018–22 Strategic Goals and Strategic Objectives1

1

 The FY 2018 Statement of Net Cost and related notes have been updated to align with the new FY 2018–22 Strategic Plan.
6 FY 2018 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION

MANAGEMENT’S DISCUSSION AND ANALYSIS

THE DEPARTMENT’S AGENCY PRIORITY GOALS (APGs)

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

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

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

protections of student privacy, and reduce red tape. The effective implementation of the Department’s APGs will depend, 

in part, on the effective use of high-quality and timely data, including evaluations and performance measures. Quarterly 

updates for the APGs are available on www.Performance.gov.

APG Related Strategic Objective

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

choice options for K–12 students. By September 30, 2019, the Charter 

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

charter schools nationally. The CSP will also support the enrollment of 

50,000 students in new charter schools. Additionally, by September 30, 

2019, the Department will disseminate eight resources, at least one per 

quarter, on evidence-based and promising practices related to school choice.

Strategic Objective 1.1: Increase high-quality educational options 

and empower students and parents to choose an education that 

meets their needs.

Improve borrowers’ access to quality customer service.

By September 30, 2019, Federal Student Aid will improve customers’ 

access to and availability of quality customer service by decreasing 

the overall average speed of answer to 60 seconds or less, decreasing 

abandoned rates to three percent or less and requiring all non-default 

federal student loan servicers to expand and standardize call center hours. 

Strategic Objective 2.4: Improve quality of service for customers 

across the entire student aid life cycle.

Improve student privacy and data security at Institutions of Higher 

Education (IHEs) through outreach and compliance efforts.

By September 30, 2019, the Department will increase information security 

program outreach activities to IHEs by 40% in order to help protect 

IT systems and data privacy and commence audits of IHEs subject to 

A-133 and Gramm-Leach-Bliley Act (GLBA), resulting in 36 IHEs (from a 

baseline of zero) completing an audit of GLBA-related information security 

safeguards with no significant findings.

Strategic Objective 3.2: Improve privacy protections for, and 

transparency of, education data both at the Department and in the 

education community.

Provide regulatory relief to education stakeholders.

By September 30, 2019, the Department will reduce the regulatory 

burden on education stakeholders by submitting to OMB no less than 

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

and 2016).

Strategic Objective 4.1: Provide regulatory relief to educational 

institutions and reduce burden by identifying time-consuming 

regulations, processes and policies and working to improve or 

eliminate them, while continuing to protect taxpayers from waste 

and abuse.

Goal 1. Support state and local efforts to 

improve learning outcomes for all 

P–12 students in every community.

Strategic Goal 1 focuses on outcomes related to 

the transition from the No Child Left Behind Act to 

implementation of the Every Student Succeeds Act (ESSA), 

which reauthorized the Elementary and Secondary 

Education Act in December 2015. The hallmark of the 

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

best for children while preserving important protections 

for economically disadvantaged students, children 

with disabilities, English learners, and other vulnerable 

students. The law requires that states take steps to ensure 

all students have access to excellent teachers and positive, 

safe learning environments that equip them for college 

and career success.

The Agency Priority Goal associated with Strategic 

Goal 1 focuses on expanding educational choice options 

for parents and students. Specifically, the APG aims to 

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

school choice options for K–12 students.

APG for FY 2018–2019: Improve the access 

to, and the quality and transparency of, 

school choice options for K–12 students.

By September 30, 2019, the Charter School Program 

(CSP) will support the creation and expansion of 

300 new charter schools nationally. The CSP will 

also support the enrollment of 50,000 students in new 

charter schools. Additionally, by September 30, 2019, 

the Department will disseminate eight resources, 

at least one per quarter, on evidence-based and 

promising practices related to school choice.
FY 2018 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION 7

MANAGEMENT’S DISCUSSION AND ANALYSIS

To achieve this APG, the Department focused on 

the implementation of its Charter School Program, 

including conducting new competitions and providing 

technical assistance to current grantees. Through CSP, 

the Department supported 134 new charter schools in 

school year 2017–18. The FY 2018 performance target for 

new charter schools was set at 150. Of significant note, 

preliminary data indicate that the total number of students 

enrolled in CSP-supported schools is over 1.6 million, 

which exceeds the FY 2018 target of 1,564,854 (Prior 

Year + 25,000). Additionally, the Department released 

five evidence-based and promising practice resources 

related to educational choice. The Department expects 

to continue to support research in this area through a 

National Center for Research on Education Access and 

Choice (REACH). In July 2018, the Department awarded 

a five-year grant to the REACH Center to complete two 

central activities: carrying out studies and developing the 

National Longitudinal School Choice Database (NLSCD). 

Through a set of 34 studies (quantitative and qualitative), 

the REACH Center will examine five types of state and 

district policies regarding school choice to identify how 

these policies can be structured to improve the education 

received by disadvantaged students. Additional information 

on this APG is available on www.Performance.gov. 

Goal 2. Expand postsecondary educational 

opportunities, improve outcomes to foster 

economic opportunity and promote an informed, 

thoughtful and productive citizenry.

Strategic Goal 2 focuses on expanding the Department’s 

efforts to support innovative and accessible paths to 

postsecondary credentials and job-ready skills training. 

In addition to supporting expanded postsecondary 

opportunities, the Department has a number of initiatives 

focused on affordability. These initiatives ensure borrowers 

have the best information available to make postsecondary 

program selection and associated borrowing decisions. The 

Department also continues to help students understand their 

financial aid options and repayment obligations. The Agency 

Priority Goal associated with Strategic Goal 2 focuses on 

improving borrowers’ access to quality customer service.

Improving access to information and the speed of 

response will allow customers to have expanded access to 

the resources they need to manage their federal student 

loans successfully, which will empower students and help 

them to reduce the risk of delinquency and default. The 

office of Federal Student Aid (FSA) plans to have the 

Next Generation Financial Services Environment (Next 

Gen FSA) transform the student aid customer experience 

with the use of industry best-in-class financial services 

technologies. Due to the rapid development of Next Gen 

FSA, FSA reevaluated and suspended its plan for the 

expansion of call center hours across all servicers. Despite 

this change, FSA continued to communicate with servicers 

regarding expectations for improvements to average 

speed to answer (ASA) and average abandon rate (AR) 

metrics. For FY 2018, the overall average speed to answer 

was 65.97 seconds (from 76.9 seconds in FY 2017; FY 

2018 performance target is less than 70 seconds) and the 

abandonment rate was 3.9 percent (from 3.8 percent in 

FY 2017; FY 2018 performance target is less than three 

percent). FSA delivered the first tangible result of Next 

Gen FSA that customers will be able to see and touch: a 

redesigned fafsa.gov. The website’s pages fit the screen size 

and shape of any device, including desktop computers, 

laptop computers and mobile devices, such as smartphones 

or tablets. The beta mobile application, for the 2017–2018 

FAFSA® form, was rolled out in August 2018. On October 

1, 2018, FSA launched the fully functional myStudentAid 

mobile app, featuring the myFAFSA component, which 

allows individuals to complete and submit the 2019–20 

FAFSA® form. FSA’s flagship website for professionals, the 

Financial Aid Toolkit, received 139,168 visits in FY 2018. 

FSA also leveraged social media, in-person events, and the 

Information for Financial Aid Professionals (IFAP) website 

to disseminate news, information, and updates that IHEs 

need to participate in the Title IV programs successfully. 

Additional information on this APG is available on 

www.Performance.gov.

The website visits for FinancialAidToolkit.ed.gov (the 

website for counselors and mentors) has decreased from 

FY 2017 to FY 2018. In FY 2017, FSA launched the 

FAFSA on October 1 and required tax data from an 

earlier tax year than in the past. That year, we conducted 

a large multichannel marketing effort to ensure our 

customers knew of the changes. One piece of this effort 

was to engage our partners and direct them to the Toolkit 

website for resources. In FY 2018, we did not conduct 

a marketing campaign around the FAFSA. As a result 

the visits to the Toolkit website dropped. In FY 2019, 

we plan to once again conduct a large multichannel 

marketing effort around the launch of the 2019–20 

APG for FY 2018–2019: Improve borrowers’ 

access to quality customer service.

By September 30, 2019, Federal Student Aid will 

improve customers’ access to and availability of 

quality customer service by decreasing the overall 

average speed of answer to 60 seconds or less, 

decreasing abandoned rates to three percent or less 

and requiring all non-default federal student loan 

servicers to expand and standardize call center hours.
8 FY 2018 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION

MANAGEMENT’S DISCUSSION AND ANALYSIS

Department cannot yet report on the number of IHEs 

passing an audit of GLBA-related information security 

safeguards. Additional information on this APG is 

available on www.Performance.gov.

Goal 4. Reform the effectiveness, efficiency and 

accountability of the Department.

The Department’s organizational capacity relies not 

only on our human capital but also on other resources, 

including physical, material, financial, and informational 

resources. Strategic Goal 4 focuses on improving the 

Department’s processes, such as reviewing regulations, 

and where appropriate, on repealing, replacing or 

modifying regulations. The APG associated with 

Strategic Goal 4 aims to provide regulatory relief to 

education stakeholders. 

The Department intends to reduce the regulatory 

burden on stakeholders through review, rescission, and 

modification of outdated, burdensome regulations 

and guidance. The goal will be achieved through a 

comprehensive review of the Department’s regulations 

and guidance to identify those that are overly 

burdensome, inconsistent with Administration priorities, 

unnecessary, outdated, or ineffective. Based on that 

review, the Department will determine whether such 

regulations or guidance need to be modified or rescinded 

and will then take appropriate action consistent with 

applicable law. For FY 2018, the Department submitted a 

total of 24 deregulatory actions, including four significant 

deregulatory actions reflected on reginfo.gov and 20 

requests for significance determination of deregulatory 

actions submitted to OMB via e-mail (FY 2018 

performance targets are two and 13, respectively). The 

Department published two key deregulatory actions: the 

Significant Disproportionality Delay Rule and the State 

Authorization Distance Education Delay Rule. These 

actions provide an estimated $13.1 million in cost savings 

for the regulated communities over the next two years. 

This number includes $7.5 million in cost savings for 

the Significant Disproportionality Delay Rule and $5.6 

million for the State Authorization Distance Education 

Delay Rule.

FAFSA. We anticipate the number of visits to the 

FinanicalAidToolkit.ed.gov will increase in FY 2019.

Goal 3. Strengthen the quality, accessibility 

and use of education data through better 

management, increased privacy protections 

and transparency.

Strategic Goal 3 focuses on strengthening data-driven 

decision-making in education by focusing on the ways 

we manage and make available education data, while 

protecting student privacy. The Department is committed 

to improving how staff and stakeholders access, use, and 

share meaningful data on education while protecting 

privacy. These improvements enable the Department and 

other stakeholders in the education community to better 

provide the public with the information necessary to 

make informed decisions on behalf of their communities, 

states, and local districts. The Agency Priority Goal 

associated with Strategic Goal 3 focuses on improving 

student privacy and data security at IHEs through 

outreach and compliance efforts. Additional information 

on this APG is available on www.Performance.gov.

The Department plans to achieve this APG through 

collaborative efforts involving training, outreach, 

monitoring, and reporting. In FY 2018, FSA and the 

Department’s Privacy Technical Assistance Center 

(PTAC) collaborated to conduct 63 outreach activities 

targeting data privacy and IT security requirements of 

IHE. Many of the outreach activities performed were 

sessions at large conferences (e.g., the sessions at the 

FSA training conference that PTAC gave with 400+ 

attendees per session) and 97% of attendees at two PTAC 

sessions in California and Arkansas agreed or strongly 

agreed that it was helpful. The Office of Management 

and Budget did not include the new audit standards for 

GLBA-related information security safeguards in the 

audit compliance supplement this year. As such, the 

APG for FY 2018–2019: Improve student 

privacy and data security at Institutions of 

Higher Education (IHEs) through outreach 

and compliance efforts.

By September 30, 2019, the Department will increase 

information security program outreach activities to 

IHEs by 40% in order to help protect IT systems 

and data privacy and commence audits of IHEs 

subject to A-133 and the Gramm-Leach-Bliley Act

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

completing an audit of GLBA-related information 

security safeguards with no significant findings.

APG for FY 2018–2019: Provide regulatory 

relief to education stakeholders.

By September 30, 2019, the Department will reduce 

the regulatory burden on education stakeholders 

by submitting to OMB no less than 25 deregulatory 

actions (against a baseline of zero (0) for 

FYs 2015 and 2016).
FY 2018 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION 9

MANAGEMENT’S DISCUSSION AND ANALYSIS

FINANCIAL HIGHLIGHTS

BALANCE SHEETS 

The consolidated balance sheets present, as of a specific 

point in time (the end of the fiscal year), the Department’s 

total assets, total liabilities, and net position.

The Department’s assets totaled $1,328.0 billion as of 

September 30, 2018. The vast majority of the assets 

relate to credit program receivables, which comprised 

91.2 percent of all assets. Direct Loans comprise the 

largest share of these receivables, totaling $1,115.1 

billion. All other assets totaled $117.1 billion, most of 

which was Fund Balance with Treasury.

The Department’s liabilities totaled $1,279.2 billion as 

of September 30, 2018. As with assets, the vast majority 

of the Department’s liabilities are associated with credit 

programs, primarily amounts borrowed from the U.S. 

Department of the Treasury (Treasury) to fund student 

loans. Debt associated with Direct Loans totaled 

$1,150.6 billion as of September 30, 2018. 

INTRODUCTION

This section provides summarized information and 

analyses about the Department’s assets, liabilities, 

net position, sources and uses of funds, program 

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

perspective of the detailed information contained in the 

financial statements and related notes.

The Department consistently produces complete, 

accurate, and timely financial information. The 

Department’s financial statements and notes are prepared 

in accordance with accounting principles generally 

accepted in the United States for federal agencies issued 

by the Federal Accounting Standards Advisory Board and 

the format and content specified by OMB Circular No. 

A-136, Financial Reporting Requirements. The financial

statements, notes, and underlying business processes,

systems, and controls are audited by an independent

accounting firm with audit oversight provided by the

Office of Inspector General (OIG). For 17 consecutive

years, the Department has earned an unmodified (or

“clean”) audit opinion. The financial statements and notes

for FY 2018 are on pages 28–67 and the Independent

Auditors’ Report begins on page 76.
10 FY 2018 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION

MANAGEMENT’S DISCUSSION AND ANALYSIS

Figure 3 shows the changes in the Direct Loan receivables 

components over the past five years. The principal 

continues to grow as the Direct Loan program has 

originated all new federal loans since July 2010. However, 

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

Loan program has originated fewer new loans each year 

since FY 2014 as a result of stagnant and in some cases 

declining enrollment, coinciding with the recovery from 

the 2007–09 recession. Even so, new loan disbursements 

continue to exceed overall loan principal repayments—

student loan borrowers now have more options to 

stretch out their repayment terms and reduce their 

monthly payments. 

In accordance with the Federal Credit Reform Act of 1990

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

value of direct loans and loan guarantees (credit program 

receivables) at the net present value of their future cash 

flows, discounted at a fixed rate established based on 

Treasury securities. The difference between the recorded 

principal and interest balance and the net present value 

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

which can be positive or negative.

Prior years’ positive allowance for subsidy balances 

represented estimates of funds expected to be recovered 

in excess of principal loaned less anticipated defaults, 

loan cancellations, and other adjustments. These 

positive allowance for subsidy balances resulted 

primarily from the difference between the interest 

rates charged by the Department to borrowers and the 

interest rates charged to the Department on amounts 

borrowed from Treasury to make the loans. The 

reduction in the positive allowance since FY 2014 is due 

primarily to higher subsidy costs, the main cause being 

high participation in income-driven repayment plans. 

As of FY 2017, the allowance for subsidy changed to a 

negative balance. In practical terms, this means that the 

present value of funds expected to be recovered is now 

less than the principal outstanding.

Direct Loan 

Component 

(Dollars

 in Billions)

Fiscal Year

2014 2015 2016 2017 2018

Principal $ 694.0 $ 800.8 $ 902.8 $ 998.8 $ 1,083.7 

Rate of 

Increase in 

Principal

18.7% 15.4% 12.7% 10.6% 8.5%

Accrued Interest $ 37.1 $ 44.3 $ 50.8 $ 59.5 $ 72.0

Allowance for 

Subsidy $ 47.4 $ 35.5 $ 5.3 $ (16.8) $ (40.7)

Total No. of 

Direct Loan 

Recipients 

(in Millions)

27.9 29.9 31.5 33.0 34.2 Loan Status

Fiscal Year

2014 2015 2016 2017 2018

Total No. of 

Direct Loan 

Recipients 

(in Millions)

27.9 29.9 31.5 33.0 34.2

Total Dollar 

Amount of 

Direct Loans 

Outstanding

 $ 731.2 $ 845.1 $ 953.6 $ 1,058.4 $ 1,155.7 

Current 

Repayment1 247.2 332.0 406.8 467.9 531.4

In School, 

Grace Period, 

and Education 

Deferments

281.8 284.3 289.6 291.7 291.7

Forbearance 

and 

Noneducation 

Deferments

97.8 103.0 106.5 122.5 121.9

Delinquent 

(Past Due 

31–360 Days)

54.6 65.1 71.8 79.5 92.2

Default/

Bankruptcy/

Other

49.8 60.7 78.9 96.8 118.5

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

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

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

Table 1. Payment Status of Direct Loan 

Principal and Interest Balances

(Dollars in Billions)
FY 2018 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION 11

MANAGEMENT’S DISCUSSION AND ANALYSIS

Participation in income-driven repayment plans has 

increased as (a) plans have become available that are 

more advantageous to borrowers, (b) plans have become 

available that expand the potential pool of borrowers, 

and (c) the Department has conducted targeted outreach 

to borrowers to make them aware of their potential 

eligibility for these plans. The percentage of borrowers 

in income-driven repayment plans has grown from 10.6 

percent in FY 2013 to 30.0 percent in FY 2018.

Table 1 shows the payment status of the Direct Loan 

principal and interest balances outstanding over the 

past 5 years. The Current Repayment category consists 

of loans that are being paid back on time, including 

the current portion of loans being repaid pursuant to 

income-driven repayment plans. 

Loans in the Delinquent category are past due anywhere 

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

includes loans that are over 360 days delinquent (default 

status); loans in a nondefaulted bankruptcy status; 

and loans in disability status. While technical default 

is 271 days delinquent, default is defined as 361 days 

delinquent for reporting purposes. The percentage of 

loans in default continues to grow, even as delinquencies 

and new defaults have declined, because defaulted loans 

can be difficult to collect or rehabilitate. The percentage 

of the portfolio in current repayment, which rose from 

34 percent in FY 2014 to 46 percent in FY 2018, has 

eclipsed payments temporarily postponed and has grown 

far faster than loans in default. 

The Department borrows funds to disburse new loans 

and pay credit program outlays and related costs. The 

Department repays Treasury after consideration of cash 

position and the liability for future cash outflows. Figure 

4 shows the Direct Loan program cumulative borrowing 

and repayment activity that resulted in the debt amount 

on the balance sheet. Figure 6 (see page 12) illustrates 

the Direct Loan program financing process and provides 

financing and disbursing trend data.

STATEMENTS OF NET COST

The consolidated statements of net cost report the 

Department’s components of the net cost of operations 

for each fiscal year. Net cost of operations consists of 

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

revenue from activities. Gross costs are composed of the 

cost of credit and grant programs, and operating costs. 

Exchange revenue is primarily interest earned on credit 

program loans. Figure 5 shows the Department’s gross 

costs and earned revenue over the past five years.
12 FY 2018 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION

MANAGEMENT’S DISCUSSION AND ANALYSIS

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

Fiscal Year 2014 2015 2016 2017 2018 

Net Borrowing 120.6 90.9 84.4 67.3 89.1 

 Borrowing from Treasury 171.2 159.7 147.0 160.5 155.3 

 Debt Repayments to Treasury (50.6) (68.7) (62.6) (93.2) (66.2) 

Interest Expense to Treasury (25.2) (27.6) (30.5) (31.3) (32.3)

Interest Earned from Treasury 3.7 4.2 3.9 4.3 3.9 

Cumulative Taxpayer Cost / (Savings) (47.4) (35.5) (5.3) 16.8 40.7 

Current Subsidy Expense (Revenue) 8.1 (0.9) 16.1 5.3 7.4 

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

Fiscal Year 2014 2015 2016 2017 2018 

Loan Disbursements 134.1 142.2 140.5 142.5 134.1

 Stafford Subsidized 25.9 24.0 23.8 23.4 20.3 

 Stafford Unsubsidized 54.7 52.7 52.3 51.4 49.0 

 PLUS 18.9 19.2 19.0 18.7 23.1 

 Consolidation1 34.5 46.4 45.5 49.0 41.6 

Loan Collections2 48.8 65.1 73.2 82.0 84.9 

 Principal 36.3 50.0 55.9 62.6 63.5 

 Interest 10.8 13.4 15.5 17.6 19.5 

 Fees 1.8 1.8 1.8 1.9 1.9 

* Numbers may not add up due to rounding.

1 Consolidation amounts stem from a number of loan programs, including most notably the Federal Family Education Loan (FFEL) program, in 

addition to Direct Loans. 

2 Loan collections include prepayments, including prepayments in full due to consolidation of underlying loans.
FY 2018 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION 13

MANAGEMENT’S DISCUSSION AND ANALYSIS

GROSS COSTS AND EXCHANGE REVENUE BY TYPE 

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

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

subsidy amortization; 

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

 Grant expenses (see Figure 9). 

ANALYSIS OF DIRECT LOAN PROGRAM 

SUBSIDY EXPENSE

One of the components significantly impacting the 

Department’s gross costs pertains to the estimated subsidy 

expense of the Direct Loan program. The Department’s 

gross costs can fluctuate significantly each year as a result 

of changes in the estimated subsidy expense. Subsidy 

expense is an estimate of the present value cost of 

providing direct loans, but excludes the administrative 

costs of issuing and servicing the loans. The Department 

estimates subsidy expense using a set of econometric and 

financial models, as well as cash flow models.

The Department estimates subsidy costs annually for new 

loans disbursed in the current year; updates the previous 

cost estimates for outstanding loans disbursed in prior 

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

estimates based on changes to terms of existing loans 

(subsidy modifications). Figure 8 shows these three 

components of the Direct Loan program subsidy expense 

for the past five years.

Factors, such as interest rates charged to the borrower, 

interest rates on Treasury debt, default rates, fees and 

other costs, and assumptions concerning borrowers’ 

selection of repayment plans, impact the estimated cost 

calculation and determine whether the overall subsidy 

expense is positive or negative. Subsidy expense for new 

2014 2015 2016 2017 2018

Subsidy Expense for 

New Loans Disbursed 

in the Current Year

 $ (22.1) $ (6.2) $ (5.7) $ (2.6) $ (3.1) 

Subsidy 

Re-estimates 30.2 (4.6) 21.8 7.9 7.4

Loan Modification - 9.9 - - 0.1

Total Subsidy 

Expense $ 8.1 $ (0.9) $ 16.1 $ 5.3 $ 4.4
14 FY 2018 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION

MANAGEMENT’S DISCUSSION AND ANALYSIS

loans disbursed in the current year has been negative 

in recent years primarily because lending interest rates 

charged were greater than the historically low rates 

at which the Department borrowed from Treasury. 

In practical terms, a negative subsidy occurs when 

the interest and/or fees charged to the borrower are 

more than sufficient to cover the interest on Treasury 

borrowings and the costs of borrower default.

Direct Loan program re-estimated subsidy cost was adjusted 

upward by $7.4 billion in FY 2018. Re-estimated costs only 

include cohorts that are 90 percent disbursed; cohort years 

1994–2017. In addition to the major assumption updates 

described below, the re-estimate reflects several other 

assumption updates, including interest rates provided by 

OMB, volume, and enter repayment rates. 

 Income-Driven Repayment (IDR) Model Changes—

In 2018, the Department updated several assumptions 

within its IDR submodel and refined the logic for 

borrowers switching between IDR plans. These updates 

led to a net downward re-estimate of $4.1 billion.

 Repayment Plan Selection—The Department 

incorporated new repayment plan data that showed 

a continuing increase in IDR plan usage. The update 

also reflects changes in interpretation of repayment 

plan codes for Direct Loan consolidations. Much of the 

consolidation loan volume that was previously classified 

as standard (ten-year fixed) is now classified as extended. 

Also, the Department changed the methodology for 

assigning and forecasting plans from an origination 

cohort basis to an enter repayment cohort basis. Lastly, 

the Department placed limits on forecasted growth of 

IDR participation to reflect an anticipated saturation 

point. The combined effect of these changes was a net 

upward re-estimate of $2.1 billion.

 Default Rates—The Department made updates to the 

default rate model in FY 2018, primarily reflecting 

updates in the data, which led to a net upward reestimate of $14.8 billion.

The Department has more than 100 grant and loan 

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

Department’s FY 2018 expenses for grant programs 

totaled $71.8 billion. The three largest grant programs are:

 Pell Grants—provides need-based grants to students 

to promote access to postsecondary education. 

Grant amounts are dependent on: the student’s 

expected family contribution; the cost of attendance 

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

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

whether the student attends for a full academic year 

or less. Pell grants are the single largest source of grant 

aid for postsecondary education.

 Education for the Disadvantaged—primarily consists 

of Title I grants that provide financial assistance 

through state educational agencies to local educational 

agencies and public schools with high numbers or 

percentages of poor children to help ensure that all 

children meet challenging state academic content 

and student academic achievement standards. Also 

provides funds to states to support educational 

services to children of migratory farmworkers and 

fishers, and to neglected or delinquent children and 

youth in State-run institutions, attending community 

day programs, and correctional facilities.

 Special Education—primarily consists of Individuals 

with Disabilities Education Act (IDEA) grants that 

provide funds by formula to states to assist them 

in providing a free appropriate public education in 

the least restrictive environment for children with 

disabilities ages 3 through 21 and assists states in 

providing early intervention services for infants and 

toddlers from birth through age two and their families. 

Also provides discretionary grants to institutions of 

higher education and other nonprofit organizations to 

support research, demonstrations, technical assistance 

and dissemination, technology, personnel development 

and parent-training, and information centers.
FY 2018 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION 15

MANAGEMENT’S DISCUSSION AND ANALYSIS

generally accepted accounting principles for federal 

entities and the formats prescribed by OMB. Reports 

used to monitor and control budgetary resources are 

prepared from the same books and records. The financial 

statements should be read with the realization that they 

are for a component of the U.S. Government.

In addition to student loans and grants, the Department 

offers other discretionary grants under a variety of 

authorizing legislation, awarded using a competitive 

process and formula grants, using formulas determined 

by Congress with no application process. 

STATEMENTS OF CHANGES IN NET POSITION

The consolidated statements of changes in net position 

report the beginning net position, the summary effect 

of transactions that affect net position during the fiscal 

year, and the ending net position. Net position consists 

of unexpended appropriations and cumulative results 

of operations. Unexpended appropriations include 

undelivered orders and unobligated balances for grant and 

administrative operations. Cumulative results of operations 

represent the net difference since inception between 

(1) expenses and (2) revenues and financing sources. 

STATEMENTS OF BUDGETARY RESOURCES

The combined statements of budgetary resources present 

information on how budgetary resources were made 

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

Information in the statements is based on budgetary 

transactions as prescribed by OMB and Treasury.

The Department’s budgetary resources totaled $358.5 

billion for the period ended September 30, 2018, 

decreasing from $398.5 billion, or approximately 10.0 

percent from the prior year. Budgetary resources are 

comprised of appropriated budgetary resources of $113.1 

billion and non-budgetary credit reform resources 

of $245.4 billion. The non-budgetary credit reform 

resources are predominantly borrowing authority for the 

loan programs. 

The Department’s gross outlays totaled $298.6 billion 

for the period ended September 30, 2018. Gross 

outlays are primarily comprised of credit program loan 

disbursements and claim payments, credit program 

subsidy interest payments to Treasury, and grant 

payments. Credit program gross outlays were offset 

by $124.4 billion of collections—primarily principal, 

interest, and subsidy collections. 

LIMITATIONS OF THE FINANCIAL STATEMENTS

The principal financial statements are prepared to report 

the financial position and results of operations of the 

reporting entity, pursuant to the requirements of 31 

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

the Department’s books and records in accordance with 

Billions %

CREDIT PROGRAMS $ 221.3 74.3%

DIRECT LOAN PROGRAM 205.0 68.9%

FFEL PROGRAM 15.6 5.2%

OTHER CREDIT PROGRAMS FOR 

HIGHER EDUCATION 0.7 0.2%

GRANTS $ 73.8 24.6%

PELL GRANTS 28.2 9.4%

EDUCATION FOR 

THE DISADVANTAGED 15.3 5.1%

SPECIAL EDUCATION - INDIVIDUALS 

WITH DISABILITIES ACT (IDEA) GRANTS 12.9 4.3%

ALL OTHER GRANTS 17.4 5.8%

CONTRACTUAL SERVICES $ 2.8 0.9%

PERSONNEL COMPENSATION 

AND BENEFITS $ 0.6 0.2%

OTHER $ 0.1 0.0%

TOTAL $ 298.6 100.0%
16 FY 2018 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION

MANAGEMENT’S DISCUSSION AND ANALYSIS

MANAGEMENT ASSURANCES

The Secretary of Education’s 2018 Statement of Assurance provided below is the final report produced by the 

Department’s annual assurance process. Although the Department has not identified any material weaknesses, 

it acknowledges that there are significant weaknesses and management challenges to be addressed that are 

identified elsewhere in this report.

STATEMENT OF ASSURANCE

FISCAL YEAR 2018

November 14, 2018

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

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

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

and financial systems. 

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

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

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

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

applicable laws and regulations.

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

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

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

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

management systems substantially complied with FFMIA requirements. The Department 

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

financial reporting, including controls designed to prevent, detect and recover improper 

payments, in accordance with Appendix A of OMB Circular A-123.

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

compliance with applicable laws and regulations. 

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

internal controls provides Department management with reasonable assurance that the 

objectives of sections 2 and 4 of the FMFIA were achieved as of September 30, 2018.

Betsy DeVos

ANALYSIS OF SYSTEMS, CONTROLS, 

AND LEGAL COMPLIANCE
FY 2018 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION 17

MANAGEMENT’S DISCUSSION AND ANALYSIS

The Department maintains a comprehensive internal 

control framework and assurance process as depicted in 

the following diagram. 

INTRODUCTION

Strong risk management practices and internal control 

help an entity run its operations efficiently and effectively, 

report reliable information about its operations and 

financial position, and comply with applicable laws 

and regulations. The FMFIA requires federal agencies 

to establish internal controls that provide reasonable 

assurance that agency objectives will be achieved. 

OMB Circular A-123, Management’s Responsibility 

for Enterprise Risk Management and Internal 

Control implements FMFIA and defines management’s 

responsibilities for ERM and internal control. The 

Circular provides guidance to federal managers to 

improve accountability and effectiveness of federal 

programs, as well as mission support operations through 

implementation of ERM practices and by establishing, 

maintaining, and assessing internal control effectiveness. 

The guidance requires federal agencies to provide 

reasonable assurance that it has met the three objectives 

of internal controls:

 Operations—Effectiveness and efficiency of operations; 

 Reporting—Reliability of reporting for internal and 

external use; and 

 Compliance—Compliance with applicable laws 

and regulations. 

This section describes the Department’s internal control 

framework, an analysis of the effectiveness of its internal 

controls, and assurances provided by the Department’s 

leadership that internal controls were in place and 

working as intended during FY 2018 to meet the 

three objectives.

Control Framework

The Department’s internal control framework helps to 

ensure that the Department achieves its strategic goals 

and objectives related to delivering education services 

effectively and efficiently while complying with applicable 

laws and regulations and preparing accurate reports. This 

includes providing reasonable assurance to Department 

leadership and external stakeholders that financial data 

produced by the Department’s financial systems are 

complete, accurate, and reliable enough to support the 

preparation and fair presentation of financial statements 

that conform to federal standards, facilitate sound 

financial decision-making, and provide transparency 

about how the Department spent federal funds and 

maintains stewardship over its financial resources.
18 FY 2018 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION

MANAGEMENT’S DISCUSSION AND ANALYSIS

ANALYSIS OF CONTROLS

Overall, the Department relies on the principal office 

annual assurances, supported by risk-based internal 

control evaluations and testing, to provide reasonable 

assurance that its internal controls are well designed and 

in place and working as intended. The Department also 

considers issues identified by external auditors. During 

FY 2016, the Department revised its annual assurance 

process to conform to the new requirements contained 

in the revised U.S. Government Accountability Office 

publication, Standards for Internal Control in the Federal 

Government (commonly referred to as the “Green Book”). 

