fy 2020

AGENCY

FINANCIAL

REPORT

U.S. DEPARTMENT OF EDUCATION
U.S. Department of Education

Betsy DeVos

Secretary

Office of Finance and Operations

Denise Carter

Delegated the authority to perform the functions and duties of the position of Chief Financial Officer 

November 16, 2020

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 2020 Agency 

Financial Report, Washington, D.C., 2020. 

This report is available at http://www.ed.gov/about/reports/annual/index.html.

NOTICE OF AVAIL ABILITY OF ALTERNATE FORMATS

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

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 2020, in addition to the Agency Financial Report (AFR), the Department will post to its website the Annual 

Performance Report and Annual Performance Plan (Report and Plan). This Report and Plan 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 2022 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 Finance and Operations

U.S. Department of Education

Washington, D.C. 20202-0600
FY 2020 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION i

ABOUT THIS REPORT

The purpose of the United States Department of 

Education’s (Department) fiscal year (FY) 2020 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 advance the mission of the Department 

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 wellmanaged business and financial management systems, 

processes, and practices. 

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: 

 Chief Financial Officers Act of 1990.

 Department of Education Organization Act of 1979.

 Federal Credit Reform Act of 1990.

 Federal Financial Management Improvement Act 

of 1996.

 Federal Information Security Management Act 

of 2002.

 Federal Managers’ Financial Integrity Act of 1982.

 Fraud Reduction and Data Analytics Act of 2015.

 General Education Provisions Act.

 Government Management Reform Act of 1994.

 Government Performance and Results Act 

Modernization Act of 2010.

 Improper Payments Elimination and Recovery 

Improvement Act of 2012.

 Improper Payments Elimination and Recovery Act 

of 2010.

 Payment Integrity Information Act of 2019.

 Reports Consolidation Act of 2000.

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

the Department and a designated Performance-Based 

Organization, produces a separate Annual Report that 

details its 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 www.

StudentAid.gov.

CERTIFICATE OF EXCELLENCE

The Department won its 16th prestigious 

Certificate of Excellence in Accountability 

Reporting award from the Association 

of Government Accountants for its FY 

2019 AFR.
ii FY 2020 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 an emphasis on the challenges ahead.

M A NAGEMENT’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, management assurances regarding 

internal controls, and forward-looking information.

This section provides a message from the Chief Financial Officer, the financial statements and 

notes, required supplementary information, and the report from the independent auditors.

This section provides the Office of Inspector General’s Management and Performance 

Challenges for FY 2021, a summary of financial statement audit and management assurances, 

Payment Integrity Information Act reporting details, civil monetary penalty adjustment for 

inflation, GONE Act and grant closeout process reporting, and Real Property information.

This section provides a listing of selected Department web links, education resources, and a 

glossary of acronyms and abbreviations.

MANAGEMENT’S

DISCUSSION

and ANALYSIS

FINANCIAL

SECTION

OTHER

INFORMATION

APPENDICES
FY 2020 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION iii

KEY ACCOMPLISHMENTS AND UPDATES

MANAGEMENT’S 

DISCUSSION AND ANALYSIS

MANAGEMENT’S 

DISCUSSION AND ANALYSIS

FINANCIAL SECTION

FINANCIAL SECTION

OTHER INFORMATION

OTHER INFORMATION

APPENDICES

APPENDICES

The Coronavirus Aid, Relief, and Economic Security Act, 

also known as the CARES Act, was enacted on March 

27, 2020 in response to the COVID-19 pandemic. The 

CARES Act’s appropriated funding is reflected in the 

COVID-19 Funding Flow Chart (Figure 1) on page 10.

High level summaries of the Department’s response to 

the COVID-19 pandemic can be found in each of the 

four major Strategic Goals, see pages 5–8.

A new acronym has been added to the Glossary this 

year: CARES Act, which stands for the Coronavirus 

Aid, Relief, and Economic Security Act.

The Projection of Education Statistics link has been 

updated to reflect 2028 projections.

The Department received an unmodified or “clean” 

opinion on its financial statements for the 19th

consecutive year. Please see page 90 for the 

Auditors’ Report.

There is one new note to the financial statements for FY 

2020, see page 75.

The Department has established an overarching fraud 

risk governance structure which promotes consistent 

organizational behavior by producing guidelines and 

assigning responsibility for fraud risk management, 

including the implementation of strong antifraud 

procedures and controls.

The Department successfully streamlined the Payment 

Integrity and Fraud Reduction Report sections, in 

adherence to new OMB A-136 guidelines, into the 

Payment Integrity Information Act Reporting section, see 

pages 137–140.
iv FY 2020 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION

MESSAGE FROM THE SECRETARY

November 16, 2020

Education is an investment in individuals — that is, helping 

every student develop his or her abilities and preparing every 

student to pursue his or her passion. The education of each 

student is about his or her future, and it is ultimately about 

our nation’s future. The Trump Administration’s unwavering 

commitment to empowering families and expanding 

education freedom has shaped the U.S. Department of 

Education’s (Department) accomplishments over the past 

fiscal year and informs our plans for fiscal year (FY) 2021.

The COVID-19 pandemic brought many challenges, and 

in response, we put the immediate needs of students and 

families first. In addition to ensuring the prompt release of 

the financial support authorized by the Coronavirus Aid, 

Relief, and Economic Security (CARES) Act, we announced a 

streamlined process for states to submit waivers to opt out of 

federal testing requirements for the 2019-2020 school year, 

and we took steps to make the transition to virtual learning 

easier. In addition, we delivered timely information to 

support schools, educators, and families.

The CARES Act provided almost $31 billion for states to do 

what’s right for students and to ensure that learning could 

continue during the pandemic. In addition to the Governor’s 

Emergency Education Relief Fund (almost $3 billon), the 

Elementary and Secondary Emergency Relief Fund (more 

than $13 billion), and the Higher Education Emergency 

Relief Fund ($14 billion), the legislation also provided relief 

for student loan borrowers and allowed K-12 schools to 

repurpose funds for technology infrastructure and training in 

distance learning.

The Department implemented the CARES Act according 

to its terms. We took action well before the congressionally 

required 30-day deadline to provide funding applications to 

the states and then approved funding requests within 30 days 

of receipt of the applications. 

From the beginning, we insisted — and still do — that 

learning must continue for all students during our national 

emergency. Accordingly, we specifically chose not to waive 

any of the core tenets of the Individuals with Disabilities 

Education Act. 

With respect to our FY 2021 budget that was released in 

February 2020, the Administration proposed the return 

of power to the people, to those closest to students, and 

to students themselves. The budget consolidated nearly all 

federal K-12 programs into a single block grant, right-sizing 

the federal role in education and affording states needed 

flexibility to meet the unique needs of students in their 

respective states. The Governor’s Emergency Education 

Relief Fund authorized by the CARES Act actually included 

elements of our FY 2021 budget proposal. 

The Administration again proposed Education Freedom 

Scholarships to expand options and choices for all families 

across America. The proposal provides five billion dollars in 

dollar-for-dollar federal tax credits for voluntary donations to 

state-identified, nonprofit organizations that give scholarships 

directly to students. Education Freedom Scholarships 

empower students and families to choose the educational 

setting that works best for them — regardless of where they 

live, who they know, how much they make, and how they 

learn. Families control the use of scholarships for their child’s 

elementary and secondary education, which may include 

career and technical education, apprenticeships, and dual and 

concurrent enrollment.

In addition to Education Freedom Scholarships, the 

Department published in May of this year our Final Rule 

under Title IX of the Education Amendments of 1972. 

This rule strengthens protections for survivors of sexual 

misconduct and restores due process to ensure that students 

can pursue an education free from sexual discrimination. 

The regulation, effective on August 14, 2020, holds schools 

accountable for failing to respond equitably and promptly 

to sexual misconduct and ensures a more fair and reliable 

adjudication process. The regulation provides a consistent, 
MESSAGE FROM THE SECRETARY

FY 2020 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION v

We also updated and greatly improved the College Scorecard 

to help students find customized, accessible, and relevant 

data on potential debt one might incur attending certain 

schools and earnings that could be anticipated based on fields 

of study. The College Scorecard includes debt and earnings 

information for two-year, four-year, certificate, and some 

graduate programs as well as information on graduation rates 

and apprenticeships. 

Apart from the Department’s focus on individual students, 

education freedom, and regular program activities, the 

stewardship of taxpayer funds is, and has been, a priority for 

us. I have been assured that the financial data included in 

this Agency Financial Report 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. Similarly, 

the Department’s related Annual Performance Report and Annual 

Performance Plan (Report and Plan) provides information on 

the overall performance of the Department as a federal agency. 

Each year this Report and Plan accompanies the Department’s 

annual budget submission and links performance goals with 

resources for achieving targeted levels of performance.

This year, the Department received an unmodified or 

“clean” opinion on its FY 2020 financial statements. The 

internal control report identified one material weakness, 

“Controls over the Reliability of Underlying Data Used 

in Credit Reform Re-estimates Need Improvement.” The 

Department remains committed to evaluating its internal 

controls for improvement opportunities. 

The Department’s FY 2020 activities reflect the leadership 

of President Trump and the hard work of our staff to meet 

this decisive moment. It is time to unleash a new era of 

innovation in education. Every student must be able to 

pursue an education that aligns with his or her talents, 

interests, and values. We must invest in education that 

empowers states, communities, and families to transform 

learning and that provides students with opportunities that 

are more individualized and responsive than ever. If we each 

embrace the expansion of education freedom, this nation 

can meet any challenge and seize any opportunity.

Betsy DeVos

legally sound framework on which survivors, the accused, 

and schools can rely; protects K-12 students by requiring 

elementary and secondary schools to promptly respond to a 

notice of sexual harassment; and restores fairness on campuses 

by upholding all students’ rights.

On the career and technical education front, over the past 

year the Trump Administration has continued to promote 

multiple pathways to career success and lifelong learning. We 

have worked closely with states as they have implemented 

the Strengthening Career and Technical Education Act for the 

21st Century Act (Perkins V). These efforts have included 

offering flexibilities for career and technical education 

(CTE) leaders required to submit their state CTE plan for 

FY 2020-2023, enabling them to focus on serving students 

during the COVID-19 pandemic with high-quality, careerfocused education that is tailored to each student’s needs and 

strengths and that is responsive to 21st century realities.

With respect to innovation, Next Gen Federal Student Aid 

(FSA) provides a centralized hub for customers to retrieve 

student aid information and improves the ways in which 

students, parents, and borrowers can interact with and 

access benefits administered by FSA. In December 2019, 

the first major implementation of Next Gen kicked off with 

the consolidation of multiple websites into a single digital 

source, StudentAid.gov. Customers can learn about available 

types of student aid, find the right payment plan, complete 

loan counseling, and fill out the Free Application for Federal 

Student Aid® form.

Because we believe in the importance of investing in every 

student and helping students expand their knowledge and 

skills, the Department invited a new cohort of 67 schools to 

participate in our Second Chance Pell experiment in April, 

providing need-based Federal Pell Grants to individuals 

incarcerated in federal and state prisons. More than 4,000 

credentials — including postsecondary certificates, associate 

degrees, and bachelor’s degrees — have been awarded to 

Second Chance Pell students in three years.

Achieving FSA’s mission requires bold thinking. We have 

encouraged Congress to consider establishing FSA as a 

standalone government corporation, entirely separate from 

the Department and run by a professional, apolitical Board 

of Governors. This move would better position the agency to 

deliver world-class services to students and their families and 

to manage what has become the nation’s largest consumer 

lender, with nearly $1.6 trillion in outstanding loans. 
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FY 2020 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION vii

CONTENTS

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

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

Key Accomplishments and Updates ................iii

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

M A NAG E M E N T’S DISCUS SION A N D 

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 ............... 20

Secretary’s Statement of Assurance ...........20

Forward-Looking Information ............... .28

FINANCIAL SECTION

Message from the Chief Financial Officer ....... 39

About the Financial Section .................40

Financial Statements ..................... 42

Notes to the Financial Statements ........... 46

Required Supplementary Information

(Unaudited) ............................... .86

Report of the Independent Auditors .......... 90

OTHER INFORMATION (UNAUDITED)

About the Other Information Section ........... 107

Memorandum from the 

Office of Inspector General ................. 108

Office of Inspector General’s (OIG) 

Management and Performance 

Challenges for Fiscal Year 2021 ............... 109

Summary of Financial Statement 

Audit and Management Assurances .......... 136

Payment Integrity Information Act Reporting .... 137

Civil Monetary Penalty 

Adjustment for Inflation ....................... .141

The Grants Oversight and New Efficiency 

(GONE) Act of 2016 and Education’s Grant 

Closeout Process ............................. .142

APPENDICES

Appendix A: Selected Department 

Web Links and Education Resources ......... 144

Appendix B: Glossary of 

Acronyms and Abbreviations .................147
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MANAGEMENT’S

DISCUSSION

and ANALYSIS
2 FY 2020 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION

MANAGEMENT’S DISCUSSION AND ANALYSIS

ABOUT THE MANAGEMENT’S DISCUSSION AND ANALYSIS

The U.S. Department of Education (Department) 

continued to enhance the content quality, report 

layout, and public accessibility of the fiscal year 

(FY) 2020 Agency Financial Report (AFR) by refining 

graphics and providing more useful, balanced, and 

easily understood information about the Coronavirus 

Aid, Relief, and Economic Security Act, also known 

as the CARES Act, and about the Department’s loan 

programs, including additional cost and risk information. 

Additionally, we chose relevant web content to provide 

users with additional information about the Department’s 

operations and performance. To take advantage of the 

hyperlinks embedded in the report, the Department 

recommends reading it on the Internet. To help us 

continue to improve the quality and usefulness of 

information provided in our AFR, we encourage our 

public and other stakeholders to provide feedback and 

suggestions at AFRComments@ed.gov.

This section highlights information on the Department’s 

performance, financial statements, systems and controls, 

compliance with laws and regulations, and actions taken 

or planned to address select challenges.

MISSION A ND ORG A NIZ AT IONA L 

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.

T H E DEPA RT M ENT’S A PPROACH 

TO PERFORMANCE

This section provides a brief summary of the 

Department’s performance goals and results for FY 2020. 

Since the Department has chosen to produce separate 

financial and performance reports, a detailed discussion 

of performance information for FY 2020 will be provided 

in the Department’s FY 2020 Annual Performance Report 

and FY 2022 Annual Performance Plan to be released 

online at the same time as the President’s FY 2022 Budget 

in February 2021. For more information, prior year 

performance reports can be found on the Department’s 

website. We also urge readers to seek programmatic data 

as it is reported in the Congressional Budget Justification, 

as well as on the web pages of individual programs. 