In FY 2018, the Department further revised the process 

to conform to the revised OMB Circular A-123 issued on 

July 15, 2016.

In FY 2018, the Department identified no material 

control weaknesses related to effective, efficient program 

operations and no areas of noncompliance with laws 

and regulations other than those noted in the Internal 

Control Exceptions section below. Although no material 

weaknesses were identified, the Department realizes that 

it has areas of control that need further strengthening, 

such as those disclosed in this report, the Independent 

Auditors’ Report, and the major challenges identified by 

the Department’s OIG in its OIG FY 2019 Management 

Challenges report. The Department continues to 

demonstrate its commitment to addressing, mitigating, 

or resolving its identified management challenges.

In accordance with OMB Circular A-123, the 

Department also conducted an additional assessment of 

the effectiveness of the Department’s internal controls 

over financial reporting and compliance with key financial 

management laws and regulations as described below. 

Internal Control over Financial Reporting 

The Department maintains strong internal controls 

to identify, document, and assess internal control over 

financial reporting, which includes: 

 comprehensive process documentation for the 

Department’s significant business processes 

and subprocesses,

 maintenance of a control catalogue comprised of 

3,934 key financial, operational, and Information 

Technology (IT) controls that align to the business 

processes (the Department documented 398 key 

controls and FSA documented 3,536 key controls 

[1,541 Business Process and Entity-Level controls and 

1,995 IT controls]), 

The Office of the Chief Financial Officer (OCFO) 

manages the assurance process on behalf of Department 

leadership. The Department established governance 

over the process, consisting of a Senior Management 

Council, a Senior Assessment Team (SAT), and a Core 

Assessment Team (CAT). The Senior Management 

Council is comprised of senior leaders from across the 

Department. It is the primary governance structure 

for ensuring overall management and efficiency of 

Department activities, especially with respect to process, 

procedures, and administrative structures, including 

providing strategic direction for the implementation 

of the internal control program. The SAT and CAT 

include representatives from OCFO, the Office of 

the Chief Information Officer (OCIO), student loan 

and grant-making program offices, Risk Management 

Service, and other operational support offices (including 

the Office of Management). The SAT and CAT provide 

greater oversight and monitoring of activities related to 

internal control assessments. 

The annual assurance process is the primary mechanism 

by which the Department implements FMFIA and 

OMB requirements pertaining to internal control. It 

requires the head of each principal office to evaluate 

its respective internal controls and to assert, in a letter 

to the Chief Financial Officer, that it has reasonable 

assurance that key internal controls are in place and 

working as intended or to provide a detailed description 

of significant deficiencies, material weaknesses, and 

other matters of nonconformance. In making this 

assessment, the head of the principal office considers 

information such as office managers’ personal knowledge 

of operations, external audit results, internal assessments, 

and other related material. 

OCFO staff work with the principal offices to help 

them identify potential control deficiencies and 

consult with the SAT to determine whether they 

represent significant deficiencies or potential material 

weaknesses. Any principal office that identifies a 

significant deficiency or material weakness must prepare 

a Corrective Action Plan to address the issue. These 

Corrective Action Plans, in addition to daily operational 

oversight and management-initiated evaluations, 

facilitate the correction and monitoring of controls. 

If potential material weaknesses are identified, they 

are evaluated by the Senior Management Council 

to determine if they should be reported on the 

Department’s Statement of Assurance.
FY 2018 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION 19

MANAGEMENT’S DISCUSSION AND ANALYSIS

 Grants Management System (G5),

 E2 Travel System, and

 Hyperion Budget Planning.

The Department designated the FMSS as a missioncritical system that provides core financial management 

services, and focused its system strategy on the following 

areas during FY 2018: 

 Managing and implementing cross-validation 

rules throughout the fiscal year to prevent invalid 

accounting transactions from being processed,

 Transmitting the Department’s spending data related 

to contracts, grants, loans, and other financial 

assistance awards for the USASpending.gov initiative 

as part of the Federal Funding Accountability and 

Transparency Act of 2006,

 Transmitting the entire Department’s payments through 

the Department of Treasury Secure Payment System,

 Transmitting the Department’s spending data related to 

contracts, grants, loans, and other financial assistance 

awards for the DATA Act implementation, and

 Initiating the upgrade of the FMSS Oracle E-Business 

Suite application to Oracle R12, to ensure continued 

vendor support, improved security, improved 

infrastructure, and enhanced functionality.

In FY 2019, EDCAPS will continue to provide customer 

service and improve security of its systems by completing 

the Department’s implementation of Oracle E-Business 

Suite R12. In doing so, the Department will be current 

and ready to provide a more secure and better integrated 

financial management application.

The Department’s financial management systems are 

designed to support effective internal control and 

produce accurate, reliable, and timely financial data 

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

and external audits, the Department has not identified 

any material weaknesses in controls over systems. The 

Department has also determined that its financial 

management systems substantially comply with FFMIA 

requirements. However, as noted below in the Internal 

Control Exceptions section, the Department continues to 

address issues and improve its controls over systems.

 technical assistance provided to principal offices to help 

them understand and assess key financial controls,

 a risk-based testing strategy, and

 a process to develop corrective action plans when 

control deficiencies are found and to track progress 

against those plans.

During FY 2018, the Department assessed the design 

and operating effectiveness of 2,767 key financial, 

operational, and IT process controls (the Department 

assessed 119 key controls and FSA assessed 2,648 key 

controls [1,287 Business Process and Entity-Level 

controls and 1,361 IT controls]).

Although some control deficiencies were detected, the 

Department did not identify any significant deficiencies 

or material weaknesses. Corrective actions have been 

initiated for the deficiencies identified. As a function of 

this assessment, the Department tested the key financial 

controls over the Digital Accountability and Transparency 

Act of 2014 (DATA Act) reporting and concluded that 

the controls are designed and operating effectively.

INTERNAL CONTROL OVER FINANCIAL 

MANAGEMENT SYSTEMS

The FFMIA requires management to ensure that the 

Department’s financial management systems consistently 

provide reliable data that comply with federal financial 

management system requirements, applicable federal 

accounting standards, and the U.S. Standard General 

Ledger at the transaction level. Appendix D to OMB 

Circular A-123, Compliance with the Federal Financial 

Management Improvement Act of 1996, and OMB Circular 

A-130, Managing Federal Information as a Strategic 

Resource, provide specific guidance to agency managers 

when assessing conformance to FFMIA requirements. 

The Department’s core financial systems are under the 

umbrella of the Education Central Automated Processing 

System (EDCAPS), serving approximately 8,500 

Departmental internal users in Washington, D.C., and 

10 regional offices throughout the United States, as well 

as 39,600 external users. In FY 2018, the Department 

conducted an annual risk assessment of EDCAPS and 

tested 92 IT security controls, out of a baseline of 630 

IT security controls. EDCAPS is composed of five main 

linked components: 

 Financial Management Support System (FMSS),

 Contracts and Purchasing Support System (CPSS),
20 FY 2018 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION

MANAGEMENT’S DISCUSSION AND ANALYSIS

 100 percent of Department users completed the 

annual computer security and privacy awareness 

training course in FY 2018. The Department 

strictly enforced compliance with annual security 

and privacy awareness training requirements, and 

disabled network accounts for noncompliant users. In 

addition, the Department won the Security Awareness 

Training Scenario category in the Federal Information 

Systems Security Educators Association’s Annual 

Security Awareness, Training, and Education Contest. 

 In January of 2018, OCIO undertook an effort to 

reshape the Department’s cybersecurity policy and 

guidance. A new information security instruction and 

standards framework was developed to allow for 

the following:

 Flexibility

 Alignment with the Framework for Improving 

Critical Infrastructure Cybersecurity in 

coordination with M-17-25

 Alignment with the current budgeting and risk 

reporting structures

 Support for outcomes sensitive to the 

OCIO objectives

 Responsiveness to the risk environment

 Reduction in review and approval timelines

 Workflow automation

ANALYSIS OF LEGAL COMPLIANCE

The Department identified two instances of 

noncompliance with laws and regulations in FY 2018. 

Additionally, reviews and assessments conducted pursuant 

to information technology-related laws and regulations 

identified challenges still facing the Department. 

Federal Information Security Modernization 

Act of 2014

The Federal Information Security Modernization Act of 

2014 (FISMA) requires federal agencies to develop, 

document, and implement an agency-wide program to 

provide security for the information and information 

systems that support the operations and assets of the 

agency and ensure the confidentiality, integrity, and 

availability of system-related information.

The Department’s and FSA’s information security 

programs completed a number of significant activities 

in FY 2017 and FY 2018 to improve cybersecurity 

capabilities and functions, some of which included:

 In August of 2017, OCIO began publishing 

monthly ED Cyber Security Framework (CSF) Risk 

Scorecards. The CSF Risk Scorecard is published 

as part of ED’s Information Security Continuous 

Monitoring (ISCM) efforts to identify cybersecurity 

risks, issues, and opportunities for improvements 

in our cybersecurity protections. The ED CSF Risk 

Scorecard is a detailed analysis tool for Authorizing 

Officials, Information System Owners, and 

Information System Security Officers to:

 Describe the current cybersecurity posture; 

 Describe a target state for cybersecurity; 

 Identify and prioritize opportunities for 

improvement within the context of a continuous 

and repeatable process; 

 Assess progress toward the target state; and

 Communicate among internal and external 

stakeholders about cybersecurity opportunities 

and risks.

 The Department has also continued to 

strengthen its partnership with the Department 

of Homeland Security to deploy Continuous 

Diagnostics and Mitigation capabilities and 

strengthen the Department’s ISCM program.
FY 2018 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION 21

MANAGEMENT’S DISCUSSION AND ANALYSIS

101, 128 Stat. 1146, amended Section 3716(c)(6) of the 

DCIA to require referral of delinquent debt to Treasury’s 

Offset Program within 120 days. 

Due to unique program requirements of the Higher 

Education Act of 1965 (HEA), the Department requested 

guidance from Treasury’s Bureau of Fiscal Service, Office 

of General Counsel for the application of this revised 

DCIA requirement to Title IV debt. Treasury provided 

its interpretation of this requirement for Title IV debt 

in July 2015. Per Treasury’s interpretation, compliance 

for Title IV debt requires that the Title IV debt be: 1) 

in technical default (i.e., 271 days delinquent per Title 

IV aging) and 2) a receivable of the federal government. 

Therefore, the DCIA Treasury Offset Program referral 

requirement for Title IV debt owned by FSA at the time 

of delinquency is 271 days delinquent and for debt 

acquired via a FFEL guarantee default claim or default 

Perkins Loan assignment is 120 days delinquent (per 

DCIA aging which begins upon acceptance of a defaulted 

debt). As of September 30, 2018, the Department and 

FSA were not in compliance with the DCIA Treasury 

Offset Program referral requirement for Title IV debt as 

interpreted by Treasury because FSA had not yet revised 

its loan servicing systems, procedures, and internal 

processes in response to this interpretation. During FY 

2018, FSA continued to implement changes to its default 

loan servicing system and business process for referring 

eligible debts to the Treasury Offset Program sooner. 

In addition, FSA provided guidance to the Guaranty 

Agencies that will facilitate sending debts to Treasury 

sooner. FSA anticipates this first round of changes will 

be implemented during FY 2019. Afterwards, FSA will 

a) revise its compliance reporting procedures to enable 

FSA to establish a new DCIA compliance baseline and 

b) analyze the remaining compliance gap to determine 

next steps. This area of noncompliance is noted in the 

independent auditors’ report, exhibit C.

This determination of noncompliance with the 

DCIA does not represent a material weakness in the 

Department’s internal controls.

Improper Payments Information Act of 2002

The Improper Payments Information Act of 2002 (IPIA), 

Pub. L. 107-300, 116 Stat. 2350, as amended by 

the Improper Payments Elimination and Recovery Act 

of 2010 (IPERA), Pub. L. 111-204, 124 Stat. 2224, 

and the Improper Payments Elimination and Recovery 

Improvement Act of 2012 (IPERIA), Pub. L. 112-248, 

126 Stat. 2390, requires federal agencies to report 

improper payments annually for programs that are 

deemed susceptible to significant improper payments. 

IPERA also requires each agency’s OIG to review the 

agency’s improper payment reporting in its AFR and 

accompanying materials, and to determine whether the 

agency has met six compliance requirements.

In its annual improper payment compliance audit for 

FY 2017, the OIG concluded that the Department was 

not compliant with IPERA because it did not meet one 

of IPERA’s six compliance requirements for the Pell 

Grant (Pell) program. The Department reported an 

improper payment rate for the Pell program that did 

not meet the prior year published reduction target. The 

Department met all six IPERA compliance requirements 

for the Direct Loan program. For FY 2018, the improper 

payment rates for the Pell and Direct Loan programs met 

the prior-year published reduction targets.

This determination of noncompliance with IPERA does 

not represent a material weakness in the Department’s 

internal controls. The Department’s current nonstatistical 

estimation methodology limits the ability to establish 

accurate out-year reduction targets. To address this 

issue, the Department coordinated with OMB and 

other stakeholders in 2018 to develop a statisticallyvalid methodology that will be implemented in 2019 

to estimate improper payments for the Pell Grant and 

Direct Loan programs. This new methodology will 

improve the accuracy of the Department’s improper 

payment estimates and the Department’s ability to set 

and meet reduction targets. 

Debt Collection Improvement Act of 1996

The Debt Collection Improvement Act of 1996 (DCIA), 

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

law as part of the Omnibus Consolidated Rescissions and 

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

1321. The primary purpose of the DCIA is to increase 

the collection of nontax debts owed to the federal 

government. Additionally, the DATA Act, Pub. L. 113-
22 FY 2018 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION

MANAGEMENT’S DISCUSSION AND ANALYSIS

FORWARD-LOOKING INFORMATION

This section summarizes information pertinent to the 

Department’s future progress and success.

Enterprise Risk Management

The Department is focused on improving enterprise 

risk management (ERM) to maximize the Department’s 

value to students and taxpayers through achievement 

of the Department’s strategic goals and objectives. The 

Department’s implementation of ERM includes three 

critical strategies that are more fully described under 

Strategic Objective 4.2, Identify, assess, monitor and 

manage enterprise risks:

1. Creating a risk-aware culture that includes transparent 

discussions of risks.

2. Implementing an ERM framework and capability 

that leverages existing risk management activities and 

governance bodies.

3. Managing risks in a more coordinated and 

strategic manner.

Beginning in FY 2019, when the ERM framework is 

fully implemented, the Department plans to include risk 

information as a central consideration in all critical dayto-day and strategic decision-making activities, including 

resource allocations. In FY 2018, the Department 

established a new governance structure for ERM and 

focused on building a top-down understanding of and 

commitment to managing risk more effectively across the 

organization. Under the new governance structure, senior 

leaders from all offices will participate in establishing and 

implementing enterprise-wide risk management strategies to 

promote strategic risk-taking and coordinated approaches to 

managing cross-cutting management challenges.

While the Department continues working to mature its 

ERM capability and develop a more complete portfolio 

of risks to inform decision-making at all levels of the 

organization, the Senior Management Council has 

focused on providing strategic direction to effectively 

manage its most significant risks. The risks summarized 

below are several of the most significant challenges and 

opportunities facing the Department that will continue 

to receive management priority in FY 2019 and beyond.

DIRECT LOAN PROGRAM

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

Federal Direct Loan (Direct Loan) program, provides 

students and their families with funds to help pay for 

their postsecondary education costs. The following is a 

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

help make student debt more manageable and (2) the 

risks inherent in estimating the cost of the program.

Managing Student Loan Debt

Each year, federal student loans help millions of 

Americans obtain a college education—an investment 

that, on average, has high returns. While the average 

return to a college degree remains high, some students 

leave school poorly equipped to manage their debt.

Traditionally, federal loans of this type have had flat 

10-year repayment schedules, making it difficult for 

borrowers to pay at the start of their career when their 

salaries are lower. The recent expansion of income-driven 

repayment plans grants students the opportunity for 

greater financial flexibility as it pertains to their monthly 

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

How to Repay Your Loans Portal.

Recent trends in student loan repayment data show that:

 More than 80 percent of Direct Loan recipients with 

loans actively in repayment are current on their loans.

 As of June 2018, nearly 7.1 million Direct Loan 

recipients were enrolled in income-driven repayment 

plans, representing a 13 percent increase from June 

2017 and a 34 percent increase from June 2016.

The Department continues to work relentlessly to make 

student debt more manageable. Looking to the future, 

the Department will:

 Continue conducting outreach efforts to inform 

student loan borrowers of their repayment options.

 Work to improve customer service and student aid 

systems and processes by implementing FSA’s Next 

Generation Financial Services Environment 

(Next Gen FSA).
FY 2018 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION 23

MANAGEMENT’S DISCUSSION AND ANALYSIS

repayment plans are available on the Department’s 

website. Future commitment to market and increased 

participation in these plans are areas of uncertainty.

Public Service Loan Forgiveness: Enacted in 2007, the 

Public Service Loan Forgiveness (PSLF) program allows 

a Direct student loan borrower to have the balance of 

their Direct student loans forgiven after having made 

120 qualifying monthly payments under a qualifying 

repayment plan, while working full time for a qualifying 

public service employer (such as government or certain 

types of nonprofit organizations). In general, forgiveness 

provided via PSLF raises the cost of the Direct Loan 

program; however, there is still uncertainty as to how 

many borrowers will take advantage of the program. 

Much of this uncertainty arises because borrowers do not 

need to apply for the program until after having made 

the 120 qualifying monthly payments.

Data on approved PSLF applications first became 

available in FY 2018, since borrowers first became 

eligible for PSLF starting October 1, 2017. As of 

September 30, 2018, the total number of borrowers 

who received forgiveness totaled 206. The value of 

this forgiveness totaled $12.32 million. Despite the 

relatively modest figures of approved applications to 

date, the number of borrowers who have certified 

their employment in a public service organization 

continues to increase. As of September 30, 2018, 

the number of borrowers with certified employment 

totaled 936,029. The low number of approved PSLF 

applications in relation to employment certifications 

may be partially due to the complicated nature of 

the program, in particular the determination of what 

constitutes a qualifying payment. Many borrowers who 

file employment certification forms early in their careers 

may also move into private sector employment before 

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

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

returning to public service work. In the Consolidated 

Appropriations Act, FY 2018, Congress provided $350 

million in funding to forgive up to $500 million in 

loan balances which were ineligible for immediate 

PSLF solely due to having made a payment under a 

nonqualifying repayment plan. Future congressional 

action that may affect eligibility for PSLF will continue 

to be an area of uncertainty. Lastly, the Department 

continues to remain informed on, and manage the risk 

that may arise in relation to, the uncertainty about 

the effect of further borrower outreach on boosting 

participation in the PSLF program.

 Continue to support additional tools like the College 

Scorecard and Financial Aid Shopping Sheet to increase 

transparency around higher education costs and 

outcomes, in an effort to help students and families 

make informed decisions before college enrollment.

Managing Risks and Uncertainty Facing the 

Direct Loan Program’s Cost Estimates

Direct Loan program costs are estimated consistent with 

the requirements of the Federal Credit Reform Act of 1990. 

Under the Act, the future costs and revenues associated 

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

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

cohort tends to deviate from the estimated performance 

during that time, which is not unexpected given the 

inherent uncertainty involved in developing estimates. 

There are four types of inherent risk that make estimating 

lifetime program costs a difficult task.

Legislative, Regulatory, and Policy Risk

There are inherent risks from the possibility that the cost 

structure of the Direct Loan program may be altered 

through legislative, regulatory, or administrative action. 

In addition, recent legislative, regulatory, and policy 

action may be difficult to interpret with regard to effects 

on financial modeling and estimation, given the lack of 

actual trend data availability. Some examples of current 

risks include the following:

Income-Driven Repayment Plans: Several new incomedriven repayment (IDR) plans have been introduced in 

recent years, including Income-Based Repayment, Pay 

as You Earn (PAYE), and Revised Pay As You Earn. IDR 

plans tend to be more costly to the government than 

non-IDR plans; for the 2018 loan cohort, it is estimated 

that the government will recover 29 percent less for 

loans in income-driven repayment plans as compared to 

loans in standard plans. It is important to be careful in 

making such comparisons, however, as the underlying 

characteristics of borrowers selecting plans (and the 

corresponding dynamics of behavior driving selection 

in plans) also plays a role in driving the cost of loans 

enrolled in specific plans. In general, the proliferation 

of IDR plans has made income-driven repayment terms 

more generous (and more costly to the government) 

and made the plans available to a greater number of 

borrowers. Having more plans complicates repayment 

plan selection, since the tradeoffs between available plans 

vary by borrower and may not always be entirely clear. 

Selected comparisons between projected originations and 

borrower repayments under the different income-driven 
24 FY 2018 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION

MANAGEMENT’S DISCUSSION AND ANALYSIS

since a re-estimate worth 1 percent of the portfolio today 

would be more than three times as large as a similar reestimate in FY 2011 ($11.2 billion vs. $3.8 billion).

Macroeconomic Risk

The ultimate amount, timing and value of future 

borrower repayments under the Direct Loan program are 

heavily affected by certain economic factors, especially 

since the introduction of income-based repayment plans. 

Some examples include the following:

Interest Rates: Direct Loan subsidy estimates are very 

sensitive to changes in interest rates. Under the current 

program terms, the fixed borrower rates for direct loans 

are established in advance of the upcoming school year, 

while the Treasury fixed interest rate on borrowings to 

fund those loans is not set until after those awards are 

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

Unexpected changes in interest rates during this time can 

significantly impact the subsidy cost of these loans.

Unemployment: The financial crisis of 2008 and 

ensuing spike in unemployment rates had a dramatic 

effect on both student loan volume and student loan 

performance. Student loan volume peaked along with 

unemployment, as many displaced workers sought higher 

education opportunities. Student loan performance 

suffered as many borrowers repaying their loans were left 

with much less disposable income with which to make 

their loan payments. For example, the cohort default 

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

entering repayment in 2010, while the most recent rate 

is 10.8 percent for loans entering repayment in 2015. 

While recessions and economic downturns are cyclical 

phenomena, their exact timing and impact on the cost 

estimates remain an area of uncertainty.

Wage Growth: The estimated costs of income-driven 

repayment plans are largely dependent on trends in 

observed wage growth. To the extent that future wage 

growth deviates significantly from prior wage growth, 

actual costs of income-driven repayment plans may 

deviate from projected estimated costs. The Department 

continues to manage risks in this area by continuing to 

learn about its borrower base and remain informed on 

such labor market statistics.

Operational Risk

Unforeseen issues in administering and servicing student 

loans may impact the cost estimates. For example, in 

March 2017, a tool used to transfer automatically a 

family’s tax information to both student aid applications 

and IDR plan applications was taken down due to 

Total and Permanent Disability: The Tax Cut and Jobs 

Act of 2017, signed into law on December 22, 2017, 

exempted the discharge of student loans due to total 

and permanent disability (TPD) from taxable income. 

TPD discharges had previously been considered taxable 

income. However, loan amounts discharged due to 

TPD may continue to be considered taxable income for 

state tax purposes. On April 16, 2018, the Department 

of Education announced that it would start matching 

records from the Department’s National Student Loan 

Data System with Department of Veterans Affairs 

systems, in order to expedite the processing of total and 

permanent disability discharges. Borrowers matched 

through this process will be mailed a customized letter 

that will explain eligibility for loan discharge and include 

a TPD application. The borrower can sign and return 

the application to complete the process of applying for 

a TPD discharge. The individual effects of each of these 

changes, as well as the potential interaction between 

them, will remain an area of uncertainty until enough 

actual data can be observed to analyze their impact. 

Estimation Risk

Actual student loan outcomes may deviate from 

estimated student loan outcomes, which is not 

unexpected given the long projection window of up to 

40 years. The Direct Loan program is subject to a large 

number of future borrower-level events and economic 

factors that heavily impact the ultimate cost of issued 

loans. For example, estimates that need to be made for 

loans originating in FY 2017 include how long students 

will remain in school; what repayment plan will be 

chosen; whether the loan will be consolidated; whether 

the borrower will die, become disabled, bankrupt, or 

have another claim for discharge or forgiveness (closed 

school, borrower defense, etc.); if the loan will go 

into deferment or forbearance; if the loan will go into 

default and, if so, what collections will be received on 

the defaulted loan; and, if the loan is in income-driven 

repayment, what the borrower’s employment (public 

sector or not) and income and family status will be over 

the next 25 years. These types of projections are not only 

extremely difficult to make but also are subject to change 

if future student behaviors deviate from past experience. 

Changes in private student loan markets, such as the 

recent increase in refinancing of federal student loans 

into private student loans, also add a layer of uncertainty 

to student loan estimates. Lastly, the Direct student loan 

portfolio has grown from approximately $382 billion 

in FY 2011 to around $1.2 trillion as of the end of FY 

2018. This growth naturally results in larger re-estimates, 
FY 2018 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION 25

MANAGEMENT’S DISCUSSION AND ANALYSIS

and inefficiencies result in higher administrative costs and 

hinder effective oversight.

Next Gen FSA Environment

Multiple websites, mobile applications, contact centers, 

and other customer interfaces will be combined into a 

simplified, consistent, and engaging experience, which 

will be enhanced by standardized training and tools 

across vendors and partners. With a focus on mobile 

engagement, Next Gen FSA will meet customers where 

they are, letting them connect with FSA on the device of 

their choice. Customers will access a modernized, online 

portal with personalized information that helps them 

quickly understand their options and make informed 

decisions throughout the financial aid life cycle, including 

borrowing and loan repayment. While Next Gen FSA will 

cut through the information clutter and provide robust 

self-service, it also will seamlessly connect customers with 

additional support when needed. 

In addition to an improved customer experience, Next 

Gen FSA will completely modernize FSA’s back-end 

systems and infrastructure. This transformation will 

pave the way for improved processing and customer 

management at lower costs. Vendor and partner 

performance standards and accountability measures 

will be built into Next Gen FSA to ensure customers 

receive world-class service while protecting taxpayer 

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

cybersecurity protections across every aspect of the 

student aid experience. Enterprise-wide data analytics 

will drive improved customer service, particularly for 

at-risk students and borrowers, while also enhancing 

our oversight of participating postsecondary schools and 

supporting vendors.

Solicitation and Procurement Process

The Next Gen FSA implementation plan was based, in 

part, on extensive market research with more than 60 

industry leaders. This research-based approach enabled 

FSA to identify best-in-industry standards and technical 

benchmarks that continue to inform the procurement 

process. On February 20, 2018, FSA initiated a 

multistage procurement process designed to identify the 

vendors most capable of supporting the implementation 

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

vendors to deliver the Next Gen FSA environment. 

The Department anticipates awards will be made with 

the goal of new systems and processes coming online 

beginning in FY 2019. The current Title IV Additional 

Servicing (TIVAS) and Not-for-Profit (NFP) indefinitesecurity concerns. Although usage of the tool for IDR 

recertification has since been brought back up, it is yet 

uncertain what, if any, impact this outage may have had 

on student loan cost estimates. However, this example 

highlights that there is an inherent risk that future, 

unpredictable disruptions in the administrative status quo 

may impact student loan cost estimates.

NEXT GEN FSA

About FSA

As the nation’s largest provider of financial aid for 

education beyond high school, FSA delivers more than 

$120 billion in aid each year to students and their 

families. Through programs authorized under the Higher 

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

loans, and work-study funds for college or career school. 

FSA also oversees the approximately 6,000 postsecondary 

institutions that participate in the federal student aid 

programs. In every interaction with students and their 

families, FSA strives to be the most trusted and reliable 

source of student financial aid information and services 

in the nation.

The Vision

FSA has one of the largest consumer loan portfolios in 

the country at $1.4 trillion.1

 It is critical that we provide 

a customer experience that is on par with world-class 

financial services firms and to establish our organization as 

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

The Next Generation Financial Services Environment 

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

modernizing the way we connect with our customers, 

while streamlining our student aid systems and processes. 

This broad effort will deliver an exceptional customer 

experience for millions of Americans across the entire 

student aid life cycle, from fostering greater awareness 

about the availability of financial aid, to applying for aid, 

to repaying loans.

Today’s Environment

In the current federal financial aid process, students 

and families must negotiate a complex and fragmented 

landscape, interacting with multiple systems, vendors, 

processes, and interfaces across a multitude of brands 

and user experiences. Too often, this poor customer 

experience creates confusion, resulting in borrowers 

failing to understand their repayment options and the 

financial implications of their student debt, borrower 

indifference, and, ultimately, higher loan delinquency 

and default rates. Additionally, operational complexities 

1

 This includes FFEL Lender held loans.
26 FY 2018 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION

MANAGEMENT’S DISCUSSION AND ANALYSIS

will incorporate the Department’s entire IT budget of 

approximately $750 million, as well as the ability to use 

the Apptio Benchmarking, Business Insights, and Bill of 

IT modules. These modules will allow the Department 

to benchmark costs between the different program offices 

at ED, as well as between different federal agencies. 

The Business Insights and Bill of IT modules will offer 

additional details regarding total costs for IT projects 

at the Department as well as allow more analysis of our 

vendors and business practices when it comes to IT.

The objective is to implement an integrated solution that 

will allow OCIO to:

 Accurately account for and categorize IT spending in 

IT Cost Towers and Pools.

 Evaluate IT spending using a method that helps 

identify redundant IT assets (e.g. systems, 

applications, and licenses).

 Extract cost elements from disparate sources, analyze 

these elements, and report cost stressors and trends 

to stakeholders.

 Report IT spending in IT Towers and Cost Pools to 

OMB for capital planning. Prepare accurate pricing to 

client offices for the services provided.

Shared Services

The Department of Education uses shared services 

where feasible and practical, including payroll services 

with Department of the Interior and travel services 

with Carlson Wagonlit. The Department is exploring 

shared service and commercial off-the-shelf offerings to 

replace its G5, and its contracts and purchasing system 

(Comprizon). Additionally, the Department will explore 

migrating its financial management system to a shared 

service once the current upgrade from Oracle Enterprise 

Business Suite R11i to R12 is completed and stabilized. 

We will continue to explore other options to further 

leverage shared services for other mission support areas in 

the coming years.

delivery, indefinite-quantity (IDIQ) contracts are set to 

expire in June and September 2019, respectively. Should 

FSA require continued servicing support beyond these 

dates, there are multiple options it can pursue. For 

example, one option would be to issue a new task order 

prior to the expiration of the underlying IDIQ contract 

to one or more of the current servicers. Another option 

would be to extend the underlying IDIQ contract up to 

6 months in accordance with FAR 52.217-8, then issue 

new task orders. The appropriate contractual actions will 

be taken to ensure continued servicing capabilities until 

this portion of the Next Gen FSA vision is implemented.

CONTINUOUS IMPROVEMENT

Improving critical infrastructure, systems, and overall 

capacity, and ensuring sound strategic decision making 

regarding allocation of resources are essential to the 

Department’s future progress and success. Implementing 

Technology Business Management Solutions and 

exploring the expanded use of Shared Services are two of 

the Department’s key initiatives.

Technology Business Management Solutions 

(TBMS) 

The purpose of the TBMS project is to provide an 

integrated solution that will support the Office of 

the Chief Information Officer (OCIO)’s role in 

implementing an Information Technology (IT) cost 

transparency capability. The TBMS project will also 

allow OCIO to communicate IT value with senior 

leadership, improve the efficiency and predictability 

of capital planning, and optimize IT costs. In the FY 

2019 IT Budget-Capital Planning Guidance, the Office 

of Management and Budget requires agencies to begin 

reporting IT spending in alignment with the TBM 

Framework. The new requirements include using Cost 

Pools and IT Towers to classify IT spending. The project 

consists of two phases. The first phase will include 

OCIO’s operating budget of approximately $120 million 

into the TBM Cost Transparency tool provided by the 

Department’s TBM Vendor, Apptio. The second phase 
FINANCIAL 

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

FINANCIAL SECTION | ABOUT THE FINANCIAL SECTION

I

n FY 2018, the Department prepared its financial 

statements as a critical aspect of ensuring accountability 

and stewardship for the public resources entrusted to 

it. Preparation of these statements is an important part of 

the Department’s financial management goal of providing 

accurate and reliable information for decision making.

FINANCIAL STATEMENTS AND NOTES

The Consolidated Balance Sheets summarize 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 Consolidated Statements of Net Cost show, by 

strategic goal, the net cost of operations for the reporting 

period. Net cost of operations consists of full program 

costs incurred by the Department less exchange revenues 

earned by those programs.

The Consolidated Statements of Changes in Net 

Position present the Department’s beginning and 

ending net position by two components—Cumulative 

Results of Operations and Unexpended Appropriations. 

It summarizes the change in net position by major 

transaction category. The ending balances of both 

components of the net position are also reported on the 

Consolidated Balance Sheets.

The Combined Statements of Budgetary Resources

present the budgetary resources available to the 

Department, the status of these resources, and the outlays 

of budgetary resources.

ABOUT THE FINANCIAL SECTION

The Notes to the Financial Statements provide 

information to explain the basis of the accounting and 

presentation used to prepare the statements and to 

explain specific items in the statements. They also provide 

information to support how particular accounts have 

been valued and computed.

Note 1. Summary of Significant Accounting Policies

Note 2. Non-Entity Assets

Note 3. Fund Balance with Treasury

Note 4. Other Assets

Note 5. Credit Programs for Higher Education: 

Credit Program Receivables, Net and 

Liabilities for Loan Guarantees

Note 6. Liabilities Not Covered by 

Budgetary Resources

Note 7. Debt

Note 8. Subsidy Due to Treasury General Fund

Note 9. Other Liabilities

Note 10. Net Cost of Operations 

Note 11. Statements of Budgetary Resources

Note 12. Reconciliation of Net Cost of Operations 

to Budget 

Note 13. Commitments and Contingencies
FY 2018 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION 29

ABOUT THE FINANCIAL SECTION | FINANCIAL SECTION

REQUIRED SUPPLEMENTARY INFORMATION 

(UNAUDITED)

This section contains the Combining Statements of 

Budgetary Resources for the Years Ended September 30, 

2018, and September 30, 2017.

REQUIRED SUPPLEMENTARY 

STEWARDSHIP INFORMATION (UNAUDITED)

Stewardship Expenses summarize spending and 

stakeholder relationships with state and local 

educational agencies. Stewardship resources are 

substantial investments by the federal government 

for the long-term benefit of the nation. Since costs 

of stewardship resources are treated as expenses in 

the financial statements in the year the costs are 

incurred, they are reported as Required Supplementary 

Stewardship Information to highlight the benefit nature 

of the costs and to demonstrate accountability.

Supplementing state and local government funding, 

the Department utilizes its annual appropriations and 

outlay authority to foster human capital improvements 

across the nation by supporting programs along 

the entire spectrum of “cradle to career” education. 

Increased employability makes Americans more 

competitive in the global labor market, yielding lower 

unemployment, higher economic well-being, and 

greater security for the nation.

REPORT OF THE INDEPENDENT AUDITORS

The results of the audit of the Department’s financial 

statements for FY 2018 and FY 2017 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 (OIG) contracted with the 

independent certified public accounting firm of KPMG 

LLP to audit the financial statements of the Department 

as of September 30, 2018, and for the year then ended. 

OIG contracted with the independent certified public 

accounting firm of CliftonLarsonAllen LLP to audit the 

financial statements of the Department as of September 

30, 2017, and for the year then ended.
30 FY 2018 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION

FINANCIAL SECTION | FINANCIAL STATEMENTS

United States Department of Education 

Consolidated Balance Sheets

As of September 30, 2018 and September 30, 2017 

(Dollars in Millions)

FY 2018 FY 2017

ASSETS

Intragovernmental:

Fund Balance with Treasury (Note 3) $ 114,605 $ 110,174

Other Intragovernmental Assets (Note 4) 151 65

Total Intragovernmental 114,756 110,239

Public:

Credit Program Receivables, Net (Note 5)

Direct Loan Program 1,115,053 1,041,554

FFEL Program 92,947 102,410

Other Credit Programs for Higher Education 2,849 2,755

Other Assets (Note 4) 2,377 2,285

Total Public 1,213,226 1,149,004

Total Assets (Note 2) $ 1,327,982 $ 1,259,243

LIABILITIES

Intragovernmental:

Debt (Note 7)

Direct Loan Program $ 1,150,610 $ 1,061,559

FFEL Program 107,261 116,290

Other Credit Programs for Higher Education 2,094 2,222

Subsidy Due to Treasury General Fund (Note 8) 7,536 7,013

Other Intragovernmental Liabilities (Note 9) 2,765 2,633

Total Intragovernmental 1,270,266 1,189,717

Public:

Other Liabilities (Note 9) 8,910 12,366

Total Liabilities (Note 6) $ 1,279,176 $ 1,202,083

Commitments and Contingencies (Note 13)

NET POSITION

Unexpended Appropriations $ 72,166 $ 62,399

Cumulative Results of Operations (23,360) (5,239)

Total Net Position $ 48,806 $ 57,160

Total Liabilities and Net Position $ 1,327,982 $ 1,259,243

The accompanying notes are an integral part of these statements.
FY 2018 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION 31

FINANCIAL STATEMENTS | FINANCIAL SECTION

United States Department of Education 

Consolidated Statement of Net Cost 

For the Year Ended September 30, 2018

(Dollars in Millions)

FY 2018

PROGRAM COSTS

Improve Learning Outcomes for all P–12 Students 

Gross Costs $ 37,277

Earned Revenue (82)

Net Program Costs $ 37,195

Expand Postsecondary Opportunities, Improve Outcomes to Foster Economic Opportunity, 

and Promote Productive Citizenry

Direct Loan Program

Gross Costs $ 37,965

Earned Revenue (32,329)

Net Cost of Direct Loan Program $ 5,636

FFEL Program

Gross Costs $ 4,599

Earned Revenue (3,336)

Net Cost of FFEL Program $ 1,263

Other Credit Programs for Higher Education

Gross Costs $ 298

Earned Revenue (621)

Net Cost of Other Credit Programs for Higher Education $ (323)

Non-Credit Programs

Gross Costs $ 35,764

Earned Revenue (10)

Net Cost for Non-Credit Programs $ 35,754

Net Program Costs $ 42,330

Total Gross Cost $ 115,903

Total Earned Revenue $ (36,378)

Net Cost of Operations (Notes 10 & 12) $ 79,525

The accompanying notes are an integral part of these statements.
32 FY 2018 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION

FINANCIAL SECTION | FINANCIAL STATEMENTS

United States Department of Education 

Consolidated Statement of Net Cost 

For the Year Ended September 30, 2017

(Dollars in Millions)

FY 2017

PROGRAM COSTS

Increase College Access, Quality, and Completion

Gross Costs $ 78,289

Earned Revenue (35,887)

Net Program Costs $ 42,402

Improve Preparation for College and Career from Birth Through 12th Grade, 

Especially for Children with High Needs

Gross Costs $ 22,577

Earned Revenue (10)

Net Program Costs $ 22,567

Ensure Effective Educational Opportunities for All Students

Gross Costs $ 17,258

Earned Revenue (11)

Net Program Costs $ 17,247

Enhance the Education System’s Ability to Continuously Improve

Gross Costs $ 2,122

Earned Revenue (59)

Net Program Costs $ 2,063

Total Program Cost $ 120,246

Total Program Revenue $ (35,967)

Net Cost of Operations (Notes 10 & 12) $ 84,279

The accompanying notes are an integral part of these statements.
FY 2018 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION 33

FINANCIAL STATEMENTS | FINANCIAL SECTION

United States Department of Education 

Consolidated Statements of Changes in Net Position 

For the Years Ended September 30, 2018 and September 30, 2017

(Dollars in Millions)

FY 2018 FY 2017

 Unexpended 

Appropriations 

 Cumulative 

Results of 

Operations 

 Unexpended 

Appropriations 

 Cumulative 

Results of 

Operations 

Beginning Balances $ 62,399 $ (5,239) $ 61,052 $ (28,215)

Budgetary Financing Sources

Appropriations Received $ 100,743 $ - $ 135,945 $ -

Appropriations Transferred In/Out - - 1 -

Other Adjustments (Rescissions, etc.) (1,824) - (1,910) -

Appropriations Used (89,152) 89,152 (132,689) 132,689

Nonexchange Revenue - (3) - -

Other Financing Sources

Imputed Financing from Costs Absorbed by Others - 39 - 27

Negative Subsidy Transfers, Downward Subsidy

Re-estimates, and Other - (27,784) - (25,461)

Total Financing Sources $ 9,767 $ 61,404 $ 1,347 $ 107,255

NET COST OF OPERATIONS $ - $ (79,525) $ - $ (84,279)

NET CHANGE $ 9,767 $ (18,121) $ 1,347 $ 22,976

NET POSITION $ 72,166 $ (23,360) $ 62,399 $ (5,239)

The accompanying notes are an integral part of these statements.
34 FY 2018 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION

FINANCIAL SECTION | FINANCIAL STATEMENTS

The accompanying notes are an integral part of these statements.

United States Department of Education 

Combined Statements of Budgetary Resources 

For the Years Ended September 30, 2018 and September 30, 2017

(Dollars in Millions)

FY 2018 FY 2017

Budgetary 

 Non-Budgetary 

Credit Reform 

Financing Accounts 

Budgetary 

 Non-Budgetary 

Credit Reform 

Financing Accounts 

BUDGETARY RESOURCES

Unobligated Balance from Prior Year Budget Authority (Net) $ 13,286 $ 15,863 $ 16,717 $ 10,558

Appropriations (Discretionary and Mandatory) 99,341 - 134,388 -

Borrowing Authority (Discretionary and Mandatory) (Note 11) - 167,897 - 166,601

Spending Authority from Offsetting Collections (Discretionary and Mandatory) 451 61,666 1,096 69,169

Total Budgetary Resources $ 113,078 $ 245,426 $ 152,201 $ 246,328

Memorandum (non-add) entries:

Net adjustments to unobligated balance brought forward, Oct. 1 $ 1,008 $ (7,350) $ 4,325 $ (4,921)

STATUS OF BUDGETARY RESOURCES

New Obligations Incurred and Upward Adjustments (Total) (Note 11) $ 95,228 $ 221,698 $ 139,923 $ 223,115

Unobligated Balance, End of Year:

Apportioned, Unexpired Accounts 14,495 - 9,012 -

Unapportioned, Unexpired Accounts 2,174 23,728 2,100 23,213

Unexpired Unobligated Balance, End of Year $ 16,669 $ 23,728 $ 11,112 $ 23,213

Expired Unobligated Balance, End of Year 1,181 - 1,166 -

Unobligated Balance, End of Year (Total) $ 17,850 $ 23,728 $ 12,278 $ 23,213

Total Status of Budgetary Resources $ 113,078 $ 245,426 $ 152,201 $ 246,328

OUTLAYS, NET

Outlays, Net (Discretionary and Mandatory) $ 91,080 $ 83,100 $ 131,274 $ 40,460

Distributed Offsetting Receipts (-) (Note 11) (27,370) - (19,562) -

Agency Outlays, Net (Discretionary and Mandatory) (Note 11) $ 63,710 $ 83,100 $ 111,712 $ 40,460
FY 2018 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION 35

NOTES TO THE FINANCIAL STATEMENTS | FINANCIAL SECTION

NOTE 1. Summary of Significant 

Accounting Policies

REPORTING ENTITY AND PROGRAMS

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

a cabinet-level agency of the executive branch of the 

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

Department of Education Organization Act (Public Law 96-

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

of the Department is to promote student achievement 

and preparation for global competitiveness by fostering 

educational excellence and ensuring equal access. 

The Department is primarily responsible for 

administering federal student loan and grant programs 

and provides technical assistance to loan and grant 

recipients and other state and local partners. The largest 

portions of the Department’s financial activities relate 

to the execution of loan and grant programs which are 

discussed below.

Federal Student Loan Programs. The Department 

administers direct loan, loan guarantee, and other 

student aid programs to help students and their families 

finance the cost of postsecondary education. These 

include the William D. Ford Federal Direct Loan (Direct 

Loan) program and the Federal Family Education Loan 

(FFEL) program.

The Direct Loan program, added to the Higher 

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

Loan Reform Act of 1993, authorizes the Department 

to make loans through participating schools to eligible 

undergraduate and graduate students and their 

parents. The Direct Loan program offers four types 

of loans: Stafford, Unsubsidized Stafford, PLUS, and 

Consolidation. Evidence of financial need is required for 

an undergraduate student to receive a subsidized Stafford 

loan. The other three loan programs are available to 

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

meet qualified educational expenses. 

The FFEL program, authorized by the HEA, operates 

through state and private nonprofit guaranty agencies 

NOTES TO THE FINANCIAL STATEMENTS FOR THE 

PERIODS ENDED SEPTEMBER 30, 2018 AND 2017

that provide loan guarantees on loans made by private 

lenders to eligible students. The Student Aid and Fiscal 

Responsibility Act (SAFRA), which was included in the 

Health Care and Education Reconciliation Act of 2010

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

made effective July 1, 2010. FFEL program receivables 

include defaulted FFEL loans and acquired FFEL loans. 

Acquired FFEL loans include interest in student loan 

assets acquired using temporary authority provided in the 

Ensuring Continued Access to Student Loans Act of 2008

(ECASLA). ECASLA gave the Department temporary 

authority to purchase FFEL loans and participation 

interests in those loans. The Department implemented 

three activities under this authority: loan purchase 

commitments; purchases of loan participation interests; 

and a put, or forward purchase commitment, with an 

Asset-Backed Commercial Paper (ABCP) Conduit. This 

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

loan purchase commitments and purchases of loan 

participation interests concluded. However, under the 

terms of the Put Agreement with the conduit, ABCP 

Conduit activity ceased operations in January 2014.

The Department also administers other credit programs 

for higher education. These include the Federal Perkins 

Loan program, the Teacher Education Assistance 

for College and Higher Education Grant (TEACH) 

program, the Health Education Assistance Loan (HEAL) 

program, and facilities loan programs that includes the 

Historically Black Colleges and Universities (HBCU) 

Capital Financing program, along with low-interest loans 

to institutions of higher education for the building and 

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

Grant Programs. The Department has more than 100 

grant programs. The three largest grant programs are 

Title I of the Elementary and Secondary Education 

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

Individuals with Disabilities Education Act (IDEA) 

grants. In addition, the Department offers other 

discretionary grants under a variety of authorizing 

legislation awarded using a competitive process, and 

formula grants using formulas determined by Congress 

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

FINANCIAL SECTION | NOTES TO THE FINANCIAL STATEMENTS

PROGRAM OFFICES

The Department has three major program offices that 

administer most of its loan and grant programs: 

 Federal Student Aid (FSA) administers financial 

assistance programs for students pursuing 

postsecondary education and makes available federal 

grants, direct loans, and work-study funding to 

eligible undergraduate and graduate students.

 The Office of Elementary and Secondary Education 

(OESE) assists state and local educational agencies to 

improve the achievement of preschool, elementary, 

and secondary school students, helps ensure equal 

access to services leading to such improvement—

particularly children with high needs, and provides 

financial assistance to local educational agencies whose 

local revenues are affected by federal activities.

 The Office of Special Education and Rehabilitative 

Services (OSERS) supports programs that help 

provide early intervention and special education 

services to children and youth with disabilities. 

OSERS also supports programs for the vocational 

rehabilitation of youth and adults with disabilities, 

including preemployment transition services and 

other transition services designed to assist students 

with disabilities to enter postsecondary education and 

achieve employment.

Other offices that administer programs and provide 

leadership, technical assistance, and financial support to 

state and local educational activities and institutions of 

higher education for reform, strategic investment, and 

innovation in education include: the Office of Career, 

Technical, and Adult Education (OCTAE); Office of 

Postsecondary Education (OPE); Institute of Education 

Sciences (IES); Office of English Language Acquisition 

(OELA); and Office of Innovation and Improvement 

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

works to ensure equal access to education, promotes 

educational excellence throughout the nation, and 

serves student populations facing discrimination and the 

advocates and institutions promoting systemic solutions 

to civil rights issues. (See Note 10)

BASIS OF ACCOUNTING AND PRESENTATION

These financial statements were prepared to report the 

financial position, net cost of operations, changes in net 

position, and budgetary resources of the Department, as 

required by the Chief Financial Officers Act of 1990 and 

the Government Management Reform Act of 1994. The 

financial statements were prepared from the books and 

records of the Department, in accordance with Generally 

Accepted Accounting Principles (GAAP) accepted 

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

Accounting Standards Advisory Board (FASAB), and 

the Office of Management and Budget (OMB) Circular 

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

financial statements are different from the financial reports 

prepared by the Department pursuant to OMB directives 

that are used to monitor and control the use of budgetary 

resources. FSA also issues audited stand-alone financial 

statements which are included in their annual report.

The Department’s financial statements should be read as 

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

One of the many implications of this is that the liabilities 

cannot be liquidated without legislation providing 

resources and legal authority to do so.

The accounting structure of federal agencies is designed 

to reflect both accrual and budgetary accounting 

transactions. Under the accrual method of accounting, 

revenues are recognized when earned and expenses are 

recognized when a liability is incurred, without regard 

to receipt or payment of cash. Budgetary accounting 

facilitates compliance with legal constraints and controls 

over the use of federal funds.

Intradepartmental transactions and balances have been 

eliminated from the consolidated financial statements. 

ACCOUNTING FOR FEDERAL 

CREDIT PROGRAMS 

The Department’s accounting for its loan and loan 

guarantee programs is based on the requirements of the 

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

of the FCRA is to record the lifetime subsidy cost of 

direct loans and loan guarantees, in present value terms, 

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

of subsidy costs for loans and guarantees include defaults 

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

private loan collectors who receive a set percentage of 

amounts collected; and, as an offset, origination and 

other fees collected. For direct loans, the difference 

between interest rates incurred by the Department on its 

borrowings from Treasury and interest rates charged to 

particular borrowers is also subsidized (or may provide an 

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

NOTES TO THE FINANCIAL STATEMENTS | FINANCIAL SECTION

Under the FCRA, subsidy cost is estimated using the 

net present value of future cash flows to and from 

the Department. In accordance with the FCRA, 

credit programs either estimate a subsidy cost to the 

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

subsidy cost), or estimate a negative subsidy cost. 

Negative subsidy occurs when the estimated cost of 

providing loans to borrowers from Treasury borrowing, 

collection costs, and loan forgiveness is less than the value 

of collections from borrowers for interest and fees, in 

present value terms.

The subsidy costs of direct loan and loan guarantee 

programs are budgeted and tracked by the fiscal year in 

which the loan award is made or the funds committed. 

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

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

or loan guarantees committed by a program in the same 

year even if disbursements occur in subsequent years.

In order to account for the change in the net present 

value of the loan portfolio over time, the subsidy cost 

is “amortized” each year. Amortization accounts for the 

differences in interest rates, accruals, and cash flows 

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

in subsidy estimates and re-estimates. Amortization of 

subsidy is calculated as the difference between interest 

received from borrowers and Treasury (on uninvested 

funds) and interest paid to Treasury on borrowings. 

The FCRA establishes the use of financing, program, 

and Treasury General Fund receipt accounts for loan 

guarantees committed and direct loans obligated after 

September 30, 1991. 

 Financing accounts borrow funds from Treasury, make 

direct loan disbursements, collect fees from lenders 

and borrowers, pay claims on guaranteed loans, collect 

principal and interest from borrowers, earn interest from 

Treasury on any uninvested funds, and transfer excess 

subsidy to Treasury General Fund receipt accounts. 

Financing accounts are presented separately in the 

combined statements of budgetary resources (SBR) as 

non-budgetary credit reform accounts to allow for a 

clear distinction from all other budgetary accounts. This 

facilitates reconciliation of the SBR to the Budget of the 

United States Government (President’s Budget).

 Program accounts receive and obligate appropriations 

to cover the positive subsidy cost of a direct loan 

or loan guarantee when the loan is approved and 

disburses the subsidy cost to the financing account 

when the loan is issued. Program accounts also receive 

appropriations for administrative expenses.

 Treasury General Fund receipt accounts receive 

amounts paid from financing accounts when there 

are negative subsidies for new loan disbursements or 

downward re-estimates of the subsidy cost of existing 

loans. (See Note 11)

The Department records an obligation each year for 

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

estimates of schools’ receipt of aid applications. The 

Department advances funds to schools based on these 

estimates. Promissory notes are signed when schools 

reach individual agreements with borrowers and the 

schools subsequently report each disbursement of 

advanced funds to the Department. A new promissory 

note is usually not required for students in the second 

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

in the fourth quarter of the fiscal year. Loans awarded 

are typically disbursed in multiple installments over an 

academic period. As a result, loans may be disbursed 

over multiple fiscal years. Loan awards may not be fully 

disbursed due to students leaving or transferring to 

other schools. The Department’s obligation estimate 

may also not reflect the actual amount of awards made. 

Based on historical averages, the Department expects 

approximately 7.8 percent of the amount obligated for 

new loan awards will not be disbursed.

When a loan is placed in deferment or forbearance, loan 

repayment is temporarily suspended with the length of 

postponement different for each lender. Interest accrues 

while a loan is in deferment or forbearance. Loans are 

cancelled if a person dies, meets disability requirements, 

or through the bankruptcy courts. Loans are also 

cancelled through the Public Service Loan Forgiveness 

(PSLF) Program, which forgives the remaining balance 

on a direct loan after 120 qualifying monthly payments 

are made. These payments must be made under a 

qualifying repayment plan while working full-time for a 

qualifying employer. In addition, the Department offers 

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

repayment program is designed to help borrowers who 

struggle to make their normal student loan payments. 

The plan allows payments to be limited to 10 percent of 

discretionary income if qualifications are met. Under the 

PAYE program, if all requirements are met, forgiveness 

of the remaining balance of a student loan is possible 

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

FINANCIAL SECTION | NOTES TO THE FINANCIAL STATEMENTS

BUDGETARY RESOURCES

Budgetary resources are amounts available to enter into 

new obligations and to liquidate them. The Department’s 

budgetary resources include unobligated balances of 

resources from prior years and new resources, which 

include appropriations, authority to borrow from 

Treasury, and spending authority from collections.

Borrowing authority is an indefinite budgetary 

resource authorized under the FCRA. This resource, 

when realized, finances the unsubsidized portion of 

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

addition, borrowing authority is requested to cover 

the cost of the initial loan disbursement as well as any 

related negative subsidy to be transferred to Treasury 

General Fund receipt accounts. Treasury prescribes 

the terms and conditions of borrowing authority and 

lends to the financing account amounts as appropriate. 

Amounts borrowed, but not yet disbursed, are included 

in uninvested funds and earn interest. Treasury uses 

the same weighted average interest rates for both the 

interest charged on borrowed funds and the interest 

earned on uninvested funds. Treasury sets a different 

fixed interest rate to be used for each loan cohort once 

the loans are substantially disbursed. The Department 

may carry forward borrowing authority to future fiscal 

years provided that cohorts are disbursing loans. All 

borrowings from Treasury are effective on October 1st of 

the current fiscal year, regardless of when the Department 

borrowed the funds, except for amounts borrowed to 

make annual interest payments.

Authority to borrow from Treasury provides most of 

the funding for disbursements made under the Direct 

Loan, FFEL, and other loan programs. Subsidy and 

administrative costs of the programs are funded by 

appropriations. Borrowings are repaid using collections 

from borrowers, fees, and interest on uninvested funds.

Unobligated balances represent the cumulative amount 

of budgetary resources that are not obligated and 

that remain available for obligation under law, unless 

otherwise restricted. Resources expiring at the end of 

the fiscal year remain available for five years, but only 

for upward adjustments of prior year obligations, after 

which they are cancelled and may not be used. Resources 

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

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

multiyear, or no-year basis. Appropriated funds expire 

on the last day of availability and are no longer available 

for new obligations. Amounts in expired funds are 

unavailable for new obligations, but may be used to 

adjust previously established obligations.

Permanent Indefinite Budget Authority. The Direct 

Loan, FFEL, and other loan programs have permanent 

indefinite budget authority through legislation to fund 

subsequent increases to the estimated future costs of 

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

to the existence, purpose, and availability of permanent 

indefinite budget authority for these programs.

Reauthorization of Legislation. Funds for most 

Department programs are authorized, by statute, to be 

appropriated for a specified number of years, with an 

automatic one-year extension available under Section 422 

of the General Education Provisions Act. Congress may 

continue to appropriate funds after the expiration of the 

statutory authorization period, effectively reauthorizing 

the program through the appropriations process. The 

current Budget of the United States Government presumes 

all programs continue in accordance with congressional 

budgeting rules. (See Note 11)

ENTITY AND NON-ENTITY ASSETS

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

Entity assets are those that the Department has authority 

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

held by the Department but not available for use in its 

operations. Non-entity assets are offset by liabilities to 

third parties and have no impact on net position. The 

Department combines its entity and non-entity assets on 

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

notes. (See Note 2)

FUND BALANCE WITH TREASURY

Fund Balance with Treasury includes amounts available to 

pay current liabilities and finance authorized purchases, 

as well as funds restricted until future appropriations 

are received. Treasury processes cash receipts and cash 

disbursements for the Department. The Department’s 

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

ACCOUNTS RECEIVABLE

Accounts receivable are amounts due to the Department 

from the public and other federal agencies. Receivables 

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

NOTES TO THE FINANCIAL STATEMENTS | FINANCIAL SECTION

of grants and other financial assistance programs, as well 

as disputed costs resulting from audits of educational 

assistance programs. Amounts due from federal agencies 

result from reimbursable agreements entered into by 

the Department with other agencies to provide various 

goods and services. Accounts receivable are reduced to 

net realizable value by an allowance for uncollectible 

amounts. The estimate of an allowance for loss on 

uncollectible accounts is based on the Department’s 

experience in the collection of receivables and an analysis 

of the outstanding balances. (See Note 4)

GUARANTY AGENCIES’ FEDERAL FUNDS

Guaranty Agencies’ Federal Funds are primarily 

comprised of the federal government’s interest in the 

program assets held by state and nonprofit FFEL 

program guaranty agencies. Section 422A of the HEA 

required FFEL guaranty agencies to establish federal 

student loan reserve funds (federal funds). Federal 

funds include initial federal start-up funds, receipts of 

federal reinsurance payments, insurance premiums, 

guaranty agency share of collections on defaulted loans, 

investment income, administrative cost allowances, and 

other assets.

The balance in the Federal Fund represents consolidated 

reserve balances of the 26 guaranty agencies based 

on the Guaranty Agency financial reports that each 

agency submits annually to the Department. Although 

the Department and the guaranty agencies operate on 

different fiscal years, all guaranty agencies are subject to 

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

to adjust the Department’s balances in order to comply 

with federal accounting principles and disclose funds held 

outside of Treasury.

Guaranty Agencies’ Federal Funds are classified as 

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

corresponding liability due to Treasury. The federal 

funds are held by the guaranty agencies but can only 

be used for certain specific purposes listed in the 

Department’s regulations. The federal funds are the 

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

the United States Government. Payments made to the 

Department from guaranty agencies’ federal funds 

through a statutory recall or agency closures represent 

capital transfers and are returned to Treasury’s General 

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

CREDIT PROGRAM RECEIVABLES, NET AND 

LIABILITIES FOR LOAN GUARANTEES 

The financial statements reflect the Department’s estimate 

of the long-term subsidy cost of direct and guaranteed 

loans in accordance with the FCRA. Loans and interest 

receivable are valued at their gross amounts less an 

allowance for the present value of amounts not expected 

to be recovered and thus having to be subsidized—called 

an “allowance for subsidy.” The difference between the 

gross amount and the allowance for subsidy is the present 

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

are expected from receivables over their projected lives. 

Similarly, liabilities for loan guarantees are valued at the 

present value of the cash outflows from the Department 

less the present value of related inflows. The estimated 

present value of net long-term cash outflows of the 

Department for subsidized costs is net of recoveries, 

interest supplements, and offsetting fees.

The liability for loan guarantees presents the net 

present value of all future cash flows from currently 

insured FFEL loans, including claim payments, interest 

assistance, allowance payments, and recoveries from 

assigned loans. Guaranteed loans that default are 

initially turned over to guaranty agencies for collection. 

Defaulted FFEL loans are accounted for as assets and 

reported at their net present value, similar to direct 

loans, although they are legally not direct student loans. 

Credit program receivables, net includes defaulted 

FFEL loans owned by the Department and held by the 

Department or guaranty agencies. In most cases, after 

approximately four years, defaulted guaranteed loans not 

in repayment are turned over by the guaranty agencies to 

the Department for collection.

FFEL program receivables include purchased loans and 

other interests acquired under an expired program. The 

cash flows related to these receivables include collections 

on purchased loans and other activities, including transfers 

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

also include inflows and outflows associated with the 

underlying or purchased loans and other related activities, 

including any positive or negative subsidy transfers. 

Capitalization of interest occurs as a result of various 

initiatives, such as loan consolidations. As a result, 

interest receivable is reduced and loan principal is 

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

FINANCIAL SECTION | NOTES TO THE FINANCIAL STATEMENTS

PROPERTY AND EQUIPMENT, NET AND LEASES

The Department has very limited acquisition costs 

associated with buildings, furniture, and equipment as 

all Department and contractor staff are housed in leased 

buildings. The Department does not own real property 

for the use of its staff. The Department leases office 

space from the General Services Administration (GSA). 

The lease contracts with GSA for privately and publicly 

owned buildings are operating leases.

The Department also leases information technology and 

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

payments associated with this equipment have been 

determined to be operating leases and, as such, are 

expensed as incurred. The noncancellable lease term 

is one year, with the Department holding the right to 

extend the lease term by exercising additional one-year 

options. (See Notes 4 and 13)

LIABILITIES

Liabilities represent actual and estimated amounts to 

be paid as a result of transactions or events that have 

already occurred.

 Liabilities are classified as covered by budgetary 

resources if budgetary resources are available to pay 

them. Credit program liabilities funded by permanent 

indefinite appropriations are also considered covered 

by budgetary resources. 

 Liabilities are classified as not covered by budgetary 

resources when congressional action is needed before 

they can be paid. Although future appropriations to 

fund these liabilities are likely, it is not certain that 

appropriations will be enacted to fund these liabilities. 

 Liabilities not requiring appropriated budgetary 

resources include those related to deposit funds, 

Subsidy Due to Treasury General Fund for Future 

Liquidating Account Collections (pre-1992 loan 

guaranty programs), and Federal Perkins Loan 

Program balances due to be repaid to the Treasury 

General Fund. (See Note 6) 

DEBT 

The Department borrows from Treasury to provide 

funding for the Direct Loan, FFEL, and other credit 

programs for higher education. The liability to Treasury 

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

available fund balances. Interest rates are based on the 

corresponding rate for 10-year Treasury securities and are 

set for those borrowings supporting each cohort of loans 

once the loans for that cohort are substantially disbursed. 

Interest is paid to Treasury on September 30th. In 

addition, the Federal Financing Bank (FFB) holds bonds 

issued by a designated bonding authority, on behalf of the 

Department, for the HBCU Capital Financing program. 

The debt for other credit programs for higher education 

includes the liability for full payment of principal and 

accrued interest for the FFB-financed HBCU Capital 

Financing program. (See Note 7) 

SUBSIDY DUE TO TREASURY GENERAL FUND

The Department must transfer to the Treasury General 

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

FCRA requirements. This excess funding is included 

in the liability for subsidy due to Treasury and will be 

transferred to Treasury in the succeeding fiscal year upon 

receipt of authority from OMB. Subsidy due to Treasury 

also includes future liquidating account collections 

(estimated collections in excess of estimated outlays) for 

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

when collected, will also be transferred to the Treasury 

General Fund. (See Note 8)

ACCOUNTS PAYABLE

Accounts payable include amounts owed by the 

Department for goods and services received from other 

entities, as well as payments not yet processed. Accounts 

payable to the public primarily consists of in-process 

grant and loan disbursements, including an accrued 

liability for schools that have disbursed loans prior to 

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

NOTES TO THE FINANCIAL STATEMENTS | FINANCIAL SECTION

ACCRUED GRANT LIABILITY

Some grant recipients incur allowable expenditures as 

of the end of an accounting period but have not been 

reimbursed by the Department. The Department accrues 

a liability for these allowable expenditures. The amount 

is estimated using statistical sampling of unliquidated 

balances. (See Note 9)

PERSONNEL COMPENSATION AND OTHER 

EMPLOYEE BENEFITS

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

leave, compensatory time off, and other vested leave is 

accrued when earned and reduced when taken. Each 

year, the accrued annual leave account balance is adjusted 

to reflect current pay rates. Sick leave and other types 

of nonvested leave are expensed as taken. Annual leave 

earned but not taken, within established limits, is funded 

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

Retirement Plans and Other Retirement Benefits.

Employees participate in either the Civil Service 

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

Federal Employees Retirement System (FERS), a defined 

benefit and contribution plan. For CSRS employees, the 

Department contributes a fixed percentage of pay.