Any questions or comments about the Department’s 

performance reporting should be e-mailed to PIO@

ed.gov. For more details on performance, please refer to 

the Department’s budget and performance web page at 

www.Performance.gov.

FINANCIAL HIGHLIGHTS

The Department expends a substantial portion of its 

budgetary resources and cash on multiple loan and 

grant programs intended to support state and local 

efforts to improve learning outcomes for all 

prekindergarten through 12th grade (P–12) students 

in every community and to expand postsecondary 

education options and improve outcomes to foster 

economic opportunity and informed, thoughtful, and 

productive citizens. Accordingly, the Department has 

included more high-level details about sources and uses 

of the federal funds received and net costs by program.

A NA LYSIS OF S YS T E MS, CON T ROL S, 

AND LEGAL COMPLIANCE

The Department’s internal control framework and 

its assessment of controls, in accordance with Office 

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

Management’s Responsibility for Enterprise Risk 

Management and Internal Control, provide assurance 

to Department leadership and external stakeholders that 

financial data produced by the Department’s business 

and financial processes and systems are complete, 

accurate, and reliable.

FORWARD-LOOKING INFORMATION

The Forward-Looking Information section describes the 

challenges that the Department aims to address to achieve 

progress on Enterprise Risk Management, Direct Loans, 

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

Data as a Strategic Asset, and Technology Business 

Management Solutions (TBMS).
FY 2020 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION 3

MANAGEMENT’S DISCUSSION AND ANALYSIS

ABOUT THE DEPARTMENT

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 an education, colleges and 

universities, state education agencies, and school districts 

by engaging in four major categories 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.

 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.

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.
4 FY 2020 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION

MANAGEMENT’S DISCUSSION AND ANALYSIS

OUR ORGANIZATION IN FISCAL YEAR 2020

This chart reflects the coordinating structure of the U.S. Department of Education. A text version of the FY 2020 

coordinating structure of the Department is available.

*

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

House Initiative on Educational Excellence for Hispanics, and White House Initiative on Educational Excellence for African Americans.
FY 2020 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION 5

MANAGEMENT’S DISCUSSION AND ANALYSIS

FY 2018–22 Strategic Goals and Strategic Objectives2

PERFORMANCE MANAGEMENT FRAMEWORK

In accordance with the GPRA Modernization Act of 20101, the Department’s framework for performance management 

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

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

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

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

Annual Performance Plans and Annual Performance Reports.

The FY 2018–22 Strategic Plan is comprised of four strategic goals and five FY 2019-20 APGs. The Strategic Plan aims to 

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

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

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

be emailed to PIO@ed.gov.

1 GPRA Modernization Act of 2010 amends the Government Performance and Results Act of 1993 (GPRA).

2 The FY 2020 Statement of Net Cost and related notes align with the FY 2018–22 Strategic Plan.

THE DEPARTMENT’S APPROACH TO PERFORMANCE

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

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

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

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

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

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

staff and families to support students’ academic performance.

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

thoughtful and productive citizenry.

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

and career, technical and adult education.

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

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

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

providing postsecondary credentials or job-ready skills.

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

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

and manageable repayment options.

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

and transparency.

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

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

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

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

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

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

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

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

Strategic Objective 4.4 Improve the engagement and preparation of the Department’s workforce using professional development and accountability measures.
6 FY 2020 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION

MANAGEMENT’S DISCUSSION AND ANALYSIS

THE DEPARTMENT’S AGENCY PRIORITY GOALS (APGs)

The Department identified five APGs for FY 2020-2021. Improving education starts with allowing greater decision-making 

authority at the state and local levels and empowering parents and students with educational options. These goals seek 

to increase education choices, enhance multiple pathways for student success in career and job ready skills, improve the 

Department’s Federal Student Aid customer service, improve student privacy protection and cybersecurity at institutions of 

higher education (IHEs), and provide regulatory relief and burden reduction to stakeholders. The effective implementation 

of the Department’s APGs will depend, in part, on the effective use of high-quality and timely data, including evaluations 

and performance measures. The Goal Action Plans and quarterly updates for the APGs are available on https://www.

performance.gov/education/.

APG Related Strategic Objective

Education Freedom: Improve awareness of and access to high-quality K-12 

education opportunities for students and families. By September 30, 2021, the 

Department will increase both the number and percentage of total charter school 

students and total scholarship students nationwide. 

• Charter school enrollment will increase from 3.29 million to 3.51 million (6.90 percent 

of all students in public schools). 

• The number of scholarship students, including participants in state-based vouchers, 

tax-credit scholarship, and education savings account program, will increase from 

482,000 to 579,250 (1.10 percent of the total school age population). 

• The number of parents who receive support and engagement through technical 

assistance and other resources will increase by 5 percent per year.

Strategic Objective 1.1: Increase high-quality educational 

options and empower students and parents to choose an 

education that meets their needs.

Multiple Pathways to Success: Improve nationwide awareness of and access to 

career pathways that support job skills development and career readiness. By 

September 30, 2021, the Department will, through programs such as the Career and 

Technical Education and Adult Education State Grants:

• Support the creation and expansion of integrated education and training (IET) 

programs in all 50 states, Puerto Rico, and the District of Columbia. 

• Increase enrollment of participants in IET programs to 56,000.

• Support the enrollment of Career and Technical Education concentrators in science, 

technology, engineering, and mathematics (STEM) fields. 

• Increase by 25,000 the number of federal financial aid recipients who earn a 

postsecondary credential in STEM.

Strategic Objective 1.3: Prepare all students for 

successful transitions to college and careers by supporting 

access to dual enrollment, job skills development and highquality science, technology, engineering and mathematics 

(STEM).

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.

FSA Customer Service: Leverage the Next Generation Financial Services 

Environment (Next Gen FSA) to improve and personalize customers’ experience 

with Federal Student Aid (FSA). By September 30, 2021, FSA will transform its 

relationship with prospective and current customers through deployment of significant 

components of the Next Gen FSA that result in a personalized experience:

• The number of individuals submitting a Free Application for Federal Student Aid®

(FAFSA®) through a mobile device will increase to 2.6 million. 

• The overall customer satisfaction level throughout the student aid life cycle, as 

measured by the FSA Customer Satisfaction score1, will increase.

Strategic Objective 2.4: Improve quality of service for 

customers across the entire student aid life cycle.

Student Privacy and Cybersecurity: Improve student privacy and cybersecurity 

at institutions of higher education (IHEs) through outreach and compliance 

efforts. By September 30, 2021, the Department will participate in 12 engagements 

with sector-related non-governmental organizations to inform the development of five 

best practice programmatic improvements.

Strategic Objective 3.2: Improve privacy protections 

for, and transparency of, education data both at the 

Department and in the education community.

Regulatory Reform: Provide regulatory relief to education stakeholders as 

necessary and appropriate. (Related Strategic Objective: 4.1) By September 30, 

2021, the Department will provide regulatory relief for education stakeholders by taking 

no fewer than eight deregulatory actions, which includes reduction in paperwork burden.

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.