FERS consists of Social Security, a basic annuity plan, 

and the Thrift Savings Plan. The Department and the 

employee contribute to Social Security and the basic 

annuity plan at rates prescribed by law. In addition, 

the Department is required to contribute to the Thrift 

Savings Plan a minimum of 1 percent per year of the 

basic pay of employees covered by this system, match 

voluntary employee contributions up to 3 percent of the 

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

between 3 percent and 5 percent of the employee’s 

basic pay. For FERS employees, the Department also 

contributes the employer’s share of Medicare.

Contributions for CSRS, FERS, and other retirement 

benefits are insufficient to fund the programs fully and 

are subsidized by the Office of Personnel Management 

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

subsidy, using cost factors provided by OPM, and reports 

the full cost of the programs related to its employees.

Federal Employees’ Compensation Act. The Federal 

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

3) provides income and medical cost protection to 

covered federal civilian employees injured on the job, to 

employees who have incurred work-related occupational 

diseases, and to beneficiaries of employees whose deaths 

are attributable to job-related injuries or occupational 

diseases. The FECA program is administered by the 

Department of Labor (DOL), which pays valid claims 

and subsequently seeks reimbursement from the 

Department for these paid claims.

The FECA liability consists of two elements. The first 

element, accrued FECA liability, is based on claims paid 

by DOL but not yet reimbursed by the Department. 

The Department reimburses DOL for claims as funds 

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

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

reimbursement to DOL by the Department. As a result, 

the Department recognizes an intragovernmental liability, 

not covered by budgetary resources, for the claims paid 

by DOL that will be reimbursed by the Department.

The second element, actuarial FECA liability, is the 

estimated liability for future benefit payments and is 

recorded as a liability with the public, not covered by 

budgetary resources. The actuarial FECA liability includes 

the expected liability for death, disability, medical, and 

miscellaneous costs for approved compensation cases. 

DOL determines the actuarial FECA liability annually, 

as of September 30, using an actuarial method that 

considers historical benefit payment patterns, wage 

inflation factors, medical inflation factors, and other 

variables. The projected annual benefit payments are 

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

NET COST OF OPERATIONS

As required by the GPRA Modernization Act of 2010, 

the Department’s programs have been aligned with 

the goals presented in the Department’s Strategic Plan. 

The Department updated its Strategic Plan in FY 2018 

resulting in realigning how the activities of its program 

offices crosswalk to the revised Strategic Plan goals and 

the programs presented on the Statement of Net Cost. 

The Department elected not to reclassify the FY 2017 

Statement of Net Cost that was aligned with its previous 

2014 – 2018 Strategic Plan.

Net cost consists of gross costs less earned revenue. Major 

components of the Department’s net costs include credit 

program subsidy expense, credit program interest revenue 

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

FINANCIAL SECTION | NOTES TO THE FINANCIAL STATEMENTS

Credit Program Subsidy Expense. Subsidy expense is an 

estimate of the present value cost of providing loans, but 

excludes the administrative costs of issuing and servicing 

the loans. In order to estimate subsidy expense, the 

Department must project lifetime cash flows associated 

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

cohort). The Department projects these lifetime cash 

flows using a set of econometric and financial models, 

as well as cash flow models. The Department estimates 

subsidy expenses annually for new loans disbursed in 

the current year; updates the previous cost estimates for 

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

changes to terms of existing loans (loan modifications). 

Loan modifications include actions resulting from 

new legislation or from the exercise of administrative 

discretion under existing law, which directly or indirectly 

alters the estimated subsidy cost of outstanding direct 

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

Credit Program Interest Revenue and Expense. The 

Department recognizes interest revenue from the public 

when interest is accrued on Direct Loan program loans, 

defaulted and acquired FFEL loans, and outstanding 

principal for other loan programs. Interest due from 

borrowers is accrued at least monthly and is satisfied 

upon collection or capitalization into the loan principal. 

Federal interest revenue is recognized on the unused fund 

balances with Treasury in the financing accounts.

Federal interest expense is recognized monthly on the 

outstanding borrowing from Treasury (debt) used to 

finance direct loan and loan guarantee programs. Accrued 

interest to Treasury is paid on September 30th. The 

interest rate for federal interest expense is the same as the 

rate used for federal interest revenue.

Interest expense equals interest revenue plus 

administrative fees accrued for all credit programs due to 

subsidy amortization. Subsidy amortization is required 

by the FCRA and accounts for the difference between 

interest expense and revenue cash flows. For direct loans, 

the allowance for subsidy is adjusted with the offset to 

interest revenue. For guaranteed loans, the liability for 

loan guarantees is adjusted with the offset to interest 

expense. (See Note 10)

NET POSITION

Net position consists of unexpended appropriations 

and cumulative results of operations. Unexpended 

appropriations include undelivered orders and 

unobligated balances, except for amounts in financing 

accounts, liquidating accounts, and trust funds. 

Cumulative results of operations represent the net 

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

revenues and financing sources.

ALLOCATION TRANSFERS

The Department is a party to allocation transfers as a 

receiving (child) entity with the Department of Health 

and Human Resources (HHS). Allocation transfers are 

legal delegations by one entity of its authority to obligate 

budget authority and outlay funds to another entity. A 

separate fund account (allocation account) is created in 

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

for tracking and reporting purposes. All allocation 

transfers of balances are credited to this account, and 

subsequent obligations and outlays incurred by the child 

entity are charged to this allocation account as they 

execute the delegated activity on behalf of the parent 

entity. All financial activity related to this allocation 

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

reported in the financial statements of the parent entity 

(HHS) from which the underlying legislative authority, 

appropriations and budget apportionments are derived.

TAXES

The Department is a Federal entity and is not subject to 

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

income taxes is recorded.

USE OF ESTIMATES

Department management is required to make certain 

estimates while preparing consolidated financial 

statements in conformity with GAAP. These estimates 

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

position of the financial statements and may differ from 

actual results. The Department’s estimates are based on 

management’s best knowledge of current events, historical 

experiences, and other assumptions that are believed 

to be reasonable under the circumstances. Significant 

estimates reported on the financial statements include: 

allocation of Department administrative overhead costs; 

allowance for subsidy and subsidy expense for direct, 

defaulted guaranteed, and acquired loans; the liability for 

loan guarantees; and grant liability and advance accruals. 

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

NOTES TO THE FINANCIAL STATEMENTS | FINANCIAL SECTION

RECLASSIFICATIONS

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

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

budgetary resources.

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

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

changes in OMB Circular A-136.

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

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

NOTE 2. Non-Entity Assets

2018 2017

Intragovernmental With the Public Intragovernmental With the Public

Non-Entity Assets

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

Credit Program Receivables, Net - 551 - 495 

Other Assets

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

 Accounts Receivable, Net - 65 - 68 

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

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

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

(Dollars in Millions)

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

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

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

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

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

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

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

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

FINANCIAL SECTION | NOTES TO THE FINANCIAL STATEMENTS

NOTE 3. Fund Balance with Treasury 

(Dollars in Millions)

2018 2017

Unobligated Balance

 Available $ 14,495 $ 9,012

 Unavailable 24,907 24,402

Obligated Balance, Not Disbursed 137,680 135,219

Authority Temporarily Precluded from Obligation 1 1

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

Other 274 241

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

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

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

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

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

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

NOTES TO THE FINANCIAL STATEMENTS | FINANCIAL SECTION

NOTE 4. Other Assets 

(Dollars in Millions)

2018 2017

Intragovernmental With the Public Intragovernmental With the Public

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

Accounts Receivable, Net 1 154 1 172

Advances 150 15 64 1

Property and Equipment, Net - 29 - 33

Other - 3 - 2

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

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

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

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

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

FINANCIAL SECTION | NOTES TO THE FINANCIAL STATEMENTS

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

Liabilities for Loan Guarantees 

Credit Program Receivables

(Dollars in Millions)

Principal Accrued Interest

Allowance for 

Subsidy

(Present Value)

Net

2018

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

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

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

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

2017

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

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

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

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

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

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

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

DIRECT LOAN PROGRAM. 

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

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

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

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

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

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

NOTES TO THE FINANCIAL STATEMENTS | FINANCIAL SECTION

Direct Loan Program Reconciliation of Allowance for Subsidy 

(Dollars in Millions)

2018 2017

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

Activity

 Fee Collections 1,696 1,694

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

 Subsidy Allowance Amortization 25,918 23,276

 Other (604) (513)

Total Activity 19,489 16,768

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

 Interest Rate Differential 1,614 (13,045)

 Defaults, Net of Recoveries 1,106 (133)

 Fees (1,747) (1,968)

 Other (4,103) 12,541

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

Components of Loan Modifications

Loan Modification Costs 144 -

Modification Adjustment Transfers Gain (8) -

Loan Modifications 136 -

Components of Subsidy Re-estimates

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

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

Upward Subsidy Re-estimates 7,363 7,934

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Direct Loan program.

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

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

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

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

FINANCIAL SECTION | NOTES TO THE FINANCIAL STATEMENTS

Direct Loan Program Subsidy Expense 

(Dollars in Millions)

2018 2017

Subsidy Expense for Direct Loans Disbursed in the Current Year

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

Defaults, Net of Recoveries 1,106 (133)

Fees (1,747) (1,968)

Other (4,103) 12,541 

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

Loan Modifications 136 -

Upward Subsidy Re-estimates 7,363 7,934 

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

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

(Dollars in Millions)

2018 2017

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

Total Interest Expense $ 32,329 $ 31,286 

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

Interest Revenue on Uninvested Funds 3,890 4,258 

Administrative Fees 200 162 

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

Total Revenues $ 32,329 $ 31,286 

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

NOTES TO THE FINANCIAL STATEMENTS | FINANCIAL SECTION

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

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

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

re-estimate of $2.1 billion.

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

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

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

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

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

Direct Loan Subsidy Rates—Cohort 2018

 Interest Differential Defaults Fees Other Total

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

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

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

Consolidation 3.96% 0.37% 0.00% 9.85% 14.18%

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

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

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

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

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

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

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

President’s Budget.

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

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

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

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

FINANCIAL SECTION | NOTES TO THE FINANCIAL STATEMENTS

Direct Loan Program Loan Disbursements by Loan Type

(Dollars in Millions)

2018 2017

Stafford $ 20,343 $ 23,368 

Unsubsidized Stafford 49,009 51,410 

PLUS 23,117 18,695 

Consolidation 41,625 48,999 

Total Disbursements $ 134,094 $ 142,472 

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

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

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

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

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

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

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

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

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

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

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

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

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

past cohort year in which the loans were originated. 

FEDERAL FAMILY EDUCATION LOAN PROGRAM. 

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

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

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

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

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

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

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

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

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

NOTES TO THE FINANCIAL STATEMENTS | FINANCIAL SECTION

FFEL Program Loan Receivables 

(Dollars in Millions)

Principal Accrued Interest

Allowance for 

Subsidy

(Present Value)

Net

2018

DEFAULTED FFEL GUARANTEED LOANS

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

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

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

ACQUIRED FFEL LOANS

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

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

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

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

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

2017

DEFAULTED FFEL GUARANTEED LOANS

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

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

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

ACQUIRED FFEL LOANS

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

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

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

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

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

FFEL Program Reconciliation of Liabilities for Loan Guarantees 

(Dollars in Millions)

2018 2017

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

Activity 

 Interest Supplement Payments (1,052) (810)

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

 Fee Collections 1,550 1,633

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

 Other 6,476 7,459

Total Activity 159 1,200

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

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

FFEL Liquidating Account Liability for Loan Guarantees 1 23

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

FINANCIAL SECTION | NOTES TO THE FINANCIAL STATEMENTS

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

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

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

Allowance for Subsidy Reconciliation for Acquired FFEL Loans 

(Dollars in Millions)

Loan Purchase 

Commitment

Loan 

Participation 

Purchase

ABCP Conduit Total

2018

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

Activity

 Subsidy Allowance Amortization 550 903 48 1,501

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

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

Total Activity 338 521 26 885

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

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

2017

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

Activity

 Subsidy Allowance Amortization 635 1,219 53 1,907

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

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

Total Activity 387 762 26 1,175

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

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

FFEL Program Subsidy Expense 

(Dollars in Millions)

2018 2017

Upward/(Downward) Subsidy Re-estimates

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

Loan Purchase Commitment 1,339 879

Loan Participation Purchase 1,093 1,513

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

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

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

NOTES TO THE FINANCIAL STATEMENTS | FINANCIAL SECTION

OTHER CREDIT PROGRAMS FOR HIGHER EDUCATION

Receivables, Net for Other Credit Programs for Higher Education 

(Dollars in Millions)

Principal Accrued Interest

Allowance for 

Subsidy

(Present Value)

Net

2018

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

TEACH Program Loans 746 91 (253) 584

HEAL Program Loans 397 32 (69) 360

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

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

2017

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

TEACH Program Loans 723 95 (225) 593

HEAL Program Loans 398 30 (74) 354

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

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

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

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

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

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

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

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

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

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

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

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

TEACH Subsidy Rates—Cohort 2018

Interest Differential Defaults Fees Other Total

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

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

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

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

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

FINANCIAL SECTION | NOTES TO THE FINANCIAL STATEMENTS

NOTE 6. Liabilities Not Covered by Budgetary Resources 

(Dollars in Millions)

2018 2017

Intragovernmental With the Public Intragovernmental With the Public

Liabilities Not Covered by Budgetary Resources

 Other Liabilities

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

 FECA Liabilities 3 15 3 14

Total Liabilities Not Covered by Budgetary Resources 3 52 3 54

Liabilities Not Requiring Budgetary Resources

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

 Federal Perkins Loan Program 538 - 482 -

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

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

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

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

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

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

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

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

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

the principal and interest on bonds for loans in default. 

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

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

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

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

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

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

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

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

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

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

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

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

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

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

NOTES TO THE FINANCIAL STATEMENTS | FINANCIAL SECTION

NOTE 7. Debt

(Dollars in Millions)

Beginning Balance Borrowing Repayments Ending Balance

2018

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

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

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

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

2017

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

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

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

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

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

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

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

each cohort of loans, as mandated by the FCRA.

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

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

new Direct Loan disbursements.

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

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

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

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

FINANCIAL SECTION | NOTES TO THE FINANCIAL STATEMENTS

NOTE 9. Other Liabilities

(Dollars in Millions)

2018 2017

Intragovernmental With the Public Intragovernmental With the Public

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

Accrued Grant Liability - 1,914 - 3,959

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

Loan Guarantee Liability - 2,814 - 3,870

Federal Perkins Loan Program 538 - 482 -

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

Advances from Others and Deferred Credits 7 4 10 7

Accrued Unfunded Annual Leave - 37 - 40

FECA Liabilities 3 15 3 14

Accrued Payroll and Benefits - 16 - 15

Employer Contributions and Payroll Taxes 5 1 8 -

Custodial Liabilities 1 - - -

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

NOTE 8. Subsidy Due to Treasury General Fund 

(Dollars in Millions)

2018 2017

Credit Program Downward Subsidy Re-estimates

 Direct Loan Program $ 2,484 $ 5,010

 FFEL Program 3,015 219

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

Future Liquidating Account Collections

 FFEL Program 1,856 1,614

 Other Credit Programs for Higher Education 181 170

Total Future Liquidating Account Collections 2,037 1,784

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

NOTES TO THE FINANCIAL STATEMENTS | FINANCIAL SECTION

NOTE 10. Net Cost of Operations

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

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

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

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

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

associated with goals 1 and 2. 

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

2014 – 2018 Strategic Plan, as shown below.

Program Offices Strategic Goal Net Cost Program

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

OESE

OSERS

Other:

 OCTAE

 IES

 OELA

 OII

 OCR

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

every community.

Improve learning 

outcomes for all 

P–12 students

FSA

OSERS

Other:

 OCTAE

 IES

 OPE

 OCR

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

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

Expand 

postsecondary 

opportunities, improve 

outcomes to foster 

economic opportunity, 

and promote 

productive citizenry

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

management, increased privacy protections, and transparency.

Crosscutting Goal

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

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

FSA

OPE

OCTAE

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

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

education and lifelong learning opportunities for youths and adults.

Increase College 

Access, Quality, 

and Completion

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

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

academic standards while providing effective support services to close achievement and 

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

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

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

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

Improve Preparation 

for College and 

Career from Birth 

Through 12th Grade, 

Especially for Children 

with High Needs

OELA

OCR

OSERS

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

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

Ensure Effective 

Educational 

Opportunities for 

All Students

IES

OII

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

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

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

Enhance the 

Education 

System’s Ability to 

Continuously Improve

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

Department to implement this Strategic Plan.

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

FINANCIAL SECTION | NOTES TO THE FINANCIAL STATEMENTS

Gross Costs and Earned Revenue by Program 

(Dollars in Millions)

2018

FSA OESE OSERS Other Total

IMPROVE LEARNING OUTCOMES FOR ALL P–12 STUDENTS

Gross Cost

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

 Other - 58 1 763 822

Earned Revenue - - - (82) (82)

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

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

PRODUCTIVE CITIZENRY

Direct Loan Program

 Gross Cost

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

 Subsidy Expense 4,369 - - - 4,369

 Administrative Expenses 1,267 - - - 1,267

 Earned Revenue

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

 Subsidy Amortization 25,918 - - - 25,918

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

FFEL Program

 Gross Cost

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

 Subsidy Expense 1,228 - - - 1,228

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

 Guaranty Agencies 96 - - - 96

 Administrative Expenses 141 - - - 141

 Earned Revenue

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

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

 Guaranty Agencies (202) - - - (202)

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

Other Credit Programs for Higher Education

 Gross Cost

 Credit Program Interest Expense 19 - - 54 73

 Subsidy Expense 56 - - 168 224

 Administrative Expenses 1 - - - 1

 Earned Revenue

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

 Subsidy Amortization 29 - - 6 35

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

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

Non-Credit Programs

 Gross Cost

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

 Other 136 - 2 255 393

Earned Revenue - - - (10) (10)

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

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

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

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

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

NOTES TO THE FINANCIAL STATEMENTS | FINANCIAL SECTION

2017

FSA OESE OSERS Other Total

INCREASE COLLEGE ACCESS, QUALITY, AND COMPLETION

Gross Cost

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

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

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

Earned Revenue

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

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

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

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

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

HIGH NEEDS

Gross Cost

 Intragovernmental - 176 - - 176

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

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

Earned Revenue

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

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

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

ENSURE EFFECTIVE EDUCATIONAL OPPORTUNITIES FOR ALL STUDENTS

Gross Cost

 Intragovernmental - - 16 36 52

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

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

Earned Revenue

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

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

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

ENHANCE THE EDUCATION SYSTEM’S ABILITY TO CONTINUOUSLY IMPROVE

Gross Cost

 Intragovernmental - - - 85 85

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

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

Earned Revenue

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

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

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

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

Gross Costs and Earned Revenue by Program 

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

FINANCIAL SECTION | NOTES TO THE FINANCIAL STATEMENTS

Gross Interest 

Expense

Subsidy 

Amortization

Net Interest 

Expense

Gross Interest and Administrative 

Fee Revenue

Subsidy 

Amortization

Net Revenue

Intragovernmental With the Public Intragovernmental With the Public With the Public

2018

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

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

Other Credit Programs 

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

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

2017

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

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

Other Credit Programs 

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

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

Credit Program Interest Expense and Revenues 

(Dollars in Millions)

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

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

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

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

NOTES TO THE FINANCIAL STATEMENTS | FINANCIAL SECTION

2018

IMPROVE LEARNING OUTCOMES FOR ALL P–12 STUDENTS

Education for the Disadvantaged $ 15,243

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

School Improvement Programs 3,614

Impact Aid 1,466

Innovation and Improvement 1,201

English Language Acquisition 693

Career, Technical, and Adult Education 445

Institute of Educational Sciences 187

Other 533

 Subtotal 36,455

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

PRODUCTIVE CITIZENRY

 Student Financial Assistance

 Pell Grants 26,672

 Federal Work-Study Program 1,015

 Federal Supplemental Educational Opportunity Grants 769

 Rehabilitation Services 3,130

 Higher Education 2,027

 Career, Technical, and Adult Education 1,135

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

 Institute of Educational Sciences 43

 Other 460

 Subtotal 35,371

Total Grant Costs $ 71,826

Grant Expenses by Appropriation 

(Dollars in Millions)

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

grant programs are as follows: 

Student Financial Assistance

 Pell Grants—provides need-based grants to 

students to promote access to postsecondary 

education. Grant amounts are dependent on: the 

student’s expected family contribution; the cost of 

attendance (as determined by the institution); the 

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

and whether the student attends for a full academic 

year or less. Pell grants are the single largest source 

of grant aid for postsecondary education.

 Federal Work-Study Program—provides funds 

by formula to enable eligible institutions to offer 

employment to students based on financial needs. 

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

students and encourages community service work. 

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

study. This program is administered by the schools 

that participate in the Federal Work-Study program. 

Hourly earnings under this program must be at 

least the Federal minimum wage. Federal funding, 

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

with the remaining 25% paid by the employer.

 Federal Supplemental Educational Opportunity 

Grants—provides funds by formula to enable 

eligible institutions to offer grants to students based 

on need. Federal grants distributed under this 

program are administered directly by the financial 

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

FINANCIAL SECTION | NOTES TO THE FINANCIAL STATEMENTS

Education for the Disadvantaged—primarily consists 

of Title I grants that provide financial assistance through 

state educational agencies to local educational agencies 

and public schools with high numbers or percentages 

of poor children to help ensure that all children meet 

challenging state academic content and student academic 

achievement standards. Also provides funds to states to 

support educational services to children of migratory 

farmworkers and fishers, and to neglected or delinquent 

children and youth in State-run institutions, attending 

community day programs, and correctional facilities.

Special Education—consists primarily of IDEA Grants 

that provide funds by formula to states to assist them 

in providing a free appropriate public education in the 

least restrictive environment for children with disabilities 

ages 3 through 21 and assists states in providing early 

intervention services for infants and toddlers birth 

through age two and their families. Also provides 

discretionary grants to institutions of higher education 

and other nonprofit organizations to support research, 

demonstrations, technical assistance and dissemination, 

technology, personnel development and parent-training, 

and information centers. 

School Improvement Programs—provides funds to state 

educational agencies to make competitive subgrants to 

local educational agencies that demonstrate the greatest 

need for the funds and the strongest commitment to 

use the funds to provide adequate resources in order to 

substantially raise the achievement of students in their 

lowest-performing schools.

Rehabilitation Services—provides funds to states and 

other agencies to support vocational rehabilitation and 

other services to individuals with disabilities to maximize 

their employment, independence, and integration into 

the community and the competitive labor market.

Higher Education—includes Institutional Service 

grants designed to improve academic quality, 

institutional management and fiscal stability, and 

strengthen physical plants and endowments of 

institutions of higher education, with an emphasis on 

institutions that enroll large proportions of minority 

and financially disadvantaged students. Also includes 

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

disabilities as they progress through the academic 

pipeline from middle school to graduate school, in 

addition to programs focused on college readiness, 

campus-based child care, and graduate fellowships. Also 

includes International and Foreign Language Education 

grant and fellowship programs that strengthen foreign 

language instruction, area/international studies teaching 

and research, professional development for educators, 

and curriculum development at the K–12, graduate, 

and postsecondary levels.

Career, Technical, and Adult Education—includes 

programs that are related to adult education and literacy, 

career and technical education, and community colleges.

Impact Aid—provides funds to local educational agencies 

to replace the lost local revenue that would otherwise 

be available to educate federal connected children. (The 

property on which the children live and their parents 

work is exempt from local property taxes, limiting a 

central source of revenue used by most communities to 

finance education.)

Innovation and Improvement—includes programs that 

support nontraditional programs that improve student 

achievement and attainment; supports the development 

of educational television and digital media programs 

targeted at preschool and early elementary school 

children and their families to promote early learning and 

school readiness, with a particular interest in reaching 

low-income children; and supports local educational 

agencies and their partners in implementing, evaluating, 

and refining tools and approaches for developing the 

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

increase student success.

English Language Acquisition—provides funds 

primarily by formula to states to improve services 

for English learners. Also provides funds to support 

national activities, including professional development 

to increase the supply of high-quality teachers of 

English learners and a national clearinghouse on English 

language acquisition.

Institute of Educational Sciences—provides funding 

to: support research, development, and dissemination 

activities that provide parents, teachers, and schools with 

evidence-based information on effective educational 

practices; support statistical data collection activities 

conducted by the National Center for Education 

Statistics; support the ongoing National Assessment 

of Educational Progress and the National Assessment 

Governing Board; support research to build the 

evidence base on improving special education and early 

intervention services and outcomes for infants, toddlers, 

and children with disabilities; and support studies, 

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

NOTES TO THE FINANCIAL STATEMENTS | FINANCIAL SECTION

NOTE 11. Statements of Budgetary Resources

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

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

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

2018 2017

DIRECT:

 Category A $ 2,320 $ 2,186

 Category B 314,446 360,781

 Exempt from Apportionment 96 13

Total Direct Apportionment 316,862 362,980

REIMBURSABLE:

 Category A 4 3

 Category B 60 55

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

New Obligations Incurred and Upward Adjustments by Apportionment Type and Category 

(Dollars in Millions)

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

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

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

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

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

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

addition, some resources are available without apportionment by OMB.

Unused Borrowing Authority 

(Dollars in Millions)

2018 2017

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

Current Year Borrowing Authority 167,897 166,601

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

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

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

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

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

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

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

FINANCIAL SECTION | NOTES TO THE FINANCIAL STATEMENTS

Undelivered Orders

(Dollars in Millions)

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

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

performance has not yet occurred.

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

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

FY 2017 amounts above.

Distributed Offsetting Receipts

(Dollars in Millions)

2018 2017

Negative Subsidies and Downward Re-estimates of Subsidies:

 Direct Loan Program $ 26,539 $ 18,849

 FFEL Program 236 370

 Facilities Loan Programs 9 55

 HEAL Program 8 18

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

Other 578 270

Distributed Offsetting Receipts $ 27,370 $ 19,562

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

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

year executed subsidy re-estimates and negative subsidies.

2018

Intragovernmental With the Public

Unpaid $ 159 $ 132,716

Paid 238 120

Undelivered Orders $ 397 $ 132,836

2017

Budgetary $ 52,390

Non-Budgetary 75,665

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

NOTES TO THE FINANCIAL STATEMENTS | FINANCIAL SECTION

Reconciliation of SBR to Budget of the United States Government

(Dollars in Millions)

Budgetary 

Resources

Obligations 

Incurred

Distributed Offsetting 

Receipts Net Outlays

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

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

 FFEL Guaranty Agency Amounts Included in the 

President’s Budget 7,266 7,276 - - 

 Distributed Offsetting Receipts - - - 19,562 

 Other (5) (3) 9 (3)

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

1

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

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

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

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

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

and net outlays.

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

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

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

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

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

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

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

FINANCIAL SECTION | NOTES TO THE FINANCIAL STATEMENTS

NOTE 12. Reconciliation of Net Cost of Operations to Budget

(Dollars in Millions)

2018 2017

RESOURCES USED TO FINANCE ACTIVITIES

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

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

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

 Net Budgetary Resources Obligated 149,617 156,967

 Imputed Financing From Costs Absorbed by Others 38 27

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

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

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

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

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

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

 Credit Program Collections 97,660 142,011

 Acquisition of Fixed Assets (1) (10)

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

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

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

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

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

 Change in Depreciation 5 1

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

Other (5) 2

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

 Increase in Annual Leave Liability (3) -

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

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

Accrued Interest with Treasury - 1

Other (+/-) - (114)

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

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

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

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

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

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

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

Reconciling Budgetary and Financial Accounting. 

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

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

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

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

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

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

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

NOTES TO THE FINANCIAL STATEMENTS | FINANCIAL SECTION

NOTE 13. Commitments and Contingencies

The Department discloses contingencies where any of 

the conditions for liability recognition are not met and 

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

additional loss may have been incurred in accordance 

with FASAB Standard No. 5, Accounting for Liabilities of 

the Federal Government. The following commitments are 

amounts for contractual arrangements that may require 

future financial obligations.

Future Minimum Lease Payments

(Dollars in Millions)

2018 2017

FY Amount FY Amount

2019 $ 73 2018 $ 73 

2020 73 2019 77 

2021 77 2020 79 

2022 81 2021 81 

2023 82 2022 85 

After 2023 83 After 2022 86 

 Total $ 469 Total $ 481 

The Department leases from the General Services 

Administration all or a portion of 17 privately owned and 

12 publicly owned buildings in 20 cities. The table above 

presents the estimated future minimum lease payments 

for these privately and publicly owned buildings.

GUARANTY AGENCIES

The Department may assist guaranty agencies 

experiencing financial difficulties. The Department has 

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

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

the financial statements for potential liabilities.

FEDERAL PERKINS LOAN PROGRAM

The Federal Perkins Loan program provides financial 

assistance to eligible postsecondary school students. In FY 

2018, the Department provided funding of 83.2 percent of 

the capital used to make loans to eligible students through 

participating schools at 5 percent interest. The schools 

provided the remaining 16.8 percent of program funding. 

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

approximately 356 thousand loans were made totaling 

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

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

approximately $6.3 billion as of June 30, 2018.

Federal Perkins Loan program borrowers who meet 

statutory eligibility requirements—such as those who 

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

Corps or AmeriCorps VISTA volunteers, as well as those 

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

family services—may receive partial loan forgiveness for 

each year of qualifying service.

The Federal Perkins Loan program was scheduled to 

officially end on September 30, 2015. However, the 

program was extended through September 30, 2017 

by the Federal Perkins Loan Program Extension Act of 

2015 (Extension Act). The Extension Act eliminated 

the Perkins Loan grandfathering provisions that the 

Department had put in place, and establishes new 

eligibility requirements for undergraduate and graduate 

students to receive Perkins Loans. As of September 30, 

2017, the Department is no longer authorized to make 

new Perkins Loans.

LITIGATION AND OTHER CLAIMS 

The Department is involved in various lawsuits incidental 

to its operations. In the opinion of management, the 

ultimate resolution of pending litigation will not have a 

material impact on the Department’s financial position. 

The cost of loan forgiveness related to borrower defense 

claims reflected in the accompanying financial statements 

is limited to loans originated through September 30, 

2018. The final disposition of claims filed and those yet 

to be filed from loans originated before September 30, 

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

financial statements.