1 The Federal Student Aid Customer Satisfaction Score is an annual composite metric that measures the overall customer satisfaction level throughout the student aid life cycle for 

Free Application for Federal Student Aid® (FAFSA®) applicants (mobile and FAFSA.gov), Title IV aid recipients in school, and borrowers in repayment. The score is based on the 

American Customer Satisfaction Index surveys.
FY 2020 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION 7

MANAGEMENT’S DISCUSSION AND ANALYSIS

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. In FY 

2020, $31.6 billion was appropriated to the Department in 

support of this Strategic Goal 2. More than 5,000 grants were 

awarded to support colleges and universities in their efforts 

to promote and expand access and improvements to postsecondary education that will contribute to the global success 

of our nation. In addition, funding for Strategic Goal 2 also 

supports the Department’s enhancements to customer service 

for customers and stakeholders of Federal Student Aid. 

The Department continues efforts to help prepare the nation’s 

workforce of tomorrow with the right skills and credentials 

of today. In FY 2020, the Department conducted a Teaching 

Skills that Matter symposium with more than 1,000 teachers 

to help adult education instructors integrate employability 

skills development with academic instruction. In addition, 

the Department continued to prioritize workforce preparation 

during the COVID-19 pandemic through various virtual and 

technical outreach activities.

In FY 2020, the Department had much success in 

implementing CARES Act provisions. Approximately $14 

billion in funding was appropriated for the CARES Act

Higher Education Emergency Relief Fund Programs. The 

Department succeeded in distributing 90 percent of the 

funding to IHEs within 30 days of authorization. The 

additional 10 percent was distributed within the following 

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 Department supports improved 

learning outcomes by awarding approximately $40 billion 

to states, school districts, and nonprofit organizations. 

The Department encourages families to be aware of 

educational opportunities and choices available so that 

they can make the best choice for their student’s needs. 

Access to high-quality educational opportunities should 

be afforded to all students. In FY 2020, the Department 

conducted outreach to states, schools, and other 

educational organizations to promote school choice. As 

learning outcomes are not just affected in the classrooms, 

the Department launched a state information sharing tool 

on schoolsafety.gov which allows schools to share safety 

plans, compare policies, and learn from each other in an 

effort to create safe learning environments.

In response to the COVID-19 pandemic, the Equity 

Assistance Centers funded by the Department developed a 

set of resources to facilitate equitable learning opportunities 

in virtual educational environments. In FY 2020, the 

Department supported P–12 schools impacted by 

COVID-19 with more than $13.3 billion in funding. 

Funding included Elementary and Secondary School 

Emergency Relief Fund grants and the Education 

Stabilization Fund-Rethink K-12 Education Models Grants. 

Goal 1. Support state and local efforts to 

improve learning outcomes for all P–12 

students in every community.

Goal 2. Expand postsecondary educational 

opportunities, improve outcomes to 

foster economic opportunity and 

promote an informed, thoughtful 

and productive citizenry.
8 FY 2020 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION

MANAGEMENT’S DISCUSSION AND ANALYSIS

than 750 technical assistance inquiries. The Department 

was also proactive in its approach to cybersecurity by 

conducting outreach and meeting with IHEs.

Strategic Goal 4 focuses in general on protecting taxpayers 

from fraud, waste, and abuse. This involves improving 

internal decision-making and reducing regulatory burden 

on external stakeholders. In FY 2020, $623 million was 

appropriated to support Goal 4. 

The Department continually performs comprehensive 

reviews of the Department’s regulations, guidance, and 

information collections to identify and take appropriate 

action with regard to those that are overly burdensome, 

inconsistent with Administration priorities, unnecessary, 

outdated, or ineffective. In FY 2020, there was savings 

from burden reduction of $113.5 million (annualized) 

and $1.622 billion (present value), both over a perpetual 

time horizon. 

Strategic Goal 4 also includes the responsibility of the 

Department to implement Enterprise Risk Management 

(ERM). The Department uses a coordinated approach 

to identify, measure, and assess challenges related to 

mission delivery and resource management. In FY 

2020, the Department joined an Office of Management 

and Budget pilot to test, assess, and validate sections 

or components of ERM. The Department continues 

to assess ERM maturity and identify likelihoods and 

impacts to Department operations and mission. 

Strategic Goal 4 also includes the responsibility to ensure 

the Department’s workforce is properly trained and 

accountable. In FY 2020, the Department implemented 

a strategy focused on improving employee engagement, 

performance, and competency development. The 

Department continues its efforts to provide professional 

development where gaps in competency have been 

identified. During the COVID-19 pandemic, the 

Department continues to foster employee engagement 

through virtual platforms as most employees telework.

three days. Portions of this funding were used to provide 

emergency financial aid to students. 

The Federal Student Aid office provides more than $120 

billion annually to students and their families. Enhancing 

the service provided to customers and stakeholders continues 

to be priority. The Department has made improvements 

to the StudentAid.gov website that enhances customers’ 

individual experience by making information readily available 

at any time and educating customers on loan repayment. 

Because the CARES Act put student loans in administrative 

forbearance and eliminated interest, the Federal Student Aid 

office ensured borrowers were aware of the changes and how 

the changes impacted their payments and balance.

Strategic Goal 3 focuses on strengthening data-driven 

decision-making in education by focusing on the ways 

the Department manages and makes available education 

data, while protecting student privacy. The Department 

is committed to improving how staff and stakeholders 

access, use, and share meaningful data on education 

while protecting privacy. These improvements enable 

the Department and other stakeholders in the education 

community to better provide the public with the 

information necessary to make informed decisions on 

behalf of their communities, states, and local districts. 

Approximately $556 million in discretionary resources was 

appropriated to support Strategic Goal 3 in FY 2020. 

The Department is committed to protecting student’s 

education data both within the Department and at 

educational institutions. In support of this commitment, 

in FY 2020, the Department collaborated with IHEs 

to respond to more than 400 cybersecurity incidents by 

providing technical assistance to assist with remediation 

and improving their cybersecurity postures. As the 

COVID-19 pandemic forced many schools to transition 

to virtual learning, the Department responded to more 

Goal 3. Strengthen the quality, accessibility 

and use of education data through better 

management, increased privacy protections 

and transparency.

Goal 4. Reform the effectiveness, efficiency 

and accountability of the Department.
FY 2020 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION 9

MANAGEMENT’S DISCUSSION AND ANALYSIS

FINANCIAL HIGHLIGHTS

INTRODUCTION

This section provides summarized information and 

analyses about the Department’s assets, liabilities, 

net position, sources and uses of funds, program 

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

perspective of the detailed information contained in the 

financial statements and related notes.

The Department consistently produces complete, accurate, 

and timely financial information. The Department’s 

financial statements and notes are prepared in accordance 

with accounting principles generally accepted in the 

United States for federal agencies issued by the Federal 

Accounting Standards Advisory Board and the format and 

content specified by OMB Circular No. A-136, Financial 

Reporting Requirements. The financial statements, notes, 

and underlying business processes, systems, and controls 

are audited by an independent accounting firm with audit 

oversight provided by the Office of Inspector General 

(OIG). For 19 consecutive years, the Department has 

earned an unmodified (or “clean”) audit opinion. The 

financial statements and notes for FY 2020 are on pages 

40–85 and the Independent Auditors’ Report begins on 

page 90.

The principal financial statements are prepared to report 

the financial position and results of operations of the 

reporting entity, pursuant to the requirements of 31 

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

the Department’s books and records in accordance with 

generally accepted accounting principles for federal entities 

and the formats prescribed by OMB. Reports used to 

monitor and control budgetary resources are prepared 

from the same books and records. The financial statements 

should be read with the realization that they are for a 

component of the U.S. Government.

FI NA NCI A L STAT E M ENT IMPAC TS OF 

COV ID -19 AC T I V IT IE S 

Most of the significant changes to the Department’s 

financial statements resulted from the impacts due to 

COVID-19 activities. The CARES Act totaled roughly 

$2 trillion dollars and included almost $31 billion of 

direct appropriations to the Department for educational 

purposes. The largest component of this funding 

established a $30.8 billion Education Stabilization Fund 

for K-12 and higher education. This fund is comprised of 

categories including: (1) the Elementary and Secondary 

School Emergency Relief Fund; (2) the Higher Education 

Emergency Relief Fund; (3) the Governor’s Emergency 

Education Relief Fund; and (4) funds provided for 

outlying areas and discretionary grants. The CARES Act

also provided other direct appropriations – primarily to 

Table 1. Key Financial Statement Changes 

(Dollars in Billions)

Financial Statement Lines with Significant Changes

Amount Total Changes Changes Due to 

COVID-19

FY 2020 FY 2019 Amount Percentage Amount Percentage

Balance Sheets

Fund Balance with Treasury $ 136.0 $ 104.9 $ 31.1 29.6% $ 19.6 63.0%

Statements of Net Cost

Expand Postsecondary Opportunities, Improve Outcomes to 

Foster Economic Opportunity, and Promote Productive Citizenry 149.4 116.0 33.4 28.8% 51.3 153.6%

Statements of Budgetary Resources

Appropriations (Discretionary and Mandatory) 245.0 118.5 126.5 106.8% 73.2 57.9%

New Obligations and Upward Adjustments (Total) 430.8 323.1 107.7 33.3% 72.3 67.1%

Unobligated Balance, End of Year (Total) 42.6 35.1 7.5 21.4% 0.7 9.3%

Outlays, Net 218.0 116.6 101.4 87.0% 53.4 52.7%

Disbursements, Net (42.9) 40.1 (83.0) -207.0% 42.1 -50.7%
10 FY 2020 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION

MANAGEMENT’S DISCUSSION AND ANALYSIS

fund increased grants for Safe Schools & Citizenship 

Education grants, Historically Black Colleges and 

Universities loan deferrals, and loan administration costs. 

The CARES Act provided support for student loan 

borrowers, primarily by suspending nearly all federal 

loan payments until September 30, 2020, interest free. 

The Department extended certain provisions of the 

student loan deferrals not covered by the CARES Act

to defaulted guaranteed loans held by the Department. 

The Administration subsequently issued a Presidential 

Memorandum which extended the student loan deferrals 

through December 31, 2020. The Department also stopped 

all federal wage garnishments and collection actions for 

borrowers with federally held loans in default. Funding 

for the student debt provisions of the CARES Act and the 

Presidential Memorandum are provided through indefinite 

appropriations.

The cost impacts of the student loan repayment deferrals 

were recorded as loan modifications, a component of 

subsidy expense, which reduced the overall loan receivable 

balances for the Direct Loan and Federal Family Education 

Loan (FFEL) programs by $38.6 billion and $3.3 

billion, respectively. Detailed explanations of these loan 

modifications are provided in the Analysis of Direct Loan 

Program Subsidy Expense section beginning on page 16 and 

in Note 5 of the financial statements beginning on page 57.

Figure 1. COVID-19 Funding Flow 

(Dollars in Billions)

The direct and indirect funding stemming from the 

CARES Act and the Presidential Memorandum is reflected 

in Figure 1.

Elementary and Secondary School Emergency Relief 

(ESSER) Fund—$13.2 billion provided for state 

education agencies (SEAs) and local educational agencies 

(LEAs) to support continued learning for K-12 students 

whose educations have been disrupted by COVID-19. 

Higher Education Emergency Relief (HEER) Fund—

$14.0 billion provided for IHEs to address needs directly 

related to COVID-19, including transitioning courses 

to distance education and granting aid to students for 

educational costs such as food, housing, course materials, 

health care, and child care. 

Governor’s Emergency Education Relief (GEER) 

Fund—$3.0 billion provided to state governors to ensure 

education continues for students of all ages impacted by 

the COVID-19 national emergency. 

Outlying Areas, Bureau of Indian Education (BIE), and 

Discretionary Grants—$0.6 billion provided for outlying 

areas and discretionary grants to states with the highest 

COVID-19 burdens.
FY 2020 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION 11

MANAGEMENT’S DISCUSSION AND ANALYSIS

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 $1,309.4 billion as of 

September 30, 2020. As shown in Figure 2, the vast 

majority of the assets relate to credit program receivables, 

$1,171.0 billion, which comprised 89.4 percent of all 

assets. Direct Loans comprise the largest share of these 

receivables. All other assets totaled $138.4 billion, most of 

which was Fund Balance with Treasury.

The Department’s liabilities totaled $1,264.5 billion as 

of September 30, 2020. As shown in Figure 3, the vast 

majority of the Department’s liabilities are also 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 

$1,160.1 billion as of September 30, 2020. 

Figure 4 shows the changes in the Direct Loan receivables 

components over the past five years. The principal amount 

has continued to grow as the Direct Loan program has 

Figure 2. Assets by Type Figure 3. Liabilities by Type

originated all new federal loans since July 2010, when 

originations of new FFEL loans ended. However, the 

rate of increase in principal has slowed, as the Direct 

Loan program has disbursed decreased amounts of new 

loans each year since FY 2016 as a result of stagnant 

and in some cases declining enrollment, while accrued 

interest amounts have increased as more loans have 

moved into active repayment statuses. Even so, new loan 

disbursements continue to exceed overall loan principal 

repayments—student loan borrowers have many options 

to stretch out their repayment terms and reduce their 

monthly payments.

In accordance with the Federal Credit Reform Act of 

1990, the Department’s financial statements report the 

value of direct loans (credit program receivables) at the 

net present value of their future cash flows, discounted 

at a fixed rate established based on Treasury securities. 

The difference between the recorded principal and 

interest balance and the net present value of the loans is 

referred to as the “allowance for subsidy,” which can be 

positive or negative.
12 FY 2020 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION

MANAGEMENT’S DISCUSSION AND ANALYSIS

the main cause being high participation in income-driven 

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

subsidy changed to a negative balance. In practical terms, 

this means that the present value of funds expected to be 

recovered is now less than the principal outstanding.

Participation in IDR plans has increased as (a) new plans 

have become available that are more advantageous to 

borrowers, (b) new plans have become available that expand 

the potential pool of borrowers, and (c) the Department has 

conducted targeted outreach to borrowers to make them 

aware of their potential eligibility for these plans.

In addition to the impact of the IDR plans, the negative 

subsidy allowance also increased in FY 2020 due to actions 

taken to defer student loans in response to COVID-1 (see 

discussion in the Analysis of Direct Loan Program Subsidy 

Expense section on page 16).

Table 2 shows the payment status of the Direct Loan 

principal and interest balances outstanding over the past 

five years. The Current Repayment category consists of 

loans that are being paid back on time, including the 

current portion of loans being repaid pursuant to IDR 

plans. The balances reported for “Current Repayment” 

and “Delinquent” are significantly lower than prior years, 

primarily due to the COVID-19 student loan deferrals 

that placed loans in forbearance and subsequently 

cured delinquencies. 