OTHER MATTERS 

Some portion of the current-year financial assistance 

expenses (grants) may include funded recipient 

expenditures that are subsequently disallowed through 

program review or audit processes. In the opinion of 

management, the ultimate disposition of these matters 

will not have a material effect on the Department’s 

financial position.
68 FY 2018 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION

FINANCIAL SECTION | REQUIRED SUPPLEMENTARY INFORMATION (UNAUDITED)

Federal Student Aid 

Budgetary

Non-Budgetary Credit 

Reform Financing 

Accounts

BUDGETARY RESOURCES

Unobligated Balance from Prior Year Budget Authority (Net) $ 12,015 $ 15,859 

Appropriations (Discretionary and Mandatory) 48,627 - 

Borrowing Authority (Discretionary and Mandatory) (Note 11) - 167,543 

Spending Authority from Offsetting Collections (Discretionary and Mandatory) 393 61,439 

Total Budgetary Resources $ 61,035 $ 244,841 

Memorandum (non-add) entries:

Net adjustments to unobligated balance brought forward, Oct. 1 $ 901 $ (7,024) 

STATUS OF BUDGETARY RESOURCES

New Obligations Incurred and Upward Adjustments (Total) (Note 11) $46,002 $221,384 

Unobligated Balance, End of Year:

Apportioned, Unexpired Accounts 12,290 - 

Unapportioned, Unexpired Accounts 2,168 23,457 

Unexpired Unobligated Balance, End of Year $ 14,458 $ 23,457 

Expired Unobligated Balance, End of Year 575 - 

Unobligated Balance, End of Year (Total) $ 15,033 $ 23,457 

Total Status of Budgetary Resources $ 61,035 $ 244,841 

OUTLAYS, NET

Outlays, Net (Discretionary and Mandatory) 45,918 83,059 

Distributed Offsetting Receipts (-) (Note 11) (27,321) - 

Agency Outlays, Net (Discretionary and Mandatory) (Note 11) $ 18,597 $ 83,059 

United States Department of Education Combining Statement of Budgetary Resources 

For the Year Ended September 30, 2018

(Dollars in Millions)

(Unaudited)
FY 2018 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION 69

REQUIRED SUPPLEMENTARY INFORMATION (UNAUDITED) | FINANCIAL SECTION

Office of Elementary and 

Secondary Education

Office of Special Education and 

Rehabilitative Services Other Combined

Total

Budgetary Budgetary Budgetary

Non-Budgetary 

Credit Reform 

Financing 

Accounts

Budgetary

Non-Budgetary 

Credit Reform 

Financing Accounts

$ 419 $ 306 $ 546 $ 4 $ 13,286 $ 15,863 $ 29,149 

26,082 16,954 7,678 - 99,341 - 99,341 

- - - 354 - 167,897 167,897 

(7) - 65 227 451 61,666 62,117 

$ 26,494 $ 17,260 $ 8,289 $ 585 $ 113,078 $ 245,426 $ 358,504 

$ 214 $ (5) $ (102) $ (326) $ 1,008 $ (7,350) $ (6,342) 

$ 24,617 $ 16,959 $ 7,650 $ 314 $ 95,228 $ 221,698 $ 316,926 

1,828 16 361 - 14,495 - 14,495 

- - 6 271 2,174 23,728 25,902 

$ 1,828 $ 16 $ 367 $ 271 $ 16,669 $ 23,728 $ 40,397 

49 285 272 - 1,181 - 1,181 

$ 1,877 $ 301 $ 639 $ 271 $ 17,850 $ 23,728 $ 41,578 

$ 26,494 $ 17,260 $ 8,289 $ 585 $ 113,078 $ 245,426 $358,504 

21,536 16,318 7,308 41 91,080 83,100 174,180 

- - (49) - (27,370) - (27,370)

$ 21,536 $ 16,318 $ 7,259 $ 41 $ 63,710 $ 83,100 $146,810 
70 FY 2018 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION

FINANCIAL SECTION | REQUIRED SUPPLEMENTARY INFORMATION (UNAUDITED)

Federal Student Aid 

Budgetary

Non-Budgetary Credit 

Reform Financing 

Accounts

BUDGETARY RESOURCES

Unobligated Balance from Prior Year Budget Authority (Net) $ 14,064 $ 10,389 

Appropriations (Discretionary and Mandatory) 88,321 - 

Borrowing Authority (Discretionary and Mandatory) (Note 11) - 166,426 

Spending Authority from Offsetting Collections (Discretionary and Mandatory) 1,037 68,906 

Total Budgetary Resources $ 103,422 $ 245,721 

Memorandum (non-add) entries:

Net adjustments to unobligated balance brought forward, Oct. 1 $ 3,680 $ (4,914) 

STATUS OF BUDGETARY RESOURCES

New Obligations Incurred and Upward Adjustments (Total) (Note 11) $ 92,308 $ 222,838 

Unobligated Balance, End of Year:

Apportioned, Unexpired Accounts 8,595 - 

Unapportioned, Unexpired Accounts 2,093 22,883 

Unexpired Unobligated Balance, End of Year $ 10,688 $ 22,883 

Expired Unobligated Balance, End of Year 426 - 

Unobligated Balance, End of Year (Total) $ 11,114 $ 22,883 

Total Status of Budgetary Resources $ 103,422 $ 245,721 

OUTLAYS, NET

Outlays, Net (Discretionary and Mandatory) 84,986 40,490 

Distributed Offsetting Receipts (-) (Note 11) (19,438) - 

Agency Outlays, Net (Discretionary and Mandatory) (Note 11) $ 65,548 $ 40,490 

United States Department of Education Combining Statement of Budgetary Resources 

For the Year Ended September 30, 2017

(Dollars in Millions)

(Unaudited)
FY 2018 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION 71

REQUIRED SUPPLEMENTARY INFORMATION (UNAUDITED) | FINANCIAL SECTION

Office of Elementary and 

Secondary Education

Office of Special Education and 

Rehabilitative Services Other Combined

Total

Budgetary Budgetary Budgetary

Non-Budgetary 

Credit Reform 

Financing 

Accounts

Budgetary

Non-Budgetary 

Credit Reform 

Financing Accounts

$ 1,312 $ 330 $ 1,011 $ 169 $ 16,717 $ 10,558 $ 27,275

22,197 16,582 7,288 - 134,388 - 134,388

- - - 175 - 166,601 166,601

- - 59 263 1,096 69,169 70,265

$ 23,509 $ 16,912 $ 8,358 $ 607 $ 152,201 $ 246,328 $398,529

$ 399 $ 169 $ 77 $ (7) $ 4,325 $ (4,921) $ (596) 

$ 23,304 $ 16,601 $ 7,710 $ 277 $ 139,923 $ 223,115 $363,038

144 2 271 - 9,012 - 9,012

- - 7 330 2,100 23,213 25,313

$ 144 $ 2 $ 278 $ 330 $ 11,112 $ 23,213 $ 34,325

61 309 370 - 1,166 - 1,166

$ 205 $ 311 $ 648 $ 330 $ 12,278 $ 23,213 $ 35,491

$ 23,509 $ 16,912 $ 8,358 $ 607 $ 152,201 $ 246,328 $398,529

22,505 16,233 7,550 (30) 131,274 40,460 171,734

- - (124) - (19,562) - (19,562)

$ 22,505 $ 16,233 $ 7,426 $ (30) $ 111,712 $ 40,460 $152,172
72 FY 2018 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION

FINANCIAL SECTION | REQUIRED SUPPLEMENTARY STEWARDSHIP INFORMATION (UNAUDITED)

REQUIRED SUPPLEMENTARY STEWARDSHIP 

INFORMATION (UNAUDITED)

OMB requires each federal agency to report on 

its stewardship over various resources entrusted 

to it and certain responsibilities assumed by 

it that cannot be measured and conveyed through 

traditional financial reports. These elements do not 

meet the criteria for assets and liabilities required in the 

preparation of the Department’s financial statements and 

accompanying footnotes, but are nonetheless important 

to understanding the agency’s financial condition, 

strategic goals, and related program outcomes.

STEWARDSHIP EXPENSES

Stewardship expenses are substantial investments made by 

the federal government for the long-term benefit of the 

nation. Because costs of stewardship resources are treated 

as expenses in the financial statements in the year the costs 

are incurred, they are reported as Required Supplementary 

Stewardship Information to highlight their benefit and to 

demonstrate accountability for their use.

In the United States, the structure of education finance 

is such that state and local governments play a much 

greater overall role than the federal government. Of the 

estimated more than $1 trillion spent nationally on all 

levels of education, the majority of funding comes from 

state, local, and private sources. In the area of elementary 

and secondary education, nearly 90 percent of resources 

come from nonfederal sources. These funds serve over 50 

million students enrolled in public, public charter, and 

private schools in the United States and its territories, 

according to the National Center for Education Statistics. 

With its relatively small role in total education funding, 

the Department strives to create the greatest number of 

favorable program outcomes with a limited amount of 

taxpayer-provided resources. This is accomplished by 

targeting areas in which funds will go the furthest in 

doing the most good. Accordingly, federal funding is used 

to provide grant, loan, loan-forgiveness, work-study, and 

other assistance to more than 20 million postsecondary 

students. The majority of the Department’s $298.6 

billion in gross outlays during FY 2018 was attributable 

to Direct Loan disbursements administered by FSA. 

Grant-based activity under discretionary, formula, 

and need-based formats primarily accounted for the 

remainder of the outlays. 

Discretionary grants, such as the Federal TRIO 

Programs and the Teacher Incentive Fund, are awarded 

on a competitive basis. When funds for these grants are 

exhausted, they cease to be funded. The Department 

reviews discretionary grant applications using:

 a formal review process for selection,

 both legislative and regulatory requirements, and

 published selection criteria established for 

individual programs.

Formula grants, such as Title I and Title III of the 

Elementary and Secondary Education Act, are not 

competitive. The majority go to school districts, as often 

as annually, on a formula basis, and they:

 provide funds as dictated by a law, and

 allocate funds to districts on a per-student basis. 

Need-based grants, including the Pell Grant, Federal 

Work Study, and the Federal Supplemental Educational 

Opportunity Grant, are based on family income and 

economic eligibility. While there are many state, 

institutionally (college or school), and privately sourced 

need-based grants, most need-based grants are funded by 

the federal government where the financial aid formula is 

determined by a combination of factors, including:

 family income and discretionary assets,

 expected family contribution, and

 dependency status of the student and other members 

of their family.

Further details on financial figures and program-level 

goals can be viewed in the Department’s 2018 

Budget Summary.
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INVESTMENT IN HUMAN CAPITAL

Human capital investments are defined similarly by 

OMB, in Circular A-136, and the Statement of Federal 

Financial Accounting Standards No. 8, Supplementary 

Stewardship Reporting. These investments are expenses 

included in net cost for education and training programs 

intended to increase or maintain national economic 

productive capacity and produce outputs and outcomes 

that provide evidence of maintaining or increasing 

national productive capacity.

Supplementing state and local government funding, 

the Department utilizes its annual appropriations and 

outlay authority to foster human capital improvements 

across the nation by supporting programs along the 

entire spectrum of education. Direct loans, guaranteed 

loans, grants, and technical program assistance are 

administered and monitored by FSA and numerous 

other program-aimed components of the Department. 

The Institute of Education Sciences is the independent 

nonpartisan research arm of the Department that aims to 

present scientific evidence to ground education practice 

and policy while providing useful information to all 

stakeholders in the arena of American education. Further 

details of the major offices/programs applicable to this 

section are described below:

Federal Student Aid. Federal Student Aid is the part of 

the Department that administers need-based financial 

assistance programs for students pursuing postsecondary 

education and makes federal grants, direct loans, 

guaranteed loans, and work-study funding available to 

eligible undergraduate and graduate students. 

Federal Student Aid’s programs link the overall 

initiatives of the Department in enhancing education—a 

fundamental stepping-stone to higher living standards for 

American citizens. While education is vital to national 

economic growth, education’s contribution is more than 

increased productivity and incomes. Education improves 

health, promotes social change, and opens doors to a 

better future for children and adults.

Direct Loan Subsidy. The William D. Ford Federal 

Direct Loan (Direct Loan) program is a direct-lending 

program in which loan capital is provided to students 

by the federal government through borrowings from the 

United States (U.S.) Department of Treasury.

Federal Family Education Loan (FFEL) Program 

Subsidy. The FFEL Loan program has originated no 

new loans since June 30, 2010; however, its permanent 

budget authority allows it to continue to operate with 

state and private nonprofit guaranty agencies to honor 

loan guarantees and for the Department to pay interest 

supplements on outstanding loans by private lenders 

to eligible students. The FFEL Loan program expenses 

include the Loan Participation Purchase, Loan Purchase 

Commitment, and ABCP Conduit expenses.

Perkins Loans, Pell and Other Grants. Perkins Loan 

and Grant programs include the Pell Grant program that 

awards direct grants through participating institutions to 

undergraduate students with financial need. Participating 

institutions either credit the appropriated funds to the 

student’s school account or pay the student directly once 

per term.

The Teacher Education Assistance for College and 

Higher Education (TEACH) Grant Program. The 

TEACH Grant program awards annual grants to students 

who agree to teach in a high-need subject area in a public 

or private elementary or secondary school that serves 

low-income students. If the students do not satisfy their 

agreement to serve, the grants are converted to Direct 

Unsubsidized Loans.

Office of Elementary and Secondary Education 

(OESE). OESE promotes academic excellence, enhances 

educational opportunities and equity for all of America’s 

children and families, and improves quality of teaching 

and learning by providing leadership, technical assistance, 

and financial support. 

Office of Special Education and Rehabilitative Services 

(OSERS). OSERS is committed to the broad values of 

Inclusion, Equity and Opportunity for infants, toddlers, 

children, youth, and adults with disabilities to actively 

participate in all aspects of life. OSERS promotes 

inclusion, ensures equity and creates opportunity as it 

strives to improve results and outcomes for children and 

adults with disabilities. By providing funding to programs 

that serve infants, toddlers, children, and adults with 

disabilities, OSERS works to ensure that these individuals 

are fully included in school, in employment, and in 

life. OSERS also provides funds to programs that offer 

information and technical assistance to parents of infants, 

toddlers and children with disabilities, as well as members 

of the learning community who serve these individuals.

The following table illustrates the Department’s expenses 

paid for bolstering the nation’s human capital, broken out 

by the nature of the expense, for the last five years.
74 FY 2018 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION

FINANCIAL SECTION | REQUIRED SUPPLEMENTARY STEWARDSHIP INFORMATION (UNAUDITED)

PROGRAM OUTCOMES 

Favorable results in the various programs administered 

by the Department can be interpreted in many ways. 

Accordingly, the effectiveness of the Department’s 

investments in human capital can be gauged by changes 

in the number of students who fully complete the 

requirements for earning a bachelor’s or associate’s degree. 

This often final stepping stone in one’s educational career 

correlates strongly with wage and/or salary increases due 

to the high-level skills expected by employers of graduates 

entering the labor force. Attaining a degree has proven 

to increase an individual’s job opportunity outlook for 

2018 2017 2016 2015 2014

FEDERAL STUDENT AID EXPENSE

 Direct Loan Subsidy $ 4,369 $ 5,329 $ 16,119 $ (892) $ 8,126

 Federal Family Education Loan Program Subsidy 1,228 3,411 10,234 (3,856) (6,585)

 Perkins Loans, Pell and Other Grants 28,512 28,770 30,671 31,400 33,098

 Program Operational Costs 246 224 308 242 206

 Subtotal 34,355 37,734 57,332 26,894 34,845

DEPARTMENTAL PROGRAMS

 Elementary and Secondary Education 20,625 22,420 22,155 22,146 22,832 

 Special Education and Rehabilitative Services 16,548 16,294 15,944 15,751 15,948

 Other Departmental Programs 6,367 6,565 6,349 6,494 6,938

 Program Operational Costs 459 419 625 511 667

 Subtotal 43,999 45,698 45,073 44,902 46,385

Grand Total $ 78,354 $ 83,432 $ 102,405 $ 71,796 $ 81,230

Table 2. Summary of Human Capital Expenses

(Dollars in Millions)

life, making them less susceptible to general economic 

downturns and allowing them to afford living expenses 

more comfortably; make debt payments, including 

student loans; and avoid delinquency and credit 

problems. Increased employability makes Americans 

more competitive in the global labor market, yielding 

lower unemployment, higher economic well-being, and 

greater national security.

One important method used in the area of analyzing 

student loan programs, borrower activity, and institution 

participation is the monitoring of default statistics. 

Each year, substantial stewardship expenses incurred 
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by the Department are aimed at lowering the number 

of defaulted loans, defaulted borrowers, and disbursed 

dollars going into default. This is done because every 

default—when a loan payment is missed for multiple 

months—results in loan funds that are not replenished, 

missed opportunities to invest in other degree-seeking 

human capital and additional resources used by the 

government in attempting to collect its money. Each 

aspect of a default costs American taxpayers, affects the 

federal budget, decreases economic well-being, and harms 

borrowers’ credit scores.

Although a direct and proven linkage does not exist 

between the two variables, the Department feels 

strongly about its ability to mitigate the risk of default 

through various efforts. Stewardship expenses for this 

postsecondary goal include those incurred to increase 

borrower awareness of repayment options, encouraging 

third-party loan servicers to work more effectively 

in helping students avoid default by devising viable 

repayment plans, and by working with financial aid 

offices around the country to help them improve the loan 

counseling provided to students who have yet to graduate 

or enter repayment.

Default statistics for the FY 2015 cohort of borrowers 

entering repayment were released at the end of FY 2018. 

Of the 4.9 million borrowers entering repayment from 

October 1, 2014, to September 30, 2015, 532,000 

defaulted on their loan before September 30, 2017. This 

borrower default rate of 10.8 percent across all institution 

types showed a decrease from the prior year rate of 11.5 

percent for the 2014 cohort. It is important to note that 

this metric is unadjusted for loan program facets, such as 

consolidations and forbearance.

Trends in default rates, among other indicating metrics 

monitored at the Department, continue to support proof 

of favorable outcomes within programs at all levels.
76 FY 2018 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION

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 15, 2018 

The Honorable Betsy DeVos

Secretary of Education

Washington, D.C. 20202

Dear Secretary DeVos: 

The enclosed report presents the results of the audit of the U.S. Department of Education’s 

(Department) financial statements for fiscal year 2018 to comply with the Chief Financial 

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

Department’s financial statements and notes to fully understand the context of the information 

contained therein.

We contracted with the independent certified public accounting firm KPMG LLP to audit the 

financial statements of the Department as of September 30, 2018, and for the year then ended. 

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.

Results of the Independent Audit

KPMG found: 

• The fiscal year 2018 financial statements are presented fairly, in all material respects, in 

accordance with accounting principles generally accepted in the United States of 

America;

• One material weakness in internal control over financial reporting: 

o Controls over the Reliability of Information Used in the Modeling Activities Need 

Improvement; 

• One significant deficiency in internal control over financial reporting:

o Information Technology Controls Need Improvement; and 

• One instance of reportable noncompliance with Federal law related to referring 

delinquent student loan debts to Treasury.
FY 2018 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION 77

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Page 2 – The Honorable Betsy DeVos

KPMG is responsible for the attached auditors’ report dated November 15, 2018, and the 

conclusions expressed therein. We do not express opinions on FSA’s financial statements or 

internal control over financial reporting, or conclusions on compliance and other matters. 

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, 

Kathleen S. Tighe

Inspector General

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

FINANCIAL SECTION | REPORT OF INDEPENDENT AUDITORS

KPMG LLP is a Delaware limited liability partnership and the U.S. member 

firm of the KPMG network of independent member firms affiliated with 

KPMG International Cooperative (“KPMG International”), a Swiss entity. 

KPMG LLP

Suite 12000

1801 K Street, NW

Washington, DC 20006

Independent Auditors’ Report 

Inspector General 

United States Department of Education

Secretary 

United States Department of Education: 

Report on the Financial Statements 

We have audited the accompanying consolidated financial statements of the United States Department of 

Education (Department), which comprise the consolidated balance sheet as of September 30, 2018, and the 

related consolidated statements of net cost, and changes in net position, and combined statement of budgetary 

resources for the year then ended, and the related notes to the consolidated financial statements. 

Management’s Responsibility for the Financial Statements 

Management is responsible for the preparation and fair presentation of these consolidated financial statements 

in accordance with U.S. generally accepted accounting principles; this includes the design, implementation, and 

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

statements that are free from material misstatement, whether due to fraud or error. 

Auditors’ Responsibility

Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We 

conducted our audit in accordance with auditing standards generally accepted in the United States of America, 

in accordance with the standards applicable to financial audits contained in Government Auditing Standards

issued by the Comptroller General of the United States, and in accordance with Office of Management and 

Budget (OMB) Bulletin No. 19-01, Audit Requirements for Federal Financial Statements. Those standards and 

OMB Bulletin No. 19-01 require that we plan and perform the audit to obtain reasonable assurance about 

whether the consolidated financial statements are free from material misstatement. 

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the 

consolidated financial statements. The procedures selected depend on the auditors’ judgment, including the 

assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud 

or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s

preparation and fair presentation of the consolidated financial statements in order to design audit procedures 

that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness 

of the entity’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the 

appropriateness of accounting policies used and the reasonableness of significant accounting estimates made 

by management, as well as evaluating the overall presentation of the consolidated financial statements. 

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our 

audit opinion. 
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Opinion 

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, 

the financial position of the United States Department of Education as of September 30, 2018, and its net cost, 

changes in net position, and budgetary resources for the year then ended in accordance with U.S. generally 

accepted accounting principles. 

Other Matters 

Accompanying Prior Period Financial Statements 

The accompanying consolidated financial statements of the Department as of September 30, 2017 and for the 

year then ended were audited by other auditors whose report thereon dated November 13, 2017 expressed an 

unmodified opinion on those financial statements before the reclassifications described in Note 1 to the 

consolidated financial statements. As described in Note 1, to conform to fiscal year 2018 financial reporting 

requirements contained in OMB Circular A-136, Financial Reporting Requirements, the Department made the 

following reclassifications to the fiscal year 2017 consolidated financial statements and notes: 

 The Combined Statement of Budgetary Resources was condensed to present budgetary resources, status

of budgetary resources, and net outlays, while removing the presentation of the change in obligated

balance.

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

liabilities not requiring budgetary resources.

As part of our audit of the 2018 consolidated financial statements, we also audited the reclassifications 

described in Note 1 that were applied to reclassify the 2017 consolidated financial statements. In our opinion, 

such reclassifications are appropriate and have been properly applied. We were not engaged to audit, review, 

or apply any procedures to the 2017 consolidated financial statements of the Department other than with 

respect to the reclassifications and, accordingly, we do not express an opinion or any other form of assurance 

on the 2017 consolidated financial statements as a whole. 

Interactive Data 

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

Agency Financial Report to provide additional information for the users of its financial statements. Such 

information is not a required part of the basic consolidated financial statements 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. 

Required Supplementary Information 

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

Analysis, Required Supplementary Information, and Required Supplementary Stewardship Information sections 

be presented to supplement the basic consolidated financial statements. Such information, although not a part 

of the basic consolidated financial statements, 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 

statements in an appropriate operational, economic, or historical context. We have applied certain limited 

procedures to the required supplementary information in accordance with auditing standards generally 

accepted in the United States of America, which consisted of inquiries of management about the methods of 

preparing the information and comparing the information for consistency with management’s responses to our 

inquiries, the basic consolidated financial statements, and other knowledge we obtained during our audit of the 

basic consolidated financial statements. We do not express an opinion or provide any assurance on the 

information because the limited procedures do not provide us with sufficient evidence to express an opinion or 

provide any assurance. 
80 FY 2018 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION

FINANCIAL SECTION | REPORT OF INDEPENDENT AUDITORS

Other Information 

Our audit was conducted for the purpose of forming an opinion on the basic consolidated financial statements 

as a whole. The information on pages i through iii, Message from the Secretary, information on pages 28 and 

29, Other Information Section, and Appendices are presented for purposes of additional analysis and are not a 

required part of the basic consolidated financial statements. Such information has not been subjected to the 

auditing procedures applied in the audit of the basic consolidated financial statements, and accordingly, we do 

not express an opinion or provide any assurance on it. 

Other Reporting Required by Government Auditing Standards

Internal Control over Financial Reporting 

In planning and performing our audit of the consolidated financial statements as of and for the year ended 

September 30, 2018, we considered the Department’s internal control over financial reporting (internal control) 

to determine the audit procedures that are appropriate in the circumstances for the purpose of expressing our 

opinion on the consolidated financial statements, 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 have not been 

identified. However, as described in the accompanying exhibits, we did identify certain deficiencies in internal 

control that we consider to be a material weakness and a significant deficiency. 

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 

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

described in Exhibit A, Controls over the Reliability of Information Used in the Modeling Activities Need 

Improvement, to be a material weakness. 

Department management did not report the material weakness, Controls over the Reliability of Information 

Used in the Modeling Activities Need Improvement, in its Statement of Assurance, included in the 

Management’s Discussion and Analysis section of the accompanying Agency Financial Report. 

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 Exhibit B, Information Technology Controls Need Improvement, to be a

significant deficiency.

Compliance and Other Matters 

As part of obtaining reasonable assurance about whether the Department’s consolidated financial statements 

are free from material misstatement, 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 determination of financial statement amounts. However, providing an opinion on compliance with those 

provisions was not an objective of our audit, and accordingly, we do not express such an opinion. The results of 

our tests disclosed an instance of noncompliance or other matters that are required to be reported under 

Government Auditing Standards or OMB Bulletin No. 19-01, and which is described in Exhibit C, Requirement 

for Referring Delinquent Student Loan Debts to Treasury.
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REPORT OF INDEPENDENT AUDITORS | FINANCIAL SECTION

We also performed tests of its 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 audit, and accordingly, we do not express such an opinion. The results of our tests 

disclosed no instances in which the Department’s financial management systems did not substantially comply 

with the (1) Federal financial management systems requirements, (2) applicable Federal accounting standards, 

and (3) the United States Government Standard General Ledger at the transaction level. 

The Department’s Responses to Findings 

The Department’s responses to the findings identified in our audit are described in Exhibit D. The Department’s

responses were not subjected to the auditing procedures applied in the audit of the consolidated financial 

statements and, accordingly, we express no opinion on the responses. 

Purpose of the Other Reporting Required by Government Auditing Standards 

The purpose of the communication described in the Other Reporting Required by Government Auditing 

Standards section 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 15, 2018
82 FY 2018 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION

FINANCIAL SECTION | REPORT OF INDEPENDENT AUDITORS

Exhibit A 

Material Weakness

Controls over the Reliability of Information Used in the Modeling Activities Need Improvement

Under the Federal Credit Reform Act of 1990 (FCRA), the Department of Education (the Department) is 

required to perform periodic interest rate and technical re-estimates of the subsidy costs of its direct loan and 

guaranty programs. These re-estimates are calculated using an internally-developed cash flow model

performed by the Department’s Cost Estimation and Analysis Division (CEAD). The cash flow model utilizes 

assumptions based on sourced data elements from the National Student Loan Data System (NSLDS) that are 

updated at different intervals by third parties (servicers, guaranty agencies, etc.) and certain assumptions 

provided by the Office of Management and Budget (OMB). These future cash flow outputs generated from the 

Department’s Student Loan Model (SLM) are then input into OMB’s Credit Subsidy Calculator (CSC), as 

required by U.S. generally accepted accounting principles to generate subsidy re-estimates.

Conditions:

Credit Reform Student Loan Model Documentation and Analysis

We noted that management’s documentation detailing the models currently in use including methodologies 

and/or considerations used to calculate the assumptions could be improved. Such improvements could provide 

sufficient details to enable an independent reviewer to effectively assess the reasonableness of key decisions 

made regarding critical elements of the re-estimate computations and the potential impact on the financial 

statements. We also noted that management’s analysis of the reestimate results identified material differences 

which are expected to reverse over time, however such analysis was not clearly documented to support 

management’s consideration of the effect of such differences, if any, on the fair presentation of direct loans in 

accordance with accounting standards. We found the following areas where specific documentation could be 

improved:

• CEAD produces a model inventory which includes all model assumptions, however it does not specify

which assumptions are key. The model inventory includes summarized information on inputs supporting the

assumptions, however it does not identify the specific data elements related to each input;

• CEAD’s sensitivity analysis should be expanded to include a documented evaluation of which assumptions

are key to the estimation model; and

• CEAD’s management review controls should be documented at a sufficient level of detail to demonstrate

the level of precision used in management’s analysis and the evaluation of estimation uncertainty on the

fair presentation of the financial statements and related footnotes in accordance with accounting standards.

Controls over the Completeness and Accuracy of Data Elements used in the Student Loan Model

The assumptions used in SLM are developed by utilizing certain data elements of direct and guaranty loans

extracted from the NSLDS such as loan identifier, loan type, origination date, net amount disbursed, and 

repayment plan type, among many others.

We noted that management’s processes, procedures, and controls should be improved to provide sufficient

detail over procedures and controls that specifically address the evaluation of the completeness and accuracy

of data elements from NSLDS used to develop model assumptions. 
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REPORT OF INDEPENDENT AUDITORS | FINANCIAL SECTION

NSLDS Oversight of Loan Guaranty Balances

Under the Federal Family Education Loan (FFEL) guaranty loan program, private lenders provide federally 

guaranteed student loans to parents and students. The FFEL program began in 1965 and ran until 2010. 

Student loan data from schools, guaranty agencies, the direct loan program, and other Department programs 

are stored in the NSLDS. 

Financial institutions, servicers, and guaranty agencies have up to 90 days after year-end to report guaranteed 

loan data to NSLDS. Therefore, such information may not be updated until December 31 each year. To 

determine the balance of loan guarantees at the end of each fiscal year, the Department executes a query in 

NSLDS in October. The Department utilizes this information sourced from NSLDS to develop financial 

statement note disclosures related to the performing FFEL program guaranty loans, including the principal 

balance outstanding and maximum government exposure. In addition, the exposure information is used in the 

estimation methodology related to the liability for loan guarantees. 

We noted that management did not design and implement effective controls to ensure that the NSLDS query 

extracts related to the total exposure amount for loan guarantees with private lenders were complete and 

accurate. For example, specific controls over the completeness and accuracy of these queries, including how

timing differences are resolved, were not evidenced in management’s internal control processes. 

Cause/Effect:

The Department’s documentation was not at a sufficient level of detail to enable an independent reviewer to 

properly assess the reasonableness of management’s reestimate modeling practices to include processes; 

specific controls; information used; and key judgments determined by management as part of the reestimate 

methodologies utilized for financial reporting purposes. We noted that while there are controls related to the 

accounting and reporting of loan programs, such controls are not designed at a sufficient level of precision to 

demonstrate the assessment and evaluation of the completeness and accuracy of data used in the SLM 

assumptions and relevant financial statement disclosures. 

The reestimate processes and controls at the Department form an integral part of the financial reporting 

process, which impact the most significant estimates and related balances in the financial statements and 

related footnotes. As a result, weaknesses in processes, procedures, and controls in the areas described 

above impact management’s ability to prevent, detect, and correct errors in the re-estimate process, which 

could lead to a material misstatement of the financial statements. 

Criteria:

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

• Green Book (GAO-14-704G – Federal Internal Control Standards), Section OV3.05, Section OV4.08,

Principle 10.03, Section 12.03, Section 13.04

• 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, Paragraphs 17, 20, 23, 27, 38 and

40

• SFFAS 2, Accounting for Direct Loans and Loan Guarantees, Paragraphs 22 and 23
84 FY 2018 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION

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Recommendations:

1. With respect to the SLM documentation and analysis, we recommend that the Department

management:

a. Coordinate among the various groups at the FSA and CEAD to determine, each year, what key

assumptions and data elements will be used in the Credit Reform re-estimate calculations.

These determinations should be fully documented to enable a reviewer to understand and reperform procedures, as needed.

2. With respect to model estimation uncertainty, we recommend that the Department and FSA

management:

a. Ensure that sufficient documentation is maintained evidencing management’s analysis and

consideration of the effects of model estimation uncertainty on the fair presentation of the

financial statements and related note disclosure reestimates in accordance with accounting

standards.

3. With respect to the completeness and accuracy of the data elements used in the SLM, we recommend

that the Department management:

a. Work with FSA to validate that appropriate data elements are extracted from NSLDS.

4. We recommend that the FSA management:

a. Enhance existing documentation and controls to demonstrate the relationship between the key

data elements used in the estimation model assumptions and the controls over student loan

transactions at FSA.

5. With respect to the NSLDS oversight of loan guaranty balances, we recommend that the Department

and FSA management:

a. Develop, implement, and document controls to assess the reasonableness of the principal

balance outstanding and maximum government exposure amounts presented in the financial

statement footnotes and used in calculating the liability for loan guarantees.

b. Enhance the query process documentation to demonstrate the completeness and accuracy of

the NSLDS query for the performing FFEL loan principal balance outstanding and maximum

government exposure.

c. Develop, implement, and document a sensitivity analysis related to NSLDS queries of

September 30 balances considering the potential timing differences in the data being used for

financial reporting.
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Exhibit B 

Significant Deficiency

Information Technology Controls Need Improvement

Condition:

During fiscal year 2018, we noted information technology (IT) control deficiencies related to logical access in

the Department’s network and in one application system managed by the Department and access and change 

control in two application systems managed by the FSA, as follows: 

• Weaknesses in the Department’s IT controls related to the removal of separated users’ access from the

network and one of its applications;

• Weaknesses in FSA’s IT controls related to the review and recertification of system access.

Specifically, the access reviews did not cover all users for one of the FSA systems. Additionally, for two

FSA systems, the access lists provided by the contractors to perform the periodic access reviews were

not verified for completeness and accuracy; and

• Weaknesses in FSA’s IT controls related to the segregation of duties. For example, in one FSA system,

the developers retained greater than read-only access to the application in the production environment.

Additionally, we noted weaknesses related to program development, where evidence of data validation upon 

system migration to a new data center was not available. 

Additionally, in FY 2017, the predecessor auditor reported a significant deficiency related to the Department 

and FSA internal control environments due to persistent unmitigated IT control deficiencies. During FY 2018, 

the Department and FSA management demonstrated progress addressing some of these long-standing 

deficiencies. However, management has not fully remediated prior year weaknesses related to logical access 

administration, user access removal, user access reviews, and recertification and system configuration 

management. Due to the nature of these control deficiencies, the Department and FSA management continue 

to implement corrective actions to remediate these control deficiencies. The continued existence of these 

deficiencies reduces managements’ ability to effectively manage information system risks. 

Cause/Effect:

These IT control deficiencies existed because (1) the Department and FSA did not consistently adhere to its 

documented agency-wide policies and procedures and NIST requirements consistently for systems hosted and 

managed by the Department and FSA or by service organizations; (2) certain Department and FSA policies and 

procedures did not require the documentation and maintenance of supporting control documentation and 

review of evidence; and (3) the Department and FSA did not fully implement their corrective actions to 

remediate prior-year conditions and associated causes. Furthermore, separated user access deficiencies 

resulted due to the lack of timely notification of user separations by internal departments. 