Loans in the Delinquent category are past due anywhere 

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

loans that are more than 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 FY 2020 delinquent balance is zero due to the 

ongoing deferral of all student loans through December 

31, 2020.

The positive allowance for subsidy balance in FY 2016 

represented estimates of funds expected to be recovered 

in excess of principal loaned less anticipated defaults, 

loan cancellations, and other adjustments. This 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 2016 is due primarily to higher subsidy costs, 

Direct Loan 

Component

(Dollars

 in Billions)

Fiscal Year

2016 2017 2018 2019 2020

Principal $ 902.8 $ 998.8 $ 1,083.7 $ 1,164.9 $ 1,224.8 

Rate of 

Increase in 

Principal

12.7% 10.6% 8.5% 7.5% 5.1%

Accrued Interest $ 50.8 $ 59.5 $ 72.0 $ 83.3 $ 92.1 

Allowance for 

Subsidy $ 5.3 $ (16.8) $ (40.7) $ (124.4) $ (216.4)

Total No. of 

Direct Loan 

Recipients 

(in Millions)

31.5 33.0 34.2 35.1 35.9 

Figure 4. Components of Direct Loan 

Receivables, Net

(Dollars in Billions)
FY 2020 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION 13

MANAGEMENT’S DISCUSSION AND ANALYSIS

Loan Status

Fiscal Year

2016 2017 2018 2019 2020

Total No. of 

Direct Loan 

Recipients 

(in Millions)

31.5 33.0 34.2 35.1 35.9

Total Dollar 

Amount of 

Direct Loans 

Outstanding

953.6 1,058.4 1,155.7 1,248.1 1,316.9

Current 

Repayment1 406.7 467.8 531.2 594.7 14.7

% Current

Repayment 42.6% 44.2% 46.0% 47.6% 1.1%

In School, 

Grace Period, 

and Education 

Deferments

289.5 291.7 295.5 294.8 282.8

% In School, 

Grace Period, 

and Education 

Deferments

30.4% 27.6% 25.6% 23.6% 21.5%

Forbearance 

and 

Noneducation 

Deferments

106.6 122.5 121.5 133.2 887.5

% Forbearance 

and 

Noneducation 

Deferments

11.2% 11.6% 10.5% 10.7% 67.4%

Delinquent 

(Past Due

31-360 Days)

71.9 79.7 92.5 90.8 0.0

% Delinquent 

(Past Due

31-360 Days)

7.5% 7.5% 8.0% 7.3% 0.0%

Default/

Bankruptcy/

Other*

78.9 96.7 115.0 134.6 131.9

% Default/

Bankruptcy/

Other*

8.3% 9.1% 10.0% 10.8% 10.0%

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.

* Adjusted to eliminate differences between NSLDS and FSA Total Reported 

Direct Loan Portfolio (Principal and Interest)

Table 2. Payment Status of Direct Loan Principal 

and Interest Balance

(Dollars in Billions)

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 

5 shows the Direct Loan program cumulative borrowing 

and repayment activity that resulted in the debt amount 

on the balance sheet. A diagram depicting the Direct Loan 

program financing process is displayed with related trend 

data as Figure 6 on page 14 of this report.

Figure 5. Direct Loan Program Cumulative 

Financing Activity

(Dollars in Billions)
14 FY 2020 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 2016 2017 2018 2019 2020 

Net Borrowing 84.4 67.3 89.1 41.5 (32.0)

 Borrowing from Treasury 147.0 160.5 155.3 137.6 116.9 

 Debt Repayments to Treasury (62.6) (93.2) (66.2) (96.1) (148.9)

Interest Expense to Treasury (30.5) (31.3) (32.3) (33.8) (34.7)

Interest Earned from Treasury 3.9 4.3 3.9 4.1 4.8 

Cumulative Taxpayer Cost / (Savings) (5.3) 16.8 40.7 124.4 216.4 

Current Subsidy Expense (Revenue) 16.1 5.3 4.4 61.5 100.9 

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

Fiscal Year 2016 2017 2018 2019 2020 

Loan Disbursements 140.5 142.5 134.1 130.7 117.4 

 Stafford Subsidized 23.8 23.4 20.3 20.0 19.1 

 Stafford Unsubsidized 52.3 51.4 49.0 48.1 46.1 

 PLUS 19.0 18.7 23.1 22.7 21.7 

 Consolidation1 45.5 49.0 41.6 39.8 30.4 

Loan Collections2 73.2 82.0 84.9 91.3 69.9 

 Principal 55.9 62.6 63.5 67.0 55.3 

 Interest 15.5 17.6 19.5 22.4 12.9 

 Fees 1.8 1.9 1.9 1.9 1.7 

* Numbers may not add up due to rounding.

1

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

2

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

Figure 6. William D. Ford Federal Direct Loan Program: Following the Funding
FY 2020 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION 15

MANAGEMENT’S DISCUSSION AND ANALYSIS

STATEMENTS OF NET COST

The consolidated statements of net cost report the 

Department’s components of the net cost of operations for 

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

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

from activities. Gross costs are composed of the cost of 

credit and grant programs, and operating costs. Exchange 

revenue is primarily interest earned on credit program 

loans. Figure 7 shows the Department’s gross costs and 

earned revenue over the past five years. 

GROSS COSTS A ND E XCH A NGE 

R E V ENU E BY T Y PE 

As shown in Figure 8, 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 10). 

Figure 7. Gross Costs & Earned Revenue

(Dollars in Billions)

Figure 8. Primary Components of Gross Costs and Earned Revenue

(Dollars in Billions)
16 FY 2020 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION

MANAGEMENT’S DISCUSSION AND ANALYSIS

Factors such as interest rates charged to the borrower, 

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

costs, and assumptions concerning borrowers’ selection of 

repayment plans impact the estimated cost calculation and 

determine whether the overall subsidy expense is positive 

or negative. Subsidy expense for new loans disbursed in 

the current year has been negative in recent years primarily 

because lending interest rates charged were greater than 

the historically low rates at which the Department 

borrowed from Treasury. In practical terms, a negative 

subsidy occurs when the interest and/or fees charged to 

the borrower are more than sufficient to cover the interest 

on Treasury borrowings and the costs of borrower default. 

Subsidy expense for new loans disbursed in the current 

year was positive in FY 2020 due to rising enrollment in 

IDR plans and a reduction in projected future income of 

borrowers in IDR plans.

The Direct Loan program subsidy re-estimate for FY 2020 

totaled $56.1 billion. In addition to the major assumption 

updates described below, the re-estimate reflects several 

other assumption updates, including interest rates provided 

by OMB, loan volume, and contract collection costs.

 IDR Model Changes (including Public Service 

Loan Forgiveness (PSLF)). The Department 

completed a standard IDR data update to reflect the 

immediate prior cycle for defaults, prepayments and 

Death, Disability, and Bankruptcy (DDB). The DDB 

update includes adjustments for the Total Permanent 

Disability for Veterans regulation. In addition, an 

existing borrower income file was calibrated using an 

additional year of IDR application data through 2018. 