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 OM 3-104, Clearance of Personnel for Separation or Transfer

• National Institute of Standards and Technology Special Publication 800-53 Revision 4, dated April 2013,

AC-2 Account Management, AC-5 Separation of Duties, AC-6 Least Privilege, CM-3 Configuration Change

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

FINANCIAL SECTION | REPORT OF INDEPENDENT AUDITORS

• Federal Information Processing Standards 200, Minimum Security Requirements for Federal Information

and Information systems

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

United States, Principle No. 7, Identify, Analyze, and Respond to Risks, Principle No. 11, Design Activities

for the Information System, and Principle No. 13, Use Quality Information

• Appendix III to OMB Circular No. A-130, Section 4, Specific Requirements, I. Specific Safeguarding

Measures to Reinforce the Protection of Federal Information and Information Systems

Recommendations:

We recommend that the Department and FSA management: 

1. Perform comprehensive user access reviews and re-certifications, and confirm the access lists received for

review by designated management are complete and accurate prior to commencing the review.

2. Implement mechanisms and procedures to require timely notification of user separations and subsequent

disabling of access.

3. Establish requirements for formal documentation of data validation following data migration for systems.

4. Prevent or limit developer access in the production environment to read-only.
FY 2018 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION 87

REPORT OF INDEPENDENT AUDITORS | FINANCIAL SECTION

Exhibit C 

Compliance Matter

Requirement for Referring Delinquent Student Loan Debts to Treasury

In 2014, Federal Law (31 U.S. Code Section 3716(c) (6)) was amended (Public Law 113-101 (DATA Act) 

Section 5) to require agencies to notify the Secretary of the Treasury of valid, delinquent nontax debts that are 

over 120 days delinquent – 60 days earlier than the previous 180 days requirement – for the purpose of 

administrative offset (i.e., collection through the reduction of future Federal payments). Due to the number of 

entities and systems involved in handling student loan debts and the decentralized nature of such processes, 

FSA is not yet capable of meeting this accelerated timeline. Accordingly, as of September 30, 2018, the 

Department and FSA are not in compliance with the requirement to refer student debt delinquent for 120 days 

to the Department of the Treasury.

To meet this requirement, the Department obtained legal clarification of how certain specific requirements of 

the amended law apply to the Direct Loan Program and other Department programs, and are improving

delinquent debt reporting procedures, increasing the frequency of some debt referrals, and modifying its 

defaulted loan management system to accommodate this change. The Department is also evaluating the 

impact of defining defaulted loans earlier in schools’ performance reporting and has developed a long-term 

project plan to incorporate the new referral requirements into various servicer contracts and guaranty agency 

agreements, so it can initiate the required system programming changes. FSA is also working with the 

Department in evaluating certain options for other requirements needed to achieve compliance.

Recommendation:

We recommend that the Department continue to execute the corrective actions as outlined in FSA’s project 

plan to comply with the timing requirement for the referral of delinquent non-tax debts.
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Management's Response Exhibit D
OTHER 

INFORMATION
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ABOUT THE OTHER INFORMATION SECTION

The Other Information section includes:

OFFICE OF INSPECTOR 

GENERAL’S (OIG) MANAGEMENT AND 

PERFORMANCE CHALLENGES

The OIG’s Management and Performance Challenges 

Report provides a summary of what the OIG believes 

are the Department’s biggest challenges for FY 2019. 

The OIG identified the following four challenges: 

(1) Improper Payments, (2) Information Technology 

Security, (3) Oversight and Monitoring, and (4) Data 

Quality and Reporting. The full report is available at the 

OIG website.

SUMMARY OF FINANCIAL STATEMENT AUDIT 

AND MANAGEMENT ASSURANCES

The Summary of Financial Statement Audit and 

Management Assurances provides information about the 

material weaknesses reported by the agency or through 

the audit process. The Department reported no material 

weaknesses in FY 2018.

PAYMENT INTEGRITY

This section summarizes the Department’s efforts to 

maintain payment integrity and to develop effective 

controls designed to prevent, detect, and recover 

improper payments. It also includes information 

regarding the Department’s high-risk programs.

FRAUD REDUCTION REPORT

This section summarizes the Department’s efforts to 

comply with the Fraud Reduction and Data Analytics Act 

of 2015 (FRDAA) and details fraud reduction initiatives 

undertaken in FY 2018.

REDUCE THE FOOTPRINT

This section summarizes the Department’s efforts 

to comply with Office of Management and Budget 

(OMB) Management Procedures Memorandum-12-12, 

Promoting Efficient Spending to Support Agency Operations

and OMB Management Procedures Memorandum 

2013-02, the Reduce the Footprint policy implementing 

guidance. That guidance directs agencies to reduce 

the total square footage of their domestic office and 

warehouse inventory compared to an FY 2015 baseline.

CIVIL MONETARY PENALTY ADJUSTMENT 

FOR INFLATION

This section reports on the Department’s annual inflation 

adjustments to civil monetary penalties as required 

under the Federal Civil Penalties Inflation Adjustment Act 

Improvements Act of 2015.

GRANTS OVERSIGHT AND NEW EFFICIENCY 

(GONE) ACT OF 2016

The GONE Act summarizes the Department’s efforts 

to track the number and status of grant closeouts 

and extensions.
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FY 2018 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION 93

EXECUTIVE SUMMARY

The OIG works to promote efficiency, effectiveness, 

and integrity in the programs and operations 

of the U.S. Department of Education (the 

Department). Through our audits, inspections, 

investigations, and other reviews, we continue to 

identify areas of concern within the Department’s 

programs and operations and recommend actions the 

Department should take to address these weaknesses. 

The Reports Consolidation Act of 2000 requires the OIG 

to identify and report annually on the most serious 

management challenges the Department faces. The 

Government Performance and Results Modernization Act 

of 2010 requires the Department to include in its agency 

performance plan information on its planned actions, 

including performance goals, indicators, and milestones, 

to address these challenges.

Last year, we presented four management challenges: 

(1) improper payments,

(2) information technology security,

(3) oversight and monitoring, and

(4) data quality and reporting.

Although the Department made some progress in 

addressing these areas, each remains a management 

challenge for fiscal year (FY) 2019.

These challenges reflect continuing vulnerabilities and 

emerging issues faced by the Department as identified 

through recent OIG audit, inspection, and investigative 

work. A summary of each management challenge area 

follows. This FY 2019 Management Challenges Report 

is available at http://www2.ed.gov/about/offices/list/oig/

managementchallenges.html.

MANAGEMENT CHALLENGE 1—

IMPROPER PAYMENTS 

Why This Is a Challenge

The Department must be able to ensure that the billions 

of dollars entrusted to it are reaching the intended 

recipients. The Department identified the Federal 

Pell Grant (Pell) and the William D. Ford Federal 

Direct Loan (Direct Loan) programs as susceptible to 

significant improper payments. In addition, the Office of 

Management and Budget (OMB) has designated these 

programs as high-priority programs, which are subject to 

greater levels of oversight. 

Our recent work has demonstrated that the Department 

remains challenged to meet required improper payment 

reduction targets and needs to intensify its efforts to 

successfully prevent and identify improper payments. In 

May 2018, we issued an audit report on the Department’s 

compliance with improper payment requirements for FY 

2017. We found that the Department did not comply 

with the Improper Payments Elimination and Recovery Act 

of 2010 (IPERA) because it did not meet its reduction 

target for the Pell program. The Department reported 

a FY 2017 improper payment rate of 8.21 percent for 

the Pell program, which exceeded its reduction target 

of 7.85 percent. We found that the Department met 

the FY 2017 reduction target for the Direct Loan 

program. We reported that the Department’s improper 

payment reporting, estimates, and methodologies were 

generally accurate and complete. We also found that 

the Department adequately described the oversight and 

financial controls it has designed and implemented to 

identify and prevent improper payments. 

This was the Department’s second consecutive year of 

not meeting its reduction target for the Pell program. 

Under IPERA and OMB guidance, if an agency is not 

in compliance with IPERA for two consecutive fiscal 

years for the same program or activity, the Director of 

OMB will review the program and determine whether 

additional funding would help the agency come into 

compliance. In addition, OMB may require agencies 

that are not compliant with IPERA (for one, two, or 

three years in a row) to complete additional requirements 

beyond the measures listed in the guidance. For example, 

if a program is not compliant with IPERA, OMB may 

determine that the agency must reevaluate or reprioritize 

its corrective actions, intensify and expand existing 

corrective action plans, or implement or pilot new tools 

and methods to prevent improper payments. OMB will 

notify agencies of additional required actions as needed.

OFFICE OF INSPECTOR GENERAL’S (OIG) MANAGEMENT 

AND PERFORMANCE CHALLENGES FOR FISCAL YEAR 

2019 EXECUTIVE SUMMARY
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Overall, our semiannual reports to Congress from April 

1, 2015, through March 31, 2018, included more than 

$715 million in questioned or unsupported costs from 

audit reports, which may be determined to be improper 

payments, and more than $45 million in restitution 

payments from our investigative activity.

Progress in Meeting the Challenge

The Department stated that it is committed to 

maintaining the integrity of payments to ensure that 

the billions entrusted to it reach intended recipients 

in the right amount and for the right purpose. The 

Department stated that it sustains payment integrity by 

establishing policies, business processes, and controls 

over key payment activities, to include those pertaining 

to payment data quality, cash management, banking 

information, and financial reports. Payment integrity 

includes robust controls designed to prevent, detect, and 

recover improper payments. The Department added that 

in designing such controls, it strives to strike the right 

balance between making timely and accurate payments to 

recipients, while at the same time ensuring the controls 

are not too costly or overly burdensome. The Department 

noted that it must rely in part on controls established by 

the recipients of Federal funds, including State, local, and 

private organizations that further distribute those funds 

on behalf of the Department. The Department stated 

that because these third-party controls are outside of the 

Department’s operational authority, they present a higher 

risk than the payments made directly by the Department, 

as evidenced by the OIG work and the Department’s root 

cause analyses.

The Department stated that its current nonstatistical 

estimation methodology for improper payments in 

student aid programs limits the ability to establish 

accurate out-year reduction targets. The Department 

noted that it coordinated with OMB and other 

stakeholders in 2018 to develop a statistically valid 

methodology that will be implemented in 2019 to 

estimate improper payments for the Pell Grant and Direct 

Loan programs. The Department believed that this new 

methodology will improve the accuracy of the estimates 

and the Department’s ability to meet reduction targets. 

In addition, the Department stated that it is pursuing 

legislation that would authorize the Internal Revenue 

Service to disclose tax return information directly to the 

Department for the purpose of administering programs 

authorized by Title IV of the Higher Education Act of 

1965, through which the Department awarded more 

than $120 billion in FY 2017. The Department expects 

the exemption would allow for significant simplification 

of and improvement to the administration of Title IV 

programs, including reduction in improper payments. 

The Department stated that it is also developing 

an updated portfolio of risks through its Enterprise 

Risk Management program that is intended to help 

ensure that the risk of improper payments across the 

Department is managed strategically. The Department 

further stated that it is working to integrate its 

Enterprise Risk Management framework with its 

internal control program to help prevent and detect 

improper payments. The Department’s internal control 

framework over payment integrity includes over 500 

controls designed to help prevent, detect, and recover 

improper payments. These controls are included in 

the universe of internal controls the Department 

tests annually to assess their design and operating 

effectiveness. When the Department detects control 

deficiencies, it identifies the root causes, develops 

corrective action plans, and tracks the completion of the 

corrective action through resolution.

What Needs to Be Done 

The Department needs to continue to take action to 

improve its payment integrity. The Department should 

continue its work to develop a methodology to accurately 

estimate improper payments, identify root causes, 

meet reduction targets, develop corrective action plans, 

and complete these plans to ensure programs comply 

with IPERA. The Department should also review and 

improve its business processes and controls over key 

payment activities to explore additional opportunities for 

preventing improper payments. 

The Department needs to develop and implement 

processes to more effectively and efficiently monitor 

institutions participating in the student financial 

assistance programs, State education agencies, and 

local educational agencies to ensure they properly 

spend and account for Federal education funds. This 

area will remain a management challenge until the 

Department fully meets the expectations of IPERA 

and its monitoring systems provide greater assurance 

that Federal funds are both properly distributed and 

appropriately used by recipients. 
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MANAGEMENT CHALLENGE 2—

INFORMATION TECHNOLOGY SECURITY 

Why This Is a Challenge

Department systems contain or protect an enormous 

amount of sensitive information, such as personal 

records, financial information, and other personally 

identifiable information. Without adequate management, 

operational, and technical security controls, the 

Department’s systems and information are vulnerable 

to attacks. Unauthorized access could result in lost data 

confidentiality and integrity, limited system availability, 

and reduced system reliability.

The OIG’s work related to information technology 

continues to identify control weaknesses and ineffective 

security management programs that the Department 

needs to address to adequately protect its systems 

and data. For example, our most recent report on the 

Department’s compliance with the Federal Information 

Security Modernization Act of 2014 (FISMA) noted 

that the Department and Federal Student Aid (FSA) 

made progress in strengthening their information 

security programs; however, we found weaknesses in the 

Department’s and FSA’s information systems and those 

systems continued to be vulnerable to security threats. 

As guided by the maturity model used in the FY 2017 

Inspector General FISMA Metrics, we found that the 

Department and FSA were not effective in all five security 

functions—Identify, Protect, Detect, Respond, and 

Recover. We also identified findings in all seven metric 

domains: (1) Risk Management, (2) Configuration 

Management, (3) Identity and Access Management, 

(4) Security Training, (5) Information Security 

Continuous Monitoring, (6) Incident Response, and 

(7) Contingency Planning. We made recommendations 

to assist the Department and FSA with increasing the 

effectiveness of their information security program so that 

they fully comply with all applicable requirements.

Progress in Meeting the Challenge

The Department stated that it has made significant 

progress managing risk associated with information 

technology security. In particular, the Department noted 

that it has focused on addressing information technology 

control issues that were identified in prior-year OIG 

FISMA audits. The Department stated that it has 

continued to implement a comprehensive set of solutions 

that strengthen the overall cybersecurity of its networks, 

systems, and data. 

The Department stated that it had taken actions to 

improve cybersecurity across the five security functions. 

Examples of actions identified by the Department within 

each area include the following.

 Identify. The Department stated that it implemented 

the use of a risk scorecard as a risk management 

tool and established a quantitative methodology 

for identifying, analyzing, and managing systemlevel cybersecurity risks. The Department stated 

that the risk scorecards are used to perform regular 

framework-based risk assessments to identify security 

gaps and opportunities to enhance the Department’s 

cybersecurity capabilities and better protect its 

network assets and data.

 Protect. The Department stated that it had provided 

three cybersecurity training courses and had also 

executed six simulated phishing exercises in FY 

2018. The Department believed that these exercises 

strengthened its ability to reduce risks to systems and 

information through modified user behavior and 

improved resilience to spear phishing, malware, and 

drive-by attacks.

 Detect. The Department stated that it completed 

acquisitions that included a database scanning tool 

and a Security Information Event Management 

solution. The Department also stated that it adjusted 

the network access control solution to further limit 

opportunities for potential malicious activity to 

occur and continued its work with the Department 

of Homeland Security to implement Continuous 

Diagnostics and Mitigation tools within its primary 

network infrastructure.

 Respond. The Department stated that it had 

increased forensics and vulnerability management 

capabilities and had reduced the turnaround time 

for security analysis through the acquisition and 

implementation of additional tools and hardware. 

The Department stated that multiple improvements 

in security reporting were also implemented to 

provide a quick view of activity statuses and security 

posture, including an improved Chief Information 

Officer weekly report.

 Recover. The Department stated that it implemented 

a new enterprise cybersecurity offering to system 

stakeholders that focused on testing system 

contingency plans and the incident response processes.
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What Needs to Be Done

The Department reported significant progress towards 

addressing longstanding information technology security 

weaknesses. However, we continue to identify significant 

weaknesses in our annual FISMA audits—despite the 

Department’s reported corrective actions to address our 

prior recommendations. 

While we commend the Department for placing a 

priority on addressing these weaknesses, it needs to 

continue its efforts to develop and implement an effective 

system of information technology security controls, 

particularly in the areas of configuration management, 

identity and access management, and information 

security continuous monitoring. 

Our FISMA audits will continue to assess the 

Department’s efforts, and this will remain a management 

challenge until our work corroborates that the 

Department’s system of controls achieves expected 

outcomes. To that end, the Department needs to 

effectively address information technology security 

deficiencies, continue to provide mitigating controls for 

vulnerabilities, and implement planned actions to correct 

system weaknesses.

MANAGEMENT CHALLENGE 3—

OVERSIGHT AND MONITORING

Effective oversight and monitoring of the Department’s 

programs and operations are critical to ensure that 

funds are used for the purposes intended and programs 

are achieving goals and objectives. This is a significant 

responsibility for the Department given the numbers of 

different entities and programs requiring monitoring and 

oversight, the amount of funding that flows through the 

Department, and the impact that ineffective monitoring 

could have on stakeholders. Two subareas are included in 

this management challenge: student financial assistance 

program participants and grantees. 

OVERSIGHT AND MONITORING—

STUDENT FINANCIAL ASSISTANCE 

PROGRAM PARTICIPANTS 

Why This Is a Challenge

The Department must provide effective oversight and 

monitoring of participants in the student financial 

assistance programs under Title IV of the Higher 

Education Act of 1965, as amended, to ensure that the 

programs are not subject to fraud, waste, and abuse. 

In FY 2019, FSA expects to provide $129.5 billion in 

new Federal student aid grants and loans (excluding 

Direct Consolidation Loans) to almost 11.4 million 

postsecondary students and their families. 

The growth of distance education has added to the 

complexity of the Department’s oversight of student 

financial assistance program participants. The 

management of distance education programs presents 

challenges to the Department and school officials 

because little or no in-person interaction between the 

school officials and the student presents difficulties in 

verifying the student’s identity and academic attendance. 

The overall growth and oversight challenges associated 

with distance learning increases the risk of school 

noncompliance with the Federal student aid laws and 

regulations and creates new opportunities for fraud, 

abuse, and waste in the student financial assistance 

programs. Our investigative work has identified 

numerous instances of fraud involving the exploitation of 

vulnerabilities in distance education programs to obtain 

Federal student aid.

Our audits and work conducted by the Government 

Accountability Office continue to identify weaknesses 

in FSA’s oversight and monitoring of student financial 

assistance program participants. 

Progress in Meeting the Challenge

The Department stated that it has implemented robust 

oversight and monitoring processes for schools, lenders, 

servicers, guaranty agencies, and accrediting agencies. 

The Department further stated that FSA’s process for 

oversight and monitoring includes performing program 

reviews, reviewing and resolving annual compliance 

audits and financial statements submitted by program 

participants to ensure that these participants are 

administratively capable and financially responsible, and 

conducting certification activities to ensure that program 

participants continue to be eligible to participate in the 

student aid programs. 

The Department stated that the Next Generation 

Federal Student Aid transformation will bring significant 

improvements to FSA’s capabilities to monitor the 

performance of servicing and collections vendors 

in addition to monitoring servicing and collections 

performance generally. As part of this initiative, FSA will 

implement a business intelligence platform designed to 

capture and report on performance metrics, which will 

include vendor contract performance metrics and data. 
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What Needs to Be Done

While the Department stated that it has implemented 

robust oversight and monitoring processes, our 

audits and investigations involving student financial 

assistance programs continue to identify instances of 

noncompliance and fraud, as well as opportunities for 

FSA to further improve its processes. The Department 

should enhance its oversight of student financial 

assistance programs by developing and implementing 

improved methods to prevent and detect fraud. This 

includes methods to limit the effectiveness of organized 

activities involving distance fraud rings. 

Overall, the Department needs to ensure that its 

efforts to better coordinate oversight result in effective 

processes to monitor student financial assistance 

program participants and reduce risk. It should work 

to ensure that its program review and compliance audit 

processes are designed and implemented to effectively 

verify that high-risk schools meet requirements for 

institutional eligibility, financial responsibility, and 

administrative capability. The Department further 

needs to ensure its oversight functions work together to 

effectively provide the intended additional protections 

to students and taxpayers. 

Our audits and investigations of student financial 

assistance program participants and audits of the 

Department’s related oversight and monitoring processes 

will continue to assess a wide variety of effectiveness and 

compliance elements. This area remains a management 

challenge given our continued findings in this area. 

OVERSIGHT AND MONITORING—GRANTEES

Why This Is a Challenge

Effective monitoring and oversight are essential for 

ensuring that grantees meet grant requirements and 

achieve program goals and objectives. The Department’s 

early learning, elementary, and secondary education 

programs annually serve more than 18,300 public school 

districts and 55 million students attending more than 

98,000 public schools and 34,000 private schools. Key 

programs administered by the Department include the 

Title I program, which under the Department’s FY 

2019 budget appropriation would deliver more than 

$15.8 billion for local programs that provide extra 

academic support to help nearly 25 million students in 

high-poverty schools meet challenging State academic 

standards. Another key program is the Individuals with 

Disabilities Education Act, Part B Grants to States, which 

would provide more than $12.3 billion to help States and 

school districts meet the special educational needs of 6.9 

million students with disabilities. 

OIG work has identified a number of weaknesses in 

grantee oversight and monitoring. These involve local 

educational agency and State educational agency control 

issues, fraud relating to education programs, fraud 

perpetrated by State and local education agency and 

charter school officials, and internal control weaknesses in 

the Department’s oversight processes. 

Progress in Meeting the Challenge

The Department stated that is it working to maximize the 

value of grant funding by applying a risk-based, datadriven framework that balances compliance requirements 

with demonstrating successful results for the American 

taxpayer. The Department noted that there is significant 

inherent risk that State educational agencies, local 

educational agencies, and grant recipients may not always 

comply with financial or programmatic requirements, 

thereby negatively impacting program outcomes. The 

Department stated that it continues to take a number of 

actions to manage this risk and support State and local 

efforts, as well as postsecondary agencies and institutions, 

to improve outcomes. The Department’s new Strategic 

Plan includes key objectives and strategies focused on 

providing greater support to grantees through a number 

of ways, including flexibility, technical assistance, 

partnership, and dissemination of evidence.

The Department also stated that it continues to develop 

improved strategies to oversee and monitor grant 

recipients. According to the Department, one of these 

strategies is increasing the expertise of program staff 

to provide effective monitoring and oversight. The 

Department stated that its Risk Management Service 

developed and offered multiple courses covering basic to 

advanced strategies and resources to monitor formula and 

discretionary grantees. The Department has also focused 

on improving its technical support processes. 

The Department reported accomplishments in grantee 

oversight and monitoring across multiple offices. As 

examples, the Department reported the following.

 The Office of State Support implemented a 

performance review system designed to provide 

effective performance management and support 

to State educational agencies in administering and 

leveraging grant programs that include Title I, Part A; 

Title II, Part A; and Title III. 
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 The Office of Elementary and Secondary Education 

increased the number of engagements in its fiscal 

monitoring pilot, which is in its second year, and 

successfully increased focus on improving grantee 

financial management. 

 The Office of Special Education and Rehabilitative 

Services and the Office of Elementary and Secondary 

Education collaboratively planned and hosted two 

major public events to provide States with technical 

assistance on assessment topics and implementing the 

Every Student Succeeds Act.

 Multiple offices also routinely collaborate in 

monitoring activities, focusing on areas such as 

assessments, accountability, and data reporting. 

What Needs to Be Done

The Department continued to report progress in 

enhancing its grantee oversight processes, citing 

numerous actions it had taken to address risks and 

improve outcomes across multiple program offices. The 

Department should periodically assess the results of these 

efforts, identify the most promising approaches, and 

determine whether these best practices can be effectively 

applied in other program offices. 

The Department should also continue its efforts to offer 

common training, encourage effective collaboration 

and communication across program offices, and take 

steps to ensure that its program offices are consistently 

providing effective risk-based oversight of grant recipients 

across applicable Federal education programs. Given 

the flexibilities offered by the Every Student Succeeds Act, 

the Department needs to ensure that its monitoring 

approaches support State and local efforts while providing 

effective oversight of financial stewardship and ensuring 

progress towards positive program outcomes. 

Given the Department’s generally limited staffing in 

relation to the amount of Federal funding it oversees, it 

is important for the Department to continue to explore 

ways to more effectively leverage the resources of other 

entities that have roles in grantee oversight.

The Department’s oversight and monitoring of grantees 

remains a management challenge given our continued 

findings in this area. 

MANAGEMENT CHALLENGE 4—DATA QUALITY 

AND REPORTING 

Why This Is a Challenge

The Department, its grantees, and its subrecipients 

must have effective controls to ensure that reported 

data are accurate and reliable. The Department relies 

on program data to evaluate program performance and 

inform management decisions. Our work has identified 

a variety of weaknesses in the quality of reported data 

and recommended improvements at the Department and 

at State and local educational agencies. This included 

weaknesses in controls over the accuracy and reliability of 

program performance and graduation rate information 

provided to the Department.

Progress in Meeting the Challenge

The Department acknowledged that there is significant 

inherent risk associated with the quality of data reported 

to the Department by grant recipients. However, the 

Department reported that it is committed to a number 

of actions to strengthen the quality, accessibility, and 

use of education data. The Department believes that 

its efforts to strengthen its data life cycle management, 

governance, and quality framework will help ensure 

that data the Department uses for decision-making are 

accurate and reliable. 

The Department stated that it developed a tool to track 

data quality concerns and State responses to datarelated questions that contributed to the School Year 

2015–16 Assessment, Adjusted Cohort Graduation 

Rate, and Consolidated State Performance Report data 

quality follow-up efforts. The Department tracks data 

quality findings through multiple review cycles with 

input from States and data stewards. The Department 

further reported that the Office of Elementary and 

Secondary Education implemented a process to 

track Consolidated State Performance Report data 

quality follow-up and streamlined the process to load 

Consolidated State Performance Report data quality 

findings into a main repository. 

The Department reported that it continues to work 

in other areas to improve the data management and 

verification process and better mitigate the risk that the 

Department might unknowingly accept or use inaccurate 

data. Notably, the Department plans to leverage single 
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OFFICE OF INSPECTOR GENERAL’S MANAGEMENT CHALLENGES FOR FY 2018 | OTHER INFORMATION

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

audits to help assess grant recipient data quality. The 

Department is working with OMB on language for the 

compliance supplement that would add focus to the 

review of grant recipients’ internal controls that support 

the quality of performance data submitted to the 

Department. The Department believed that this would 

better ensure that data reported by States are accurate 

and reliable.

What Needs to Be Done

The Department’s efforts to improve the overall quality 

of data that it collects and reports remain important 

to its program management and reporting. While 

the Department has made progress in strengthening 

both grantees’ data quality processes and its own 

internal reviews of grantee data, this area is an 

ongoing challenge. Our recent audits continue to 

find weaknesses in grantees’ internal controls over the 

accuracy and reliability of program performance and 

graduation rate information. 

The Department’s effort to promote common strong 

practices across its program offices is an important 

step to improving data quality. In addition, efforts to 

strengthen data certification statements and to perform 

outreach to States and other entities that report data 

to the Department are important steps to reinforce 

the importance of good data quality practices. The 

Department should continue to monitor the quality of 

the data it receives, work to implement effective controls 

to address known weaknesses, and take steps to ensure 

that strong data management practices are implemented 

across the Department as well as by entities that submit 

data to the Department. The Department should follow 

through on its plans to leverage single audits to help 

assess grant recipient data quality.
100 FY 2018 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION

SUMMARY OF FINANCIAL STATEMENT AUDIT AND 

MANAGEMENT ASSURANCES

The following tables provide a summarized report on the Department’s financial statement audit and its management 

assurances. For more details, the auditors’ report can be found beginning on page 76 and the Department’s management 

assurances on page 16.

SUMMARY OF FINANCIAL STATEMENT AUDIT

Audit Opinion: Unmodified

Restatement: No

Material Weaknesses Beginning Balance New Resolved Consolidated Ending Balance

Total Material Weaknesses 0 1 0 0 1

SUMMARY OF MANAGEMENT ASSURANCES

Effectiveness of Internal Control over Financial Reporting—Federal Managers’ Financial Integrity Act 

(FMFIA) 2

Statement of Assurance: Unmodified

Material 

Weaknesses Beginning Balance New Resolved Consolidated Reassessed Ending Balance

Total Material 

Weaknesses 0 0 0 0 0 0

The Department had no material weaknesses in the design or operation of the internal control over financial reporting.

Effectiveness of Internal Control over Operations—FMFIA 2 

Statement of Assurance: Unmodified

Material 

Weaknesses Beginning Balance New Resolved Consolidated Reassessed Ending Balance

Total Material 

Weaknesses 0 0 0 0 0 0

Conformance with Financial Management System Requirements—FMFIA 4

Statement of Assurance: The Department systems conform to financial management system requirements.

Nonconformances Beginning Balance New Resolved Consolidated Reassessed Ending Balance

Total 

Nonconformances 0 0 0 0 0 0

Compliance with Federal Financial Management Improvement Act (FFMIA)

Agency Auditor

1. System Requirements No lack of compliance noted No lack of compliance noted

2. Federal Accounting Standards No lack of compliance noted No lack of compliance noted

3. United States Standard General Ledger at Transaction Level No lack of compliance noted No lack of compliance noted
FY 2018 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION 101

PAYMENT INTEGRITY

I. PAYMENT REPORTING

Office of Management and Budget (OMB) 

Memorandum M-18-20 defines an improper payment 

as any payment that should not have been made or 

that was made in an incorrect amount under statutory, 

contractual, administrative, or other legally applicable 

requirements. Incorrect amounts are overpayments 

or underpayments that are made to eligible recipients 

(including inappropriate denials of payment or service, 

any payment that does not account for credit for 

applicable discounts, payments that are for an incorrect 

amount, and duplicate payments). An improper 

payment also includes any payment that was made to an 

ineligible recipient or for an ineligible good or service, 

or payments for goods or services not received (except 

for such payments authorized by law). In addition, 

when an agency’s review is unable to discern whether a 

payment was proper as a result of insufficient or lack of 

documentation, this payment should also be considered 

an improper payment.

The Department places a high value on maintaining the 

integrity of all types of payments made to ensure that the 

billions of dollars in federal funds it disburses annually 

reach intended recipients in the right amount and for the 

right purpose. The Department ensures payment integrity 

by establishing effective policies, business processes, 

systems, and controls over key payment activities, 

including those pertaining to: payment data quality, cash 

management, banking information, third-party oversight, 

assessments of audit reports, and financial reporting. 

The number and dollar value of improper payments 

are key indicators of payment integrity. Accordingly, 

the Department maintains a robust internal control 

framework that includes over 500 controls designed to 

help prevent, detect, and recover improper payments. In 

designing controls, the Department attempts to strike 

the right balance between making timely and accurate 

payments and ensuring that controls put in place 

are not too costly or overly burdensome and thereby 

deter intended beneficiaries from obtaining funds they 

are entitled to receive. Additionally, the Department 

must rely heavily on controls established by external 

entities that receive Department payments, including 

federal, state, and private organizations and institutions, 

because they further distribute the funds they receive 

from the Department to subordinate organizations and 

individuals. Because these “third-party” controls are 

outside of the Department’s operational control, they 

present a higher risk to the Department, as evidenced 

by the work of the Department’s Office of Inspector 

General (OIG) and our root cause analysis. When control 

deficiencies are detected, either within the Department or 

at external entities, the Department seeks to identify their 

root causes, develop corrective action plans, and track 

corrective actions through to completion.

Readers can obtain more detailed information on 

improper payments at https://paymentaccuracy.gov.

DESCRIPTION OF RISK-SUSCEPTIBLE 

AND HIGH-PRIORITY PROGRAMS 

In FY 2018, the Pell Grant and Direct Loan programs 

continued to be susceptible to significant improper 

payments and remained OMB-designated high priority 

programs. The Department continues to place additional 

emphasis to ensure payment integrity and minimize 

improper payments in these two important programs as 

required by OMB guidance. Please refer to the Internal 

Controls Section of this agency financial report (AFR) 

for more information. Details on improper payment 

estimates and root causes for both programs are included 

within the Improper Payment Estimates, Payment 

Reporting Root Cause Categories, and Improper 

Payment Corrective Actions sub-sections that follow and 

in Section VII.