The additional year of borrower income data taken 

from IDR applications has been substantially lower 

than projected. As such, the Department reduced 

its projections of future borrower income by 35%, 

increasing costs associated with IDR. The Department 

also analyzed the actual PSLF approval rates and 

supplementary data. As a result of that analysis, the 

PSLF approval rate was adjusted downward for initial 

cohorts to better reflect the actual data. Trends indicate 

that there has been some improvement in PSLF 

approval rates over time as borrowers better understand 

the application process. PSLF estimates were revised to 

reflect the most recent borrower behavior and adjust 

the temporal element to ramp up PSLF forgiveness 

over time. The combined effect of these updates led to 

a net upward re-estimate of $35.5 billion. 

A NA LYSIS OF DIR EC T LOA N 

PROGR A M SU BSIDY E X PENSE 

The Department’s gross costs can fluctuate significantly 

each year as a result of changes in the estimated subsidy 

expense. The increase in the Department’s gross costs 

from FY 2019 is primarily the result of an increase in the 

subsidy expense for Direct Loans in FY 2020, the primary 

components of which included year-end subsidy reestimates and loan modifications.

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 9 shows these three 

components of the Direct Loan program subsidy expense 

for the past five years.

2016 2017 2018 2019 2020

Subsidy Expense for 

New Loans Disbursed 

in the Current Year

$ (5.7) $ (2.6) $ (3.1) $ (3.0) $ 5.1

Subsidy 

Re-estimates 21.8 7.9 7.4 64.5 56.1

Loan Modification - - 0.1 - 39.7

Total Subsidy Expense $ 16.1 $ 5.3 $ 4.4 $ 61.5 $ 100.9

Figure 9. Direct Loan Program Subsidy Expense

(Dollars in Billions)
FY 2020 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION 17

MANAGEMENT’S DISCUSSION AND ANALYSIS

 Repayment Plans. The Department updated the 

data and made an adjustment to exclude special 

consolidation of FFEL loans in FY 2012 and FY 2013 

from the model. These loans are modeled separately 

and were less likely to enroll in income dependent 

repayment plans than typical consolidation loans. The 

combined effect of these changes led to a net upward 

re-estimate of $6.5 billion.

 Default. In addition to the adjustments for the 

CARES Act, the Department updated the data and 

incorporated actual unemployment rates from the 

Bureau of Labor Statistics through June 2020. The 

combined effect of these changes led to a net upward 

re-estimate of $1.8 billion.

 2019 Cohort Assumption Changes. The technical reestimate cannot reflect the impacts of certain assumption 

changes applicable to the current year loan cohort until 

the following fiscal year per OMB guidance. The current 

year’s re-estimate includes a net upward adjustment of 

$4.8 billion for these current year assumption changes 

attributable to the FY 2019 cohort.

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

is the amount of interest that would have been earned 

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

the re-estimated subsidy had been included as part of 

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

resulted in a net upward re-estimate of $5.9 billion.

 Interactive Effects. The re-estimate includes a net 

upward re-estimate of $1.5 billion attributed to 

the interactive effects of the assumption changes 

described above. Each assumption described above is 

run independently. The interactive effect is a result of 

combining all assumptions together to calculate the 

final re-estimate. 

The Direct Loan program modifications were primarily 

the result of student loan deferral actions provided 

by Congress and the Administration in response to 

COVID-19. The student loan deferrals increased the 

government’s cost of student loans and were recognized 

as loan modifications for FY 2020. These modifications 

included the following:

 CARES Act. The CARES Act automatically suspended 

principal and interest payments and set interest rates 

to 0 percent on federally held student loans starting in 

March through September 30, 2020. The relief for 

borrowers resulted in an upward modification cost 

of $24.6 billion, with an additional $459 million for 

cancelled loans for students that did not complete the 

semester due to a qualifying emergency. There was 

a net positive $82 million modification adjustment 

transfer associated with this modification, bringing 

the total to $25.0 billion.

 Presidential Memorandum. On August 8, 2020, the 

President signed a Presidential Memorandum that 

continued the temporary suspension of payments 

and the waiver of all interest on federally held student 

loans through December 31, 2020. The relief for 

borrowers resulted in an upward modification cost of 

$13.5 billion. There was a net negative $66 million 

modification adjustment transfer associated with this 

modification, bringing the total to $13.6 billion.

 Total and Permanent Disability. The Department 

recorded an upward modification for costs associated 

with the regulatory action to provide proactive 

discharge (unless the borrower elects to reject the 

discharge) to borrowers for whom the Department 

of Veterans Affairs provides information showing the 

borrower has a total and permanent disability. These 

discharges resulted in an upward modification cost 

of $1.0 billion. There was a net negative $98 million 

modification adjustment transfer associated with this 

modification, bringing the total to $1.1 billion.

GRANT EXPENSES

Figure 10. Grant Expenses by Program Areas

(Dollars in Billions)
18 FY 2020 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION

MANAGEMENT’S DISCUSSION AND ANALYSIS

As shown in Figure 10, overall grant expenses increased 

primarily as a result of the CARES Act—primarily the 

Education Stabilization Fund grants described on 

pages 76–77.

In addition to the CARES Act funded grants, the 

Department has more than 100 other grant and loan 

programs. The three largest of these grant program areas are:

 Pell Grants—provides need-based grants to students 

to promote access to postsecondary education. 

Grant amounts are dependent on: the student’s 

expected family contribution; the cost of attendance 

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

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

the student attends for a full academic year or less. 

Pell grants are the single largest source of grant aid for 

postsecondary education.

 Education for the Disadvantaged—primarily consists 

of grants that provide financial assistance through 

SEAs to LEAs 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 Staterun institutions, attending community day programs, 

and correctional facilities.

 Special Education—primarily consists of Individuals 

with Disabilities Education Act (IDEA) grants that 

provide funds by formula to states to assist them 

in providing a free appropriate public education in 

the least restrictive environment for children with 

disabilities ages 3 through 21 and assists states in 

providing early intervention services for infants 

and toddlers from birth through age two and their 

families. Also provides discretionary grants to IHEs 

and other nonprofit organizations to support research, 

demonstrations, technical assistance and dissemination, 

technology, personnel development and parenttraining, and information centers.

In addition to student loans and grants, the Department 

offers other discretionary grants under a variety of 

authorizing legislation, with approximately 90 percent of 

non-student aid funds awarded by formula and 10 percent 

through competitive processes. 

STAT E M ENTS OF CH A NGE S I N 

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.

STAT E M ENTS OF BU DGETA RY 

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.

Figure 11 shows the components of the Department’s 

budgetary resources which totaled $473.4 billion for 

the year ended September 30, 2020, increasing from 

$358.2 billion, or approximately 32.2 percent from the 

prior year. This increase was primarily due to increases in 

appropriations received totaling $126.5 billion, of which 

$73.2 billion was for direct and indirect appropriations 

for COVID-19 activity. An increase of $45.5 billion in 

appropriations received for executed re-estimates in FY 

2020 versus FY 2019 also contributed to this overall 

increase (see the following outlay discussion). 

Figure 11. Components of Budgetary Resources

(Dollars in Billions)
FY 2020 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION 19

MANAGEMENT’S DISCUSSION AND ANALYSIS

New obligations incurred increased by $107.7 billion, 

or approximately 33.3 percent, due primarily to grants 

funded by the CARES Act and loan modifications for 

COVID-19 student loan deferrals. 

The combined statements of budgetary resources also 

present the Department’s summary disbursement and 

collection amounts for which Table 3 provides 

additional detail.