PELL GRANT 

The Pell Grant program, authorized under Title IV 

of the Higher Education Act of 1965 (HEA), provides 

need based grants to low-income undergraduate and 

certain post baccalaureate students to promote access to 

postsecondary education. 
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DIRECT LOAN 

The Direct Loan program, added to 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.

IMPROPER PAYMENT ESTIMATES

The Department used a nonstatistical sampling and 

estimation methodology to estimate the improper payment 

rate for the Pell Grant and Direct Loan programs in FY 

2018. Please refer to Section VII, Sampling and Estimation 

Methodology, for additional details about the methodology 

and its statistical limitations. 

The Department’s nonstatistical methodology was 

revised in FY 2017 to address volatility issues, as 

described further below in Section VII, Sampling 

and Estimation Methodology, but imprecision and 

volatility in the improper payments estimates continue 

that limit the ability to establish accurate out-year 

reduction targets. Accordingly, reduction targets were 

set to the current year improper payment percentages. 

The Department is implementing a statistically valid 

methodology in FY 2019 to improve the accuracy of the 

improper payment estimates.

Readers can obtain more detailed information on 

improper payments and all of the information reported 

in the past AFR at https://paymentaccuracy.gov.

The source of the FY 2018 Pell Grant and Direct Loan outlay amounts is Federal Student Aid (FSA)’s Financial Management System (FMS).
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Figure 17, FY 2018 Source of Improper Payments, summarizes the estimated amount of improper payments made 

directly by the Department and the amount of improper payments made by recipients of federal money in FY 2018 for 

the Pell Grant and Direct Loan programs. Improper payments attributed to the Department include, for Pell, estimates of 

misreported income for students not selected for verification and who did not use the Internal Revenue Service (IRS) Data 

Retrieval Tool (DRT) and, for Direct Loan, Consolidation and Refund improper payments related to the Department’s 

loan servicing operations. Improper payments attributed to recipients of federal money include improper disbursements of 

Title IV funds by schools.

Program Overpayments

(Dollars in Millions)

Overpayments

(%)

Underpayments

(Dollars in Millions)

Underpayments

(%)

Pell Grants $ 2,223.52 96.58% $ 78.84 3.42%

Direct Loans $ 3,537.97 94.27% $ 214.92 5.73%

Total $ 5,761.49 95.15% $ 293.76 4.85%

Table 3. FY 2018 Improper Payments for Risk-Susceptible Programs
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PAYMENT REPORTING ROOT CAUSE CATEGORIES

Our analysis indicated that the underlying root causes of improper payments for the Pell Grant and Direct Loan programs 

in FY 2018 were “Failure to Verify—Financial Data” and “Administrative or Process Errors Made by—Other Party.” The 

root causes were identified through improper payment fieldwork and categorized using categories of error as defined in the 

June 2018 update to OMB Circular A-123, Appendix C (OMB Memorandum M-18-20). Specific root causes associated 

with the “Failure to Verify—Financial Data” category include, but are not limited to, ineligibility for a Pell Grant or Direct 

Loan and incorrect self-reporting of an applicant’s information that leads to incorrect awards based on Expected Family 

Contribution. Specific root causes associated with the “Administrative or Process Errors Made by—Other Party” category 

include, but are not limited to, incorrect processing of student data by institutions during normal operations; student 

account data changes not applied or processed correctly; satisfactory academic progress not achieved; incorrectly calculated 

return records by institutions returning Title IV student aid funds; and processing errors at the servicer level.

IMPROPER PAYMENT CORRECTIVE ACTIONS

This section presents the corrective actions for the Pell Grant and Direct Loan programs. 

The Department has established an integrated system of complementary oversight functions to help prevent, detect, 

and recover improper payments, and ensure compliance by all participating parties. These oversight functions include 

FSA’s Enforcement Unit and Program Compliance, among others. FSA’s Enforcement Unit is focused on identifying, 

investigating and adjudicating statutory and regulatory violations of the federal student aid programs and on resolving 

borrower defense claims. The Unit plays a central role in coordinating efforts to prevent third-party companies associated 

with student aid programs from harming students, parents and borrowers. Program Compliance likewise plays a central 

role in monitoring and oversight of the institutions (i.e., schools, guaranty agencies, lenders, and servicers) participating 

in the Department’s FSA programs. The office establishes and maintains systems and procedures to support the 

eligibility, certification, and oversight of program participants. Program Compliance annually conducts approximately 

100–300 Program Reviews of the approximately 6,000 eligible schools to assess institutions’ compliance with Title IV 

regulations. Program Compliance evaluates a school’s compliance with federal requirements, assesses liabilities for errors 

in performance, and identifies actions the school must take to make the Title IV, HEA programs, or the recipients, whole 

for any funds that were improperly managed and to prevent the same problems from recurring. A school with serious 

violations may be placed on heightened cash monitoring (HCM) for disbursements, lose funding for specific programs, or 

be terminated from participation in all Title IV programs for noncompliance.
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The corrective actions listed below are specific to the root causes of improper payments identified from FY 2018 improper 

payment fieldwork.

Table 4. Corrective Actions—Root Cause Category

IPIA ERROR 

CAUSE

ROOT CAUSE 

CATEGORY CORRECTIVE ACTIONS1 COMPLETION TIMELINE

Failure to Verify 

Financial Data 

(Identified 

from Program 

Reviews)

Incorrect 

awards based 

on Expected 

Family 

Contribution 

(EFC)

EFC is a number that determines students’ eligibility for federal student aid. The EFC 

formulas use the financial information students provide on their Free Application for 

Federal Student Aid (FAFSA) to calculate the EFC. Financial aid administrators (FAAs) 

subtract the EFC from students’ cost of attendance (COA) to determine their need for 

federal student financial assistance offered by the Department.

On August 20, 2018, FSA published the 2019–2020 EFC Formula Guide. The Guide 

includes EFC worksheets and tables for the 2019–2020 processing cycle, which 

can help calculate an estimated EFC for students. The Guide provides information 

about the EFC formula worksheets, and direction about when to use the respective 

worksheets. FSA will publish the 2020–2021 Guide with updates to address any 

changes to the formulas and to clarify existing guidance. 

In FY 2018, the FSA Training Conference for Financial Aid Professionals was held 

from November 28 to December 1, 2017. The FSA Training Conference is a series of 

training and technical assistance programs provided by the Department for financial 

aid professionals charged with administering the Title IV student financial assistance 

programs on their campuses. In FY 2018, FSA addressed topics related to incorrect 

awards based on EFC. Over 2,000 unique schools registered for the FY 2018 

conference. All 50 states were represented as well as the U.S. territories. More than 

160 Foreign School officials attended from countries all over the world. Also, 26 percent 

of attendees were first-time attendees. The session recordings are publicly available. 

In FY 2019, FSA will again hold the FSA Training Conference. FSA will promote the 

training to financial aid professionals. The Training Conference will provide guidance 

about preventing incorrect awards based on EFC. 

FSA annually publishes the FSA Handbook. This publication is intended to 

provide guidance to college financial aid administrators and counselors about the 

administration of Title IV aid. The 2018–2019 Handbook includes a volume about 

Student Eligibility, including eligibility for program funds based on EFC. The Handbook 

provides examples and guidance about using EFC to determine and calculate eligibility. 

FSA will publish an updated volume for 2019–2020, including content which addresses 

incorrect awards based on EFC.

FSA has also designed, in collaboration with financial aid professionals, the FSA 

Assessments to help schools with compliance and improvement activities. The 

Assessments contain links to applicable laws and regulations related to administering 

Title IV funds. The Assessments address topics related to incorrect awards based 

on EFC, such as student eligibility and financial need and packaging. FSA updated 

the Assessments in the spring of 2018. In FY 2019, FSA will again update the FSA 

Assessments to help address incorrect awards based on EFC.

FSA also offers a variety of free training, including Fundamentals of Federal Student 

Aid Administration training workshops, required when schools apply for initial 

participation in the Federal Student Aid programs and for a variety of other reasons. 

These workshops are also open to anyone who wishes to attend. In FY 2019, FSA 

will hold 4.5 day in-person training workshops at the Department’s 11 regional training 

facilities. FSA also offers FSA Coach, online self-paced training on the concepts, 

processes and systems to properly administer Federal Student Aid programs, along 

with a suite of other e-training available via https://fsatraining.info/. Training is focused 

on specific topics of interest such as those related to correctly awarding funds based 

on EFC. In FY 2018, FSA published updated training content. In FY 2019, FSA will 

continue to update training content to help financial aid professionals with the mastery 

of the knowledge and skills needed to correctly award based on EFC. 

The Department maintains a blog to provide insights on the activities of schools, 

programs, grantees, and other education stakeholders to promote continuing 

discussion of educational innovation and reform. For example, on September 28, 2018, 

the Department published an article about how to fill out the FAFSA form when there is 

more than one child in college, which may impact EFC. The Department will continue 

to update the blog to address topics such as incorrect awards based on EFC.

In FY 2019, FSA will 

publish an updated 

EFC Formula Guide for 

award year 2020–2021. 

FSA will hold the 

FY 2019 FSA 

Training Conference 

for Financial Aid 

Professionals from 

November 27 to 

November 30, 2018.

In FY 2019, FSA will 

publish the 2019–2020 

FSA Handbook, 

including updated 

content that addresses 

incorrect awards based 

on EFC.

In FY 2019, FSA 

will update the FSA 

Assessments to help 

address incorrect 

awards based on EFC.

In FY 2019, FSA will 

publish updated free 

training content.

In FY 2019, the 

Department will 

maintain its blog, 

publishing additional 

articles which address 

topics such as incorrect 

awards based on EFC. 
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Failure to Verify 

Financial Data 

(Identified 

from Program 

Reviews)

Verification 

deficiencies

Verification is the process where schools, in partnership with FSA, confirm the 

accuracy of select data reported by students on their FAFSA. FSA’s Central 

Processing System selects which applications are to be verified. Schools also have 

the authority to verify additional students. Students selected for verification are placed 

in one of several verification tracking groups to determine which FAFSA information 

must be verified. Items verified include Adjusted Gross Income (AGI), taxes paid, and 

other tax data. Income verification helps detect and prevent misreported income.

In FY 2018, FSA completed an analysis of the verification data to inform the 

upcoming award year cycle before launch (to allow for system changes) using the 

most recently available data at that time. In FY 2019, FSA will continue to refine the 

verification selection process. As with prior years’ verification selection, data-based 

statistical analysis will continue to be used by the Department to select for verification 

of the 2019–2020 FAFSA applicants with the highest statistical probability of error and 

the impact of such error on award amounts.

In FY 2018, FSA published an updated listing of FAFSA information schools and 

applicants may be required to verify for the 2019–2020 award year. This notice was 

published in the Federal Register on March 28, 2018. In FY 2019, FSA will continue 

to enhance verification procedures, requiring selected schools to verify specific 

information reported on the FAFSA by student aid applicants. FSA will publish an 

updated notice in the Federal Register announcing the FAFSA information schools 

and financial aid applicants may be required to verify, as well as the acceptable 

documentation for verifying FAFSA information. 

From November 28 to December 1, 2017, FSA held its annual FSA Training 

Conference for Financial Aid Professionals to provide training and technical 

assistance to financial aid professionals charged with administering the Title IV 

student financial assistance programs. FSA addressed topics related to verification, 

including a session on professional judgement and verification, and a session 

on institutional resolution of conflicting information between the 2017–2018 and 

2018–2019 FAFSAs. The session recordings are publicly available. In FY 2019, FSA 

will again hold the FSA Training Conference. FSA will promote the training to financial 

aid professionals. The Training Conference will provide updated guidance to help 

prevent verification deficiencies. 

FSA annually publishes the FSA Handbook. This publication is intended for college 

financial aid administrators and counselors. In FY 2018, FSA published a 2018–2019 

Verification Guide as part of the 2018–2019 FSA Handbook. The Guide was updated 

as of December 2017. The updates for 2018–2019 include updates to address 

changing requirements, and clarify existing requirements. For FY 2019, FSA will 

publish an updated Verification Guide to address any new requirements and to 

provide additional clarification about existing requirements.

FSA also publishes questions and answers about verification on its website. 

Questions and answers were updated in FY 2018 to help clarify verification 

requirements. FSA will continue to update the frequently asked questions and 

answers, if updates are identified.

FSA designed, in collaboration with financial aid professionals, a Verification 

Assessment, part of the FSA Assessments that help schools with compliance and 

improvement activities. The Verification Assessment, updated in May 2018, contains 

a consolidated set of links to applicable laws and regulations to assist schools 

with understanding the verification requirements, and guidance and examples of 

verification issues, such as conflicting information.

FSA also offers free verification related training via FSA Coach, a suite of interactive 

courses for new and experienced financial aid administrators in the essential 

knowledge and skills needed to successfully administer the federal student aid 

programs, and other e-training. For FY 2019, FSA will publish updated training 

content that addresses annual updates for the new award year, and interactive 

exercises and self-assessments to help financial aid professionals with the mastery 

of the knowledge and skills needed to properly perform verification.

In FY 2019, FSA will 

complete an analysis 

of the verification data 

to inform the upcoming 

award year cycle 

approximately nine 

months before launch 

(to allow for system 

changes) using the 

most recently available 

data at that time. 

In FY 2019, FSA will 

publish an updated 

listing of FAFSA 

information schools 

and applicants may be 

required to verify for the 

2019–2020 award year.

FSA will hold the 

FY 2019 FSA 

Training Conference 

for Financial Aid 

Professionals from 

November 27 to 

November 30, 2018. 

In FY 2019, FSA 

will publish the 

2019–2020 Verification 

Guide, including 

updated content that 

addresses verification 

deficiencies. 

In FY 2019, FSA will 

publish updates to 

questions and answers 

about verification 

requirements to its 

website, if identified.

In FY 2019, FSA will 

update the Verification 

Assessment to help 

address verification 

deficiencies. 

In FY 2019, FSA will 

publish updated free 

training content related 

to verification. 
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Failure to Verify 

Financial Data 

(Identified 

from Program 

Reviews)

Verification 

deficiencies

FSA continues to utilize and promote the IRS DRT, which enables Title IV student 

aid applicants and, as needed, parents of applicants, to transfer certain tax return 

information from an IRS website directly to their online FAFSA. The IRS DRT remains 

the fastest, most accurate way to input tax return information into the FAFSA form. 

To increase IRS DRT usage, and thereby reduce improper payments associated 

with misreported income, FSA has taken action to vigorously increase access to and 

promote the tool. For the 2018–2019 application cycle, FSA expanded the population 

available to use the tool to include amended tax returns. Additionally, the data 

transferred from the IRS was masked to improve the privacy of applicant and parent 

tax information. As part of the ongoing effort to expand usage of the IRS DRT by 

applicants and parents, FSA publishes information about the benefits and use of the 

IRS DRT, including on its blog, and sends electronic announcements via Information 

for Financial Aid Professionals (IFAP) urging institutions to promote the use of the IRS 

DRT. FSA actively monitors the impact of its promotion of the IRS DRT. For example, 

FSA reports IRS DRT usage figures, disaggregated by dependency status and tax 

filing status on a quarterly basis. The impact of efforts to promote use of the IRS 

DRT is also assessed through reporting of IRS DRT usage via paymentaccuracy.

gov. FSA also conducts an annual FAFSA/IRS Data Statistical Study (Study). This 

Study includes an analysis of Pell applicants based on IRS DRT usage. Additionally, 

FSA monitors anecdotal reports from schools and IRS DRT users via annual surveys, 

usability studies, and the FSA Feedback System, among other mechanisms.

The Department is also coordinating with the Treasury Department and OMB to 

pursue legislation that would provide an exemption to the IRS Tax Code Section 

6103 that would further streamline FSA’s ability to receive and verify applicants’ and 

borrowers’ income data. The Department expects this to have a meaningful impact on 

improper payments, reduce burden on applicants and schools, and reduce burden on 

borrowers, helping them avoid delinquency and default.

Given the importance 

of IRS DRT usage in 

preventing misreported 

income, IRS DRT 

usage is reported on 

paymentaccuracy.gov

for the Pell Grant and 

Direct Loan programs. 

The usage results will 

be posted by the end of 

November, 2018.

Exemption to the IRS 

Tax Code Section 

6103 is pending 

legislative changes.

Administrative 

or Process 

Errors by Other 

Party (Identified 

from Program 

Reviews)

Incorrect 

processing 

of funds 

during normal 

operations

Incorrect processing of funds during normal operations include failure to properly 

pay credit balances, ineligible use of Title IV funds, incorrect disbursement periods, 

inaccurate application of credit balance to charges for program overages, incorrect 

calculation of lifetime eligibility used (LEU) and Direct Loan annual loan limits, and 

incorrect calculation of COA.

From November 28 to December 1, 2017, FSA held its annual FSA Training 

Conference for Financial Aid Professionals to provide training and technical 

assistance to financial aid professionals charged with administering the Title IV 

student financial assistance programs. The FY 2018 Training Conference included 

several sessions related to processing of funds during normal operations. The 

session recordings are publicly available. In FY 2019, FSA will again hold the FSA 

Training Conference. FSA will promote the training to financial aid professionals. The 

Training Conference will provide updated guidance related to process of funds during 

normal operations. 

FSA annually publishes the FSA Handbook for college financial aid administrators 

and counselors. The 2018–2019 Handbook includes volumes about Calculating 

Awards & Packaging, and Processing Aid and Managing FSA Funds. These volumes 

provide examples and guidance about processing of funds during normal operations. 

FSA will publish updated volumes for 2019–2020.

FSA designed, in collaboration with financial aid professionals, a Fiscal Management 

and Student Eligibility Assessment, part of the FSA Assessments that help schools 

with compliance and improvement activities. The Fiscal Management Assessment 

and Student Eligibility Assessment, updated in February 2018 and June 2018, 

respectively, contain a consolidated set of links to applicable laws and regulations 

related to processing of funds during normal operations, and related guidance, 

worksheets, and checklists to help schools comply with these requirements. 

FSA also offers free training related to processing of funds during normal operations 

via FSA Coach, a suite of interactive courses for new and experienced financial aid 

administrators in the essential knowledge and skills needed to successfully administer 

the federal student aid programs, and other e-training. For FY 2019, FSA will publish 

updated training content that addresses annual updates for the new award year, and 

interactive exercises and self-assessments to help financial aid professionals with the 

mastery of the knowledge and skills needed to process funds during normal operations.

FSA will hold the 

FY 2019 FSA 

Training Conference 

for Financial Aid 

Professionals from 

November 27 to 

November 30, 2018. 

In FY 2019, FSA 

will publish the 

2019–2020 FSA 

Handbook, including 

updated content that 

addresses processing 

of funds during 

normal operations.

In FY 2019, FSA will 

update the Fiscal 

Management and 

Student Eligibility 

Assessments.

In FY 2019, FSA 

will publish updated 

free training content 

related to processing 

of funds during normal 

operations.
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Administrative 

or Process 

Errors by Other 

Party (Identified 

from Program 

Reviews)

Incorrect 

processing of 

student data 

during normal 

operations

Incorrect processing of student data during normal operations includes 

inaccurate or inadequate tracking of clock hours, credit hours, and other 

documentation of attendance.

From November 28 to December 1, 2017, FSA held its annual FSA Training 

Conference for Financial Aid Professionals to provide training and technical 

assistance to financial aid professionals charged with administering the Title IV 

student financial assistance programs. The FY 2018 Training Conference included 

several related sessions: Administering Adds, Drops, and Withdrawals; Basics of 

Determining Academic Calendars (Standard, NonStandard, and NonTerm); and 

Administering Title IV Aid for Transfer Students. The session recordings are publicly 

available. In FY 2019, FSA will again hold the FSA Training Conference. FSA will 

promote the training to financial aid professionals. The Training Conference will 

provide updated guidance about processing of student data during normal operations.

FSA annually publishes the FSA Handbook for college financial aid administrators 

and counselors. The 2018–2019 Handbook includes a Student Eligibility volume, 

updated in May 2018, which includes a section devoted to enrollment status. This 

volume provides examples and guidance about processing of student data during 

normal operations. FSA will publish an updated volume for 2019–2020.

FSA designed, in collaboration with financial aid professionals, a Fiscal 

Management and Student Eligibility Assessment, part of the FSA Assessments that 

help schools with compliance and improvement activities. The Fiscal Management 

Assessment and Student Eligibility Assessment, updated in February 2018 and 

June 2018, respectively, contain links to applicable laws and regulations about 

disbursing funds to regular students enrolled in eligible programs and enrollment 

record retention. The Assessments also include related guidance, worksheets, and 

checklists to help schools comply with these requirements. 

FSA also offers free training related to processing of student data during normal 

operations via FSA Coach, a suite of interactive courses for new and experienced 

financial aid administrators in the essential knowledge and skills needed to 

successfully administer the federal student aid programs, and other e-training. For 

FY 2019, FSA will publish updated training content that addresses annual updates 

for the new award year, and interactive exercises and self-assessments to help 

financial aid professionals with the mastery of the knowledge and skills needed to 

process student data during normal operations.

FSA will hold the 

FY 2019 FSA 

Training Conference 

for Financial Aid 

Professionals from 

November 27 to 

November 30, 2018. 

In FY 2019, FSA will 

publish the 2019–2020 

FSA Handbook, 

including updated 

content that addresses 

processing of student 

data during normal 

operations.

In FY 2019, FSA will 

update the Fiscal 

Management and 

Student Eligibility 

Assessments.

In FY 2019, FSA 

will publish updated 

free training content 

related to processing 

of funds during normal 

operations.
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Administrative 

or Process 

Errors by Other 

Party (Identified 

from Program 

Reviews)

Incorrect 

awards based 

on eligibility

Schools that disburse Title IV funds must demonstrate that they are eligible to 

participate in these programs before they can be certified for participation and must 

maintain eligibility. Further, student and parent borrowers must satisfy eligibility 

requirements for the Title IV funds.

From November 28 to December 1, 2017, FSA held its annual FSA Training Conference 

for Financial Aid Professionals to provide training and technical assistance to financial 

aid professionals charged with administering the Title IV student financial assistance 

programs. The FY 2018 Training Conference included several sessions related to student 

and institutional eligibility: Student Eligibility Requirements; Maintaining Your Institutional 

Eligibility; and Pell LEU & Subsidized Usage Limit Applies (SULA) Adjustments for 

Transfer Students Coming from Closed Schools. The session recordings are publicly 

available. In FY 2019, FSA will again hold the FSA Training Conference. FSA will promote 

the training to financial aid professionals. The Training Conference will provide updated 

guidance about confirming student and institutional eligibility.

FSA annually publishes the FSA Handbook for college financial aid administrators 

and counselors. The 2018–2019 Handbook includes volumes for Student Eligibility 

and School Eligibility and Operations. These volumes provide examples and guidance 

about student and school eligibility. FSA will publish updated volume for 2019–2020.

FSA designed, in collaboration with financial aid professionals, Student Eligibility and 

Institutional Eligibility Assessments, part of the FSA Assessments that help schools 

with compliance and improvement activities. The Student Eligibility Assessment and 

Institutional Eligibility Assessment, both updated in June 2018, contain a consolidated 

set of links to applicable laws and regulations related to eligibility, and corresponding 

guidance, worksheets, and checklists. 

FSA also offers free training related to maintaining and confirming student and 

institutional eligibility via FSA Coach, a suite of interactive courses for new and 

experienced financial aid administrators in the essential knowledge and skills needed 

to successfully administer the federal student aid programs, and other e-training. For 

FY 2019, FSA will publish updated training content that addresses annual updates for 

the new award year, and interactive exercises and self-assessments to help financial 

aid professionals with the mastery of the knowledge and skills needed to award funds 

to eligible students attending eligible programs and institutions.

FSA will hold the 

FY 2019 FSA 

Training Conference 

for Financial Aid 

Professionals from 

November 27 to 

November 30, 2018.

In FY 2019, FSA will 

publish the 2019–2020 

FSA Handbook, 

including the Student 

Eligibility and School 

Eligibility and 

Operations volumes.

In FY 2019, FSA 

will update the 

Student Eligibility and 

Institutional Eligibility 

Assessments.

In FY 2019, FSA will 

publish updated free 

training content 

related to awarding 

funds to eligible 

students attending 

eligible programs 

and institutions. 

Administrative 

or Process 

Errors by Other 

Party (Identified 

from Program 

Reviews)

Satisfactory 

Academic 

Progress 

(SAP) 

deficiencies

According to federal regulations, all schools participating in Title IV programs must 

establish SAP standards. SAP is a student-eligibility requirement and schools are 

responsible for making sure that students who are not making SAP do not receive 

student financial aid funds. 

From November 28 to December 1, 2017, FSA held its annual FSA Training 

Conference for Financial Aid Professionals to provide training and technical 

assistance to financial aid professionals charged with administering the Title IV 

student financial assistance programs. The FY 2018 Training Conference included 

sessions related to SAP. The session recordings are publicly available. In FY 2019, 

FSA will again hold the FSA Training Conference. FSA will promote the training 

to financial aid professionals. The Training Conference will provide updated SAP 

guidance. 

FSA annually publishes the FSA Handbook for college financial aid administrators 

and counselors. The 2018–2019 Handbook includes a Student Eligibility volume, 

updated in May 2018, which includes a section devoted to SAP. This volume provides 

examples and guidance about SAP-related issues. FSA will publish an updated 

volume for 2019–2020.

FSA designed, in collaboration with financial aid professionals, a Satisfactory 

Academic Progress Assessment, part of the FSA Assessments that help schools 

with compliance and improvement activities. The Satisfactory Academic Progress 

Assessment, updated in February 2018, contains a consolidated set of links to 

applicable SAP laws and regulations, and related guidance and worksheets. 

FSA also offers free training related to SAP via FSA Coach, a suite of interactive 

courses for new and experienced financial aid administrators in the essential 

knowledge and skills needed to successfully administer the federal student aid 

programs, and other e-training. For FY 2019, FSA will publish updated training 

content that addresses annual updates for the new award year, and interactive 

exercises and self-assessments to help financial aid professionals with the mastery 

of the knowledge and skills needed to monitor SAP.

FSA will hold the 

FY 2019 FSA 

Training Conference 

for Financial Aid 

Professionals from 

November 27 to 

November 30, 2018. 

In FY 2019, FSA will 

publish the 2019–2020 

FSA Handbook, 

including updated SAPrelated guidance.

In FY 2019, FSA will 

update the Satisfactory 

Academic Progress 

Assessment.

In FY 2019, FSA will 

publish updated free 

training content related 

to SAP via FSA Coach.
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Administrative 

or Process 

Errors by Other 

Party (Identified 

from Program 

Reviews)

Incorrectly 

calculated 

return records

When a recipient of Title IV funds ceases to be enrolled prior to the end of a payment 

period or period of enrollment, schools are required to determine the earned and 

unearned Title IV aid a student has as of the date the student ceased attendance 

based on the amount of time the student spent in attendance or, in the case of a 

clock-hour program, was scheduled to be in attendance.

From November 28 to December 1, 2017, FSA held its annual FSA Training 

Conference for Financial Aid Professionals to provide training and technical 

assistance to financial aid professionals charged with administering the Title IV 

student financial assistance programs. The FY 2018 Training Conference included 

sessions devoted to incorrectly calculated return records: Return to Title IV Funds 

(R2T4): Basic Principles; R2T4 Funds: Advanced Concepts; R2T4 and CreditHour Programs; and SAP and Return to Title IV Funds (R2T4) Funds. The session 

recordings are publicly available. In FY 2019, FSA will again hold the FSA Training 

Conference. FSA will promote the training to financial aid professionals. The Training 

Conference will provide updated guidance for correctly calculating return records.

FSA annually publishes the FSA Handbook for college financial aid administrators 

and counselors. The 2018–2019 Handbook includes a volume dedicated to 

Withdrawals and the Return of Title IV Funds. This volume provides examples and 

guidance about the actions a school is required to take when a student withdraws. 

FSA will publish an updated volume for 2019–2020.

FSA designed, in collaboration with financial aid professionals, a Return of Title IV 

Funds Assessment, part of the FSA Assessments that help schools with compliance 

and improvement activities. The Return of Title IV Funds Assessment, updated in 

May 2018, contains a consolidated set of links to applicable laws and regulations 

for the treatment of Title IV funds when a student withdraws, and related guidance, 

worksheets, and checklists to help schools comply with these requirements. 

FSA also offers free training related to correctly calculating return records via 

FSA Coach, a suite of interactive courses for new and experienced financial aid 

administrators in the essential knowledge and skills needed to successfully administer 

the federal student aid programs, and other e-training. For FY 2019, FSA will publish 

updated training content that addresses annual updates for the new award year, and 

interactive exercises and self-assessments to help financial aid professionals with the 

mastery of the knowledge and skills needed to correctly calculate return records.

FSA will hold the 

FY 2019 FSA 

Training Conference 

for Financial Aid 

Professionals from 

November 27 to 

November 30, 2018. 

In FY 2019, FSA will 

publish the 2019–2020 

FSA Handbook, 

including updated 

content that addresses 

withdrawals and the 

return of Title IV funds.

In FY 2019, FSA will 

update the Return 

of Title IV Funds 

Assessment.

In FY 2019, FSA will 

publish updated free 

training content related 

to return of Title IV 

funds via FSA Coach.

Administrative 

or Process 

Errors by Other 

Party (Identified 

from FFEL to 

Direct Loan 

Consolidations)

Incorrect 

processing 

of Loan 

Verification 

Certificate 

(LVC)

In FY 2018, of the 120 Direct Loan Consolidation payments sampled, 16 improper 

payments were identified due to incorrect processing of LVCs, a reduction from 

17 in the prior year. These improper payments represent 0.01% of the Direct Loan 

improper payment estimate. FSA will initiate an assessment of the feasibility and 

effectiveness of the servicers implementing additional levels of quality assurance over 

processing of LVCs. 

FSA will meet with 

the Title IV Additonal 

Servicers (TIVAS) in 

FY 2019. 

In FY 2019, FSA will 

initiate an assessment 

of the feasibility and 

effectiveness of 

servicers implementing 

additional levels of 

quality assurance over 

processing of LVCs.

Administrative 

or Process 

Errors by Other 

Party (Identified 

from FFEL to 

Direct Loan 

Consolidations)

Documentation 

provided by 

servicer

Not applicable; 

no Direct Loan 

Consolidation 

improper 

payments were 

identified in 

FY 2018 due 

to insufficient 

documentation.

In FY 2018, FSA shared with the TIVAS a Direct Loan Consolidation improper 

payment fieldwork checklist. This checklist provides the TIVAS guidance on the 

documentation that should be maintained to demonstrate that FFEL to Direct Loan 

Consolidations were made to eligible borrowers, for eligible purposes, and for the 

correct amount. In FY 2018, FSA also sent a communication to the TIVAS reiterating 

the need to maintain sufficient documentation to support FFEL to Direct Loan 

Consolidations were made properly. In FY 2018, of the 120 Direct Loan Consolidation 

payments sampled, no improper payments were identified due to lack of sufficient 

supporting documentation, a reduction from two in the prior year. 

No additional corrective actions are identified for FY 2019 as no Direct Loan 

Consolidation improper payments due to insufficient documentation were 

identified in FY 2018.

In FY 2019, FSA will 

provide the Direct Loan 

Consolidation improper 

payment fieldwork 

checklist regarding 

documentation that 

must be maintained by 

the TIVAS.
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Administrative 

or Process 

Errors by Other 

Party (Identified 

from Direct 

Loan Refunds)

Not applicable; 

no Direct 

Loan Refund 

improper 

payments 

were identified 

in FY 2018.

In FY 2018, FSA shared with the TIVAS a Direct Loan Refund improper payment 

fieldwork checklist. This checklist provides the TIVAS guidance on the documentation 

that should be maintained to demonstrate that refunds were made to eligible lenders 

and borrowers, for eligible purposes, and for the correct amount. In FY 2017 and FY 

2018, no improper payments were identified from review of a sample of Direct Loan 

Refund payments. The Direct Loan Refund improper payment fieldwork checklist 

supported the collection of documentation from the servicers evidencing that all 

sampled Direct Loan Refunds were proper.

No additional corrective actions are identified for FY 2019 as no Direct Loan Refund 

improper payments were identified in FY 2018.

In FY 2019, FSA will 

provide the Direct 

Loan Refund improper 

payment fieldwork 

checklist regarding 

documentation that 

must be maintained by 

the TIVAS.

1

 FSA does not attempt to quantify the reduction of the improper payment estimates in terms of percentage or amount due to these corrective actions. 

The quantification of results is not feasible due to the use of a nonstatistical alternative estimation methodology.
112

OTHER INFORMATION | PAYMENT INTEGRITY

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II. RECAPTURE OF IMPROPER 

PAYMENTS REPORTING

Agencies are required to conduct recovery audits for 

contract payments and programs that expend $1 million 

or more annually if conducting such audits would 

be cost effective. The Department determined that 

payment recapture audits would not be cost effective 

for any of its loan and grant programs or for contracts. 

A comprehensive report on the cost effectiveness of the 

various recapture audit programs can be found in the 

Department’s FY 2012 Report on the Department of 

Education’s Payment Recapture Audits.

The Department identifies and recovers improper 

payments through sources other than payment recapture 

audits. The Department works with grantees and Title 

IV (FSA) program participants to resolve and recover 

amounts identified in compliance audits, OIG audits, 

and Department-conducted program reviews. The 

Department also analyzes the return of grant funds 

from recipients to determine if they are due to improper 

payments. When an improper payment is detected 

and deemed collectable, the Department establishes an 

account receivable and pursues collections. Recoveries 

are also made through grant program, payroll, and 

other offsets. Recipients of Department funds can 

appeal management’s decisions regarding funds to be 

returned to the Department or they may go bankrupt 

before the Department can collect, thereby delaying or 

decreasing the amounts the Department is able to collect. 

Additionally, the Department has wide discretion to 

make a determination to not collect improper payments 

from grantees in cases where it determines that pursuing 

collections would cause more harm to the federal interest. 

For these and other reasons, not all identified improper 

payments will ultimately be collected and collections will 

not necessarily be made in the same year as when the 

improper payments were identified.

In FY 2018, the Department identified $34.84 million 

in improper payments and recovered $45.06 million in 

improper payments (or 129 percent1

), as depicted in the 

graph below. For detailed information on identified and 

recovered improper payments, readers can visit https://

paymentaccuracy.gov. The Department continues to work 

to improve its methods to identify, collect, and report on 

improper payment collections.

III. AGENCY IMPROVEMENT OF 

PAYMENT ACCURACY WITH THE

DO NOT PAY (DNP) INITIATIVE

The Department continues its efforts to prevent and 

detect improper payments via the DNP Business Center 

Portal as required by the Improper Payments Elimination 

and Recovery Improvement Act of 2012 (IPERIA), as 

amended by the Bipartisan Budget Act of 2013 and the 

Federal Improper Payments Coordination Act of 2015

(FIPCA). During FY 2018, 1,382,275 payments, totaling 

$161.3 billion, were reviewed for possible improper 

payments through the DNP Portal screening, which 

includes the Death Master File and the System for Award 

Management File. The Department continues to validate 

that potential improper payments identified through this 

screening process were properly adjudicated and reported 

to Treasury timely.

IV. BARRIERS

The Department must rely on controls established 

by fund recipients who make payments on behalf of 

the Department. These controls are outside of the 

Department’s operational authority. In designing 

controls, the Department strives to strike the right 

balance between providing timely and accurate payments 

to grant recipients and students, while at the same 

time ensuring that the controls are not too costly and 

burdensome to fund recipients. Additionally, there are 

limitations to the availability of data necessary to verify 

FAFSA® information without increasing the burden on 

1

 Improper payments identified and recaptured in FY 2018 include 

payments that were made prior to FY 2018, which leads to a 

percentage greater than 100 percent.
113

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

schools and students. For example, the Internal Revenue 

Code does not currently permit a database match with 

the IRS. Such a match would eliminate the need to rely 

on tax transcripts submitted by the applicant (and the 

applicant’s parent, if the applicant is a dependent) to 

verify income data in cases where the IRS DRT is not 

used to transfer tax information directly into the 

FAFSA® form.

A detailed discussion of program-specific barriers can be 

found in the FY 2012 Report on the Department of 

Education’s Payment Recapture Audits.

V. ACCOUNTABILITY

The Department offices, managers, and staff are held 

accountable for promoting payment integrity by being 

held accountable for maintaining effective controls in 

their day-to-day jobs and key management officials 

have specific expectations related to payment integrity 

included in their annual performance plans. Additionally, 

Accountable Officials are identified for the Department 

and FSA.

VI. AGENCY INFORMATION SYSTEMS AND 

OTHER INFRASTRUCTURE

Audit Follow-up

The Department gathers and manages thousands of 

audits of grantees related to our loan and grant programs. 

Audit records are managed, maintained, and analyzed 

in the Department’s automated audit tracking systems. 

Audits are a key source of identifying risks and in 

identifying potential improper payments made by outside 

entities. The Department has demonstrated tremendous 

success in working with grant recipients to resolve audit 

findings timely. The Department is continuously looking 

for options to gain further insight from audit reports and 

is partnering with OMB and others to do so.

VII. SAMPLING AND ESTIMATION METHODOLOGY 

For FY 2018 AFR reporting, the Department obtained 

approval from OMB to use a nonstatistical estimation 

methodology, formerly referred to as an alternative 

methodology, for estimating improper payments for the 

Pell Grant and Direct Loan programs. The methodology 

is a nonstatistical estimation methodology as it has 

statistical limitations, including reliance on nonrandom 

sampling and limited sample size. The methodology 

leverages data collected through FSA Program Reviews, 

which include procedures such as determining whether 

schools properly performed verification of students’ selfreported income, identifying conflicting applicant data, 

student academic performance, and eligibility on the 

disbursed funds for a sample of students in each review. 

The Department determined that it would be too costly 

and inefficient, and potentially increase the burden on 

schools and students to an unacceptable level, to increase 

the reviews that make up its nonstatistical methodology 

to a level that would meet the precision rate prescribed 

by OMB. The Department is implementing a statistically 

valid methodology in FY 2019. 

On June 29, 2018, the Department submitted to OMB 

for approval updates to the nonstatistical sampling 

plan and estimation methodology. These updates to the 

methodology incorporate self-identified enhancements. 

OMB approved the Department’s updates to the 

nonstatistical sampling plan and estimation methodology 

on August 15, 2018. The methodology is described in 

detail on the Department’s improper payments website.

The Department recognizes that its nonstatistical 

estimation methodology can lead to volatile improper 

payment estimates. This is largely due to fewer program 

reviews conducted at lower-risk schools even though the 

lower-risk schools often account for a much larger portion 

of the dollars disbursed and likely have lower rates of 

improper payment. As a result, the potential exists for 

student-level improper payment fieldwork results of a 

single observation (such as a single student or school) at 

lower-risk schools to significantly influence the improper 

payment estimates, resulting in volatility of the model.

Risk Assessments

As required by OMB Circular A-123, Appendix C, the 

Department assesses the risk of improper payments at 

least once every three years for each program and activity 

that is not reporting an improper payments estimate. 

In FY 2018, the Department did not conduct any risk 

assessments, as all programs and activities were previously 

assessed for risk in either FY 2017 or FY 2016. 
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ADDITIONAL COMMENTS

Enhancing Payment Integrity

In support of the Department’s payment integrity 

initiative, the Department continues to develop the 

Continuous Controls Monitoring System (CCMS), 

which detects anomalies in grants payment data. Case 

management files for the anomalies are established 

within the application for follow-up investigation by the 

Department’s grants program offices to validate improper 

payments and determine root causes. Additionally, the 

Data Integrity and Financial Controls Group within 

the Office of the Chief Financial Officer continues 

working with other internal control teams within the 

Department to implement recommendations from its 

Payment Integrity Workgroup (PIWG), whose objective 

was to address identified gaps and strengthen the internal 

control process. Both efforts reflect the Department’s 

recognition of the critical importance that payment 

integrity plays in demonstrating financial stewardship to 

the American taxpayer.

Risk Management

The Department took measures to prevent improper 

payments through the use of the Decision Support System 

to run Entity Risk Review reports for non-FSA grant 

awards. Using data drawn from the Department’s grants 

business system, the Federal Audit Clearinghouse, the 

Institutes of Higher Education accreditation reporting, 

and Dun & Bradstreet, this report identifies financial, 

programmatic, and controls risks posed by award to the 

prospective grantee. Grant officers and awarding officials 

use the Entity Risk Review reports in the pre-award stage 

of the grant process to assess grantees’ risk and assist in the 

determination of special conditions for grant awards. They 

also apply these reports in devising monitoring plans for the 

life of the grant, strengthening them as the Department’s 

first line of defense against improper payments by grantees.

In FY 2018, the Department’s discretionary grant 

awards were assessed for risk prior to award in the areas 

of: financial stability; adequacy of management systems 

to meet applicable standards; performance history; 

and compliance with applicable laws and regulations, 

including those related to Suspension and Debarment. 

This work successfully demonstrated the Department’s 

early compliance with 2 C.F.R. Section 205, Federal 

Awarding Agency Review of Risk Posed by Applicants.
FY 2018 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION 115

FRAUD REDUCTION REPORT

The Department continues to participate actively 

with OMB and other agencies in the governmentwide workgroup that is collaborating on an 

implementation plan for the Fraud Reduction and Data 

Analytics Act (FRDAA) of 2015. The Department will 

continue to work with OMB to implement the FRDAA.

The Department recognizes the challenges that often 

surround fraud risk management and is taking action to 

address each challenge. These challenges include limited 

resources to conduct fraud risk management activities 

and difficulties in definitively separating fraud from other 

negative outcomes.

The Department is exploring ways to refine or enhance 

its business processes to be in a better position to define, 

deter, detect, and take action on fraud. For Title IV 

programs, Federal Student Aid (FSA) has established 

a Fraud Risk Group (FRG) within its Enterprise Risk 

Management Office to build capacity and expertise for 

and to dedicate resources to fraud risk identification 

and mitigation. In 2018, responsibility for receiving, 

processing, and taking action on fraud referrals from the 

Department’s Office of the Inspector General (OIG) was 

transferred from the Finance Office to FRG. 

FRG launched a new initiative to implement workflow 

and case management capabilities to perform 

analysis of all OIG fraud referrals within the existing 

Customer Engagement Management Systems (CEMS) 

infrastructure. This will enable more comprehensive 

analysis across all OIG fraud referrals and provide 

better tracking of referrals and possible recoveries 

of resultant improper payments. This common and 

interactive case processing tool will also reduce fraud 

review/case processing time and provide analytics to 

allow better fraud detection and prevention. FSA is 

also exploring ways to leverage data analytics better to 

detect and combat fraud in operations. Additionally, the 

Department has catalogued internal controls related to 

fraud prevention and detection, to include 45 detective 

and 103 preventive controls related to its grant programs 

and administrative payments.

To combat improper use of federal funding under the 

Every Student Succeeds Act, the Department requires that 

each recipient and sub-recipient publically display the 

contact information of the Department’s OIG hotline 

to facilitate the reporting of suspected improper use of 

ESSA funding and that each recipient and sub-recipient 

provides assurance of truthfulness and accuracy of the 

information they provide in applications and in response 

to monitoring and compliance reviews.
116 FY 2018 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION

This effort strives to bring a new approach to the 

workplace at the Department, by building greater 

employee performance and productivity through 

innovative space designs and technology enhancements, 

while reducing the agency’s space footprint and 

associated out-year costs. The project will also allow the 

agency to meet the federal space guidelines (150–180 

usable square footage/person vs. the current usable 

square footage of 338).

THE DEPARTMENT CHALLENGES ARE:

 Limited IT tools to support new mobile workforce,

 IT infrastructure is outdated,

 In some cases, telework expansion has outpaced 

space designs, and

 Agency employee recruitment efforts restricted to 

a limited number of states, limiting the size of the 

mobile workforce.

THE DEPARTMENT STRATEGY IS TO:

 Upgrade the IT infrastructure,

 Provide mobile workers with 21st century tools,

 Strengthen the Performance Management Program, 

 Promote cultural acceptance of a mobile workforce,

 Design innovative work spaces,

 Implement an Electronic Records Management 

System, and

 Reduce the space footprint.

The square footage totals are for the office and warehouse 

domestic assets, which are assets located in the 50 states, 

Washington, D.C., and United States territories. The 

square footage total includes owned and leased assets. 

Updated square footage information is posted on the 

performance.gov website.

REDUCE THE FOOTPRINT

Table 5. Reduce the Footprint Baseline Comparison

FY 2015 Baseline FY 2018 Change (FY 2015 Baseline—FY 2018)

Square Footage 1,548,425 1,382,553 (165,872)

2

 The only building change for FY17 and FY18 was the OIG satellite office in Puerto Rico. In August, 2017, it was relocated from Plaza Scotia Bank 

Building to Degetau FB & Ruiz-Nazario Courthouse. Therefore, the total usable of 1,382,553 applies for both FY17 and FY18.
FY 2018 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION 117

Table 6.

CIVIL MONETARY PENALTY ADJUSTMENT FOR INFLATION

The Federal Civil Penalties Inflation Adjustment Act Improvements Act of 2015, as amended, requires agencies to make 

regular and consistent inflationary adjustments of civil monetary penalties to maintain their deterrent effect. To 

improve compliance with the act, and in response to multiple audits and recommendations, agencies should report 

annually in the Other Information section the most recent inflationary adjustments to civil monetary penalties to ensure 

penalty adjustments are both timely and accurate.

Location for Penalty Update Details:

https://www.federalregister.gov/documents/2018/01/16/2018-00614/adjustment-of-civil-monetary-penalties-for-inflation

Penalty Authority Date of Previous 

Adjustment

Date of Current 

Adjustment

Current Penalty 

Level

Failure to provide information for cost of higher education 20 USC 

1015(c)(5) 20-Apr-17 15-Jan-18 $37,601 

Failure to provide information regarding teacherpreparation programs20 USC 

1022d(a)(3) 20-Apr-17 15-Jan-18 $31,320

Violation of Title IV of the HEA 20 USC 1082(g) 20-Apr-17 15-Jan-18 $55,907

Violation of Title IV of the HEA 20 USC 

1094(c)(3)(B) 20-Apr-17 15-Jan-18 $55,907

Failure to disclose information to minor children and parents 20 USC 

1228c(c)(2)(E) 20-Apr-17 15-Jan-18 $1,650

Improper lobbying for government grants and contracts 31 USC 

1352(c)(1) 20-Apr-17 15-Jan-18 $19,639 to $196,387

False claims and statements 31 USC 3802(a)(1) 20-Apr-17 15-Jan-18 $11,181
118 FY 2018 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION

The goal of the Grants Oversight and New Efficiency 

(GONE) Act of 2016 (Pub. L. No. 114-117) is to 

close out grants and cooperative agreements that 

are in manual closeout with zero dollars and undisbursed 

balances and whose period of performance has exceeded 

two years.

Starting with an October 3, 2016, baseline of 8,948 

grants and cooperative agreements totaling approximately 

$2 billion in various statuses of the closeout process, the 

THE GRANTS OVERSIGHT AND NEW EFFICIENCY (GONE) 

ACT OF 2016

Department succeeded in closing out 100 percent of the 

required grants and cooperative agreements during FY 

2018, as reflected below.

The Department continues to use the GONE Act’s 

methodology and is integrating a financial monitoring 

curriculum into the Department’s grants training, 

updating our grants management system and updating the 

policy Handbooks for discretionary and formula grants.

Source: G5, grants management system linked to the Department’s general ledger system.

Category 2–3 Years >3–5 Years > 5 Years

Number of Grants/Cooperative Agreements 

with Zero Dollar Balances - - -

Number of Grants/Cooperative Agreements 

with Undisbursed Dollar Balances - - -

Total Amount of Undisbursed Balances - - -

Table 7. 
APPENDICES
120 FY 2018 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION

APPENDIX A: SELECTED DEPARTMENT WEB LINKS AND 

EDUCATION RESOURCES

COLLEGE COMPLETION TOOLKIT

The College Completion Toolkit provides information 

that governors and other state leaders can use to help 

colleges in their state increase student completion rates. 

It highlights key strategies and offers models to learn 

from, as well as other useful resources. http://www.

ed.gov/sites/default/files/cc-toolkit.pdf

COLLEGE COST LISTS

The Department provides college affordability and 

transparency lists under the Higher Education Opportunity 

Act of 2008. Each list is broken out into nine different 

sectors to allow students to compare costs at similar types 

of institutions, including career and technical programs. 

http://collegecost.ed.gov/catc/

COLLEGE NAVIGATOR

College Navigator consists of the latest data from the 

Integrated Postsecondary Education Data System, the 

core postsecondary education data collection program 

for the National Center for Education Statistics, as well 

as data from Federal Student Aid on cohort default rates, 

the Office of Postsecondary Education on campus safety 

and accreditation, and information on veterans from the 

Veterans Benefits Administration. https://nces.ed.gov/

collegenavigator/

COLLEGE PREPARATION CHECKLIST

This Departmental tool gives prospective college 

students step-by-step instructions on how to prepare 

academically and financially for education beyond 

high school. Each section is split into subsections for 

students and parents, explaining what needs to be done 

and which publications or websites might be useful to 

them. http://studentaid.ed.gov

Additional resources within the checklist assist students 

in finding scholarships and grants.

https://studentaid.ed.gov/sa/prepare-for-college/

checklists

https://studentaid.ed.gov/sa/types/grantsscholarships/finding-scholarships

COLLEGE SCORECARDS

The Department’s College Scorecards makes it easier to 

find out more about a college’s affordability and value. The 

College Scorecard continues to be a tool that provides clear, 

accessible, and reliable data on college cost, graduation, 

debt, and postcollege earnings. The College Scorecard 

continues to move the field forward in informing college 

choices with the help of technology and open data, making 

it possible for anyone—a student, a school, a policymaker, 

or a researcher—to decide which factors to evaluate. 

https://collegescorecard.ed.gov/

CONDITION OF EDUCATION AND DIGEST OF 

EDUCATION STATISTICS

The Condition of Education is a congressionally 

mandated annual report that summarizes developments 

and trends in education using the latest available statistics. 

The report presents statistical indicators containing 

text, figures, and data from early learning through 

graduate-level education, as well as labor force outcomes 

and international comparisons. https://nces.ed.gov/

programs/coe/

The primary purpose of the Digest of Education Statistics 

is to provide a compilation of statistical information 

covering the broad field of American education from 

prekindergarten through graduate school. The Digest 

includes a selection of data from many sources, both 

government and private, and draws especially on the 

results of surveys and activities carried out by the 

National Center for Education Statistics. https://nces.

ed.gov/programs/digest/

FINANCIAL AID SHOPPING SHEET

The Financial Aid Shopping Sheet is a consumer tool that 

participating institutions use to notify students about 

their financial aid package. It is a standardized form that 

is designed to simplify the information that prospective 

students receive about costs and financial aid so that 

they can easily compare institutions and make informed 

decisions about where to attend school. https://www2.

ed.gov/policy/highered/guid/aid-offer/index.html
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FY 2018 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION

GOVERNMENT ACCOUNTABILITY OFFICE (GAO)

The Government Accountability Office supports 

Congress in meeting its constitutional responsibilities 

and helps improve the performance and accountability of 

the federal government for the benefit of the American 

people. http://www.gao.gov/docsearch/agency.php

GRANTS INFORMATION AND RESOURCES

In addition to student loans and grants, the Department 

offers other discretionary grants. These are awarded using 

a competitive process, and formula grants use formulas 

determined by Congress with no application process. This 

site lists Department discretionary grant competitions 

previously announced, as well as those planned for later 

announcement, for new awards organized according 

to the Department’s principal program offices. http://

www2.ed.gov/fund/grant/find/edlite-forecast.html

For more information on the Department’s programs, see 

http://www2.ed.gov/programs.

NATIONAL ASSESSMENT OF 

EDUCATIONAL PROGRESS

The National Assessment of Educational Progress assesses 

samples of students in grades 4, 8, and 12 in various 

academic subjects. Results of the assessments are reported 

for the nation and states in terms of achievement levels—

Basic, Proficient, and Advanced. https://nces.ed.gov/

nationsreportcard/

OFFICE OF INSPECTOR GENERAL (OIG)

The Office of Inspector General conducts independent 

and objective audits, investigations, inspections, and other 

activities to promote the efficiency, effectiveness, and 

integrity of the Department’s programs and operations. 

http://www.ed.gov/about/offices/list/oig/index.html

For a list of recent reports, go to http://www2.ed.gov/

about/offices/list/oig/reports.html.

ONE-STOP SHOPPING FOR STUDENT LOANS

The Department provides a site from which students can 

manage their loans. http://studentloans.gov/

PERFORMANCE DATA

EDFacts is a Department initiative to put performance 

data at the center of policy, management, and budget 

decisions for all K–12 educational programs. EDFacts

centralizes performance data supplied by K–12 state 

educational agencies with other data assets, such as 

financial grant information, within the Department to 

enable better analysis and use in policy development, 

planning, and management. http://www.ed.gov/about/

inits/ed/edfacts/index.html

PRACTICE GUIDES FOR EDUCATORS

The Department offers guides that help educators address 

everyday challenges faced in classrooms and schools. 

Developed by a panel of nationally recognized experts, 

practice guides consist of actionable recommendations, 

strategies for overcoming potential roadblocks, and an 

indication of the strength of evidence supporting each 

recommendation. The guides themselves are subjected to 

rigorous external peer review. Users can sort by subject 

area, academic level, and intended audience to find the 

most recent, relevant, and useful guides. 

https://ies.ed.gov/ncee/wwc/PracticeGuides

EDUCATION RESOURCES 

INFORMATION CENTER 

The Department offers ERIC—the world’s largest free, 

digital library of education research. It is composed of 

1.7 million bibliographic records and 400,000 fulltext materials indexed from 1966 to the present. Each 

ERIC bibliographic record contains an abstract of a 

journal article or grey literature document (for example, 

a technical report or conference paper), along with such 

indexed information as author, title, and publication 

date. https://eric.ed.gov

REGIONAL EDUCATIONAL LABORATORY 

(REL) PROGRAM

The Department administers the REL program to 

support the use of research and evidence to help states 

and school districts improve their education programs 

and, ultimately, student performance. To do this, 

each regional REL contractor works with teachers, 

administrators, and policymakers to identify “high-
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APPENDICES | SELECTED DEPARTMENT WEB LINKS AND EDUCATION RESOURCES

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leverage” problems of practice and build the research 

capacity of local stakeholders. Each REL develops 

partnerships with state- and local-level education agencies 

to gather and analyze data, conduct evaluations, and 

provide technical assistance that address these “highleverage” problems. https://ies.ed.gov/ncee/edlabs/

PROGRAM INVENTORY

The GPRA Modernization Act of 2010, P.L. 111-352, 

requires that the Office of Management and Budget 

(OMB) establish a single website with a central inventory 

of all federal programs, including the purpose of each 

program and its contribution to the mission and goals of 

the Department. The initial Federal Program Inventory 

was published in May 2013. The Department described 

each program within 27 budgetary accounts, as well as 

how the programs support the Department’s broader 

strategic goals and objectives.

Since that time, Congress passed the Digital 

Accountability and Transparency Act (DATA Act) 

requiring new public reporting requirements, which 

impact the definition of programs used in this guidance. 

OMB is currently working with agencies to merge 

the implementation of the DATA Act and the Federal 

Program Inventory requirements to the extent possible 

to avoid duplicative efforts. While OMB and agencies 

determine the right implementation strategy, the 

initial Federal Program Inventory remains available on 

performance.gov or at http://www2.ed.gov/programs/

inventory.pdf.

PROJECTIONS OF EDUCATION 

STATISTICS TO 2026 

For the 50 states and the District of Columbia, the tables, 

figures, and text in this report contain data on projections 

of public elementary and secondary enrollment and 

public high school graduates to the year 2026. The report 

includes a methodology section that describes the models 

and assumptions used to develop national and state-level 

projections. https://nces.ed.gov/pubs2018/2018019.pdf

RESOURCES FOR ADULT AND CAREER AND 

TECHNICAL EDUCATION 

The Department, through the Perkins Collaborative 

Resource Network, offers resources and tools for the 

development and implementation of comprehensive 

career guidance programs. This includes guides 

for students, parents, teachers, counselors, and 

administrators across relevant topics, such as planning 

and exploring careers, selecting institutions, finances, 

and guidance evaluation. This source is an example of 

interdepartmental cooperation between the Department 

and the U.S. Department of Labor. http://cte.ed.gov

To support the Workforce Innovation and Opportunity 

Act (WIOA), the Department offers professional 

development resources through the Literacy Information 

and Communication System (LINCS). This initiative 

seeks to expand evidence-based practice in the field of 

adult education and literacy. LINCS serves as Office 

of Career, Technical, and Adult Education’s (OCTAE) 

primary outreach and dissemination mechanism to 

adult educators and provides high-quality, on-demand 

educational opportunities to practitioners of adult 

education. LINCS is comprised of: the LINCS Resource 

Collection, which provides online access to high-quality, 

evidence-based materials and instructional resources; 

the LINCS Community, a virtual professional learning 

space where adult educators can engage in discussions 

focused on critical topics to the field of adult education; 

a Learning Portal that offers anytime, anywhere 

professional development courses; a Professional 

Development Center that provides technical assistance 

to states in meeting the state leadership requirements set 

forth in WIOA; and the Learner Center, which provides 

access to federally developed or federally reviewed 

resources to assist adult learners in reaching their learning 

goals. Through these efforts, LINCS demonstrates 

OCTAE’s commitment to delivering high-quality, 

on-demand educational opportunities to practitioners 

of adult education and literacy, so those practitioners 

can help adult learners successfully transition to 

postsecondary education and 21st century jobs. 

http://lincs.ed.gov/
FY 2018 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION 123

APPENDIX B: GLOSSARY OF ACRONYMS 

AND ABBREVIATIONS

ABCP Asset-Backed Commercial Paper

AFR Agency Financial Report

AGI Adjusted Gross Income

APG Agency Priority Goals

APR Annual Performance Report

AR Abandon rate

ASA Average speed to answer

CAM Contracts and 

Acquisition Management

CAT Core Assessment Team

CCMS Continuous Controls 

Monitoring System

CEMS Customer Engagement 

Management Systems

COA Cost of attendance

CPSS Contracts and Purchasing 

Support System

CSF Cyber Security Framework

CSIP Cybersecurity Strategy and 

Implementation Plan

CSP Charter School Program

CSRS Civil Service Retirement System

DATA Digital Accountability and 

Transparency Act of 2014

DCIA Debt Collection Improvement Act 

of 1996

DNP Do Not Pay

DOL U.S. Department of Labor

DRT Data Retrieval Tool

ECASLA Ensuring Continued Access to 

Student Loans Act of 2008 

EDCAPS Education Central Automated 

Processing System

EFC Expected Family Contribution

ERICA Education Resources 

Information Center

ERM Enterprise Risk Management

ESEA Elementary and Secondary 

Education Act

ESSA Every Student Succeeds Act

FAFSA® Free Application for Federal 

Student Aid

FASAB Federal Accounting Standards 

Advisory Board

FAQ Frequently Asked Questions

FCRA Federal Credit Reform Act of 1990

FECA Federal Employees’ 

Compensation Act

FERS Federal Employees 

Retirement System

FFA Financial Aid Administrator

FFB Federal Financing Bank

FFEL Federal Family Education Loan

FFMIA Federal Financial Management 

Improvement Act of 1996

FIO Financial Improvement Operations

FIPCA Federal Improper Payments 

Coordination Act of 2015

FISMA Federal Information Security 

Modernization Act of 2014

FMFIA Federal Managers’ Financial 

Integrity Act of 1982

FMO Financial Management Operations

FMSS Financial Management 

Support System

FPRD Final Program Review 

Determination 
124

APPENDICES | GLOSSARY OF ACRONYMS AND ABBREVIATIONS

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

FSA Federal Student Aid

FY Fiscal Year

FRDAA Fraud Reduction and Data Analytics 

Act of 2015

FRG Fraud Risk Group

G5 Grants Management System 

GAAP Generally Accepted 

Accounting Principles

GAO	 	Government	Accountability	Office

GLBA Gramm-Leach-Bliley Act 

GONE Grants Oversight and New 

Efficiency Act of 2016

GPRA Government Performance and 

Results Act of 1993

GSA General Services Administration

HBCUs Historically Black Colleges 

and Universities

HCERA Health Care and Education 

Reconciliation Act of 2010

HCM Heightened cash monitoring 

HEA Higher Education Act of 1965

HEAL Health Education Assistance Loans

HHS U.S. Department of Health and 

Human Services

IDEA Individuals with Disabilities 

Education Act 

IDIQ 	Indefinite-Delivery,	

Indefinite-Quantity

IDR Income-Driven Repayment

IES Institute of Education Sciences

IFAP Information for Financial Aid 

Professionals

IHE Institutions of Higher Education

IPERA Improper Payments Elimination and 

Recovery Act of 2010

IPERIA Improper Payments Elimination and 

Recovery Improvement Act of 2012

IPIA Improper Payments Information Act 

of 2002

IRS Internal Revenue Service

IRS DRT IRS Data Retrieval Tool

ISCM Information Security 

Continuous Monitoring

IT Information Technology

LEA Local Educational Agency

LEU Lifetime Eligibility Used

LINCS Literacy Information and 

Communication System

LVC Loan	Verification	Certificate

NLSCD National Longitudinal School 

Choice Database

Next Gen FSA Next Generation Financial 

Services Environment

NFP Nor-for-Profit

NCES National Center for 

Education Statistics

OCFO	 	Office	of	the	Chief	Financial	Officer

OCIO	 	Office	of	the	Chief	

Information	Officer

OCR	 	Office	for	Civil	Rights

OCTAE	 	Office	of	Career,	Technical,	and	

Adult Education

OELA	 	Office	of	English	

Language Acquisition

OESE	 	Office	of	Elementary	and	

Secondary Education

OIG 	Office	of	Inspector	General

OII 	Office	of	Innovation	

and Improvement

OMB	 	Office	of	Management	and	Budget

OPE	 	Office	of	Postsecondary	Education

OPM	 	Office	of	Personnel	Management

OSERS	 	Office	of	Special	Education	and	

Rehabilitative Services
125

GLOSSARY OF ACRONYMS AND ABBREVIATIONS | APPENDICES

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

P–12 Prekindergarten through 12th grade

PAYE Pay as You Earn

Pell Program Pell Grant Program 

PEPS Postsecondary Education 

Participants System

PIV 	Personal	Identity	Verification

PIWG Payment Integrity Workgroup

PSLF Public Service Loan Forgiveness

PTAC Privacy Technical Assistance Center

REACH Research on Education Access 

and Choice

REL Regional Education Laboratory

SAFRA Student Aid and Fiscal 

Responsibility Act (SAFRA Act)

SAP Satisfactory Academic Progress

SAT Senior Assessment Team

SBR Statement of Budgetary Resources

SEA State Educational Agency

STEM	 	Science,	technology,	engineering	

and mathematics

SULA Subsidized Usage Limit Applies

TBMS Technology Business 

Management Solutions

TEACH Teacher Education Assistance for 

College and Higher Education Grant

TIVAS Title IV Additional Servicers

TPD Total and permanent disability 

Treasury U.S. Department of Treasury

WIOA Workforce Innovation and 

Opportunity Act
126 FY 2018 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION

ACKNOWLEDGMENTS

The following companies were contracted to assist in the 

preparation of the U.S. Department of Education 

FY 2018 Agency Financial Report:

FOR GENERAL LAYOUT AND WEB DESIGN

OmniStudio, Inc.

FOR ACCOUNTING SERVICES

Quality Software Services, Inc.

FMR Consulting, Inc.

Cotton & Company, LLP

The FY 2018 Agency Financial Report 

U.S. Department of Education

Office of the Chief Financial Officer

An electronic version is available 

on the World Wide Web at 

http://www2.ed.gov/about/reports/annual/index.html

U.S. Department of Education, November 2018

This Agency Financial Report (AFR) was produced 

with the energies and talents of our employees and 

contract partners.

Within the Office of the Chief Financial Officer, the 

office of Financial Management Operations (FMO) 

is responsible for certifying, processing, reconciling, 

evaluating, and reporting all agency financial transactions; 

preparing annual financial statements and related notes 

and schedules; and coordinating the external audit of the 

agency’s financial statements.

Financial Improvement Operations (FIO) provides 

leadership and direction in the areas of internal control 

assessment, financial management training, post audit 

activities, and indirect cost determination.

Contracts and Acquisitions Management (CAM) is 

responsible for the solicitation, award, administration, 

and closeout of all contracts and other acquisition 

instruments for the Department.

We offer our sincerest thanks and acknowledgment 

to staff of all participating principal offices. In 

particular, we recognize the following organizations 

for their contribution:

OTHER CONTRIBUTORS

Office of the Deputy Secretary

Federal Student Aid

Office of the Inspector General

Budget Service

Office of Communications and Outreach

Office of Planning, Evaluation, and Policy Development

Office of the Chief Information Officer

PARTNERS

Office of Management and Budget

Department of Treasury

Government Accountability Office

Association of Government Accountants
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