Outlays, net is comprised of gross outlays and offsetting 

collections in the Department’s budgetary funds. Outlays, 

net increased $101.4 billion (87.0 percent) due primarily 

to transfers from the Department’s credit program 

budgetary funds to its credit program non-budgetary 

financing funds for (1) increased executed re-estimates 

in FY 2020 versus FY 2019 ($45.5 billion), and (2) 

COVID-19 related loan modifications recognized in FY 

2020 ($42.2 billion). 

Disbursements, net is comprised of gross outlays and 

offsetting collections in the Department’s credit program 

non-budgetary financing funds. Disbursements, net 

decreased $83.0 billion, primarily due to the transfers 

to the Department’s credit program non-budgetary 

financing funds from its credit program budgetary 

funds for the aforementioned executed re-estimate and 

COVID-19 loan modifications. 

FY 2020 FY 2019

Outlays, Net

Credit Programs $ 129.8 $ 36.8 

Grants 85.5 76.9 

Contractual Services 2.0 2.2 

Personnel Compensation and Benefits 0.7 0.6 

Other - 0.1 

Total Outlays, Net $ 218.0 $ 116.6 

Distributed Offsetting Receipts

Negative Subsidies and Downward 

Reestimates of Subsidies (12.3) (12.1)

Repayment of Perkins Loans and Capital 

Contributions (1.3) (0.1)

Other - (0.1)

Total Distributed Offsetting Receipts $ (13.6) $ (12.3)

Disbursements, Net

Direct Loan Program

Gross Disbursements $ 158.2 $ 175.5 

Offsetting Collections (188.1) (128.7)

Total Direct Loan Program Disbursements, 

Net (29.9) 46.8 

FEEL Program

Gross Disbursements 17.5 14.7 

Offsetting Collections (30.6) (21.5)

Total FEEL Program Disbursements, Net (13.1) (6.8)

Other Loan Programs

Gross Disbursements 0.5 0.3 

Offsetting Collections (0.4) (0.2)

Total Other Loan Program Disbursements, 

Net 0.1 0.1 

Total Disbursements, Net $ (42.9) $ 40.1 

Table 3. Outlays, Distributed Offsetting Receipts, 

and Disbursements, Net

(Dollars in Billions)
20 FY 2020 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION

MANAGEMENT’S DISCUSSION AND ANALYSIS

ANALYSIS OF SYSTEMS, CONTROLS, 

AND LEGAL COMPLIANCE

MANAGEMENT ASSURANCES

The Secretary of the Department of Education’s Fiscal Year 2020 Statement of Assurance provided below is the final report 

produced by the Department’s annual assurance process.

STATEMENT OF ASSURANCE

FISCAL YEAR 2020

November 16, 2020

The Department of Education’s (the Department) management is responsible for 

managing risks and maintaining effective internal control to meet the objectives of the 

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

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 assessed risk and 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. Management evaluated the 

Department’s financial management systems for substantial compliance with FFMIA 

requirements. The Department also conducted a separate assessment of the effectiveness 

of its internal control over reporting with consideration of its Data Quality Plan in 

accordance with Appendix A of OMB Circular A-123.

With the exception of a material weakness in financial reporting reported in the 

Independent Auditors’ Report, 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 the Department’s management with reasonable assurance that 

the objectives of Sections 2 and 4 of the FMFIA were achieved as of September 30, 2020.

Betsy DeVos
FY 2020 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION 21

MANAGEMENT’S DISCUSSION AND ANALYSIS

INTRODUCTION

Strong risk management practices and internal control help the Department 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 (ERM) 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 control:

 Operations—Effectiveness and efficiency of operations. 

 Reporting—Reliability of reporting for internal and external use. 

 Compliance—Compliance with applicable laws and regulations. 

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

controls, and explains assurances provided by the Department’s leadership that internal controls were in place and working 

as intended during FY 2020 to meet the three objectives.

Internal Control Framework

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

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

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

in the following diagram.

Figure 12. Department of Education Internal Control Framework
22 FY 2020 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION

MANAGEMENT’S DISCUSSION AND ANALYSIS

evaluate program performance and inform management 

decisions. The establishment of a Data Quality Plan 

integrated into testing of controls is helping to address this 

challenge identified by the OIG.

In accordance with OMB Circular A-123, the Department 

also conducted a separate assessment of the effectiveness 

of the Department’s internal control over reporting and 

compliance with key financial management laws and 

regulations, as described below. 

Internal Control over Reporting 

The Department maintains processes and procedures 

to identify, document, and assess internal control over 

reporting. Key activities include: 

 Maintaining process documentation for the 

Department’s significant business processes 

and subprocesses.

 Maintaining an extensive library of key financial, 

operations, and Information Technology (IT) controls.

 Providing technical assistance to principal offices to 

help them understand and monitor key controls.

 Refining the Data Quality Plan to improve reporting 

controls and data quality.

 Implementing a risk-based control testing strategy.

 Developing corrective action plans when internal 

control deficiencies are found and tracking progress 

against those plans.

In FY 2020, the Department tested 86 key financial 

controls for both grants and non-grants areas. The internal 

controls assessment detected some control deficiencies, 

but none that would rise to the level of material weakness. 

Corrective actions have been initiated for the deficiencies 

identified. In addition, numerous recommendations have 

been provided to process owners to strengthen internal 

controls in their processes, such as verifying immaterial 

differences, obtaining electronic signatures, and updating 

policies and procedures.

Further, operational internal controls have been formally 

aligned with the agency’s overall ERM strategy and 

assessed accordingly. No control deficiencies have been 

reported for FY 2020 related to this assessment.

The Department continues to focus on streamlining and 

coordinating internal control activities to ensure efficiency 

of operations, recognizing the connection points across 

areas, and enabling transparency of information across the 

Department. This framework enables increased visibility 

across compliance processes to allow for greater oversight 

and more informed monitoring of activities related to 

internal controls and risk management by all offices and 

governance bodies, including the Department’s Senior 

Management Council (SMC). This framework also allows 

for the Department to obtain the outcomes of a better 

control system and a reduced risk landscape. Furthermore, 

this streamlined approach helps the Department provide 

reasonable assurance to internal and external stakeholders 

that the data produced by the Department is complete, 

accurate, and reliable, that internal controls are in place 

and working as intended, and that operations are efficient 

and effective.

ANALYSIS OF CONTROLS

Overall, the Department relies on annual assurances 

provided by the heads of its principal offices, supported 

by risk-based internal control evaluations and testing as 

well as annual internal control training for all employees, 

to provide reasonable, but not absolute, assurance that 

its internal controls are well designed, in place, and 

working as intended. The Department’s annual assurance 

process conforms to the requirements contained in the 

revised U.S. Government Accountability Office (GAO) 

publication, Standards for Internal Control in the Federal 

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

and OMB Circular A-123, Management’s Responsibility for 

Enterprise Risk Management and Internal Control. 

In FY 2020, the Department identified no material 

weaknesses related to effective, efficient program operations 

and no areas of noncompliance with laws and regulations 

other than those noted in the Analysis of Legal Compliance 

section below. The Department acknowledges that it has 

areas of control that need further strengthening, such as 

those identified elsewhere in this report, as well as the major 

challenges identified by the Department’s OIG in its FY 

2021 Management Challenges report. As an example, data 

quality and reporting are a challenge identified by OIG. The 

Department, its grantees, and its subrecipients must have 

effective controls to ensure that reported data are accurate 

and complete. The Department relies on program data to 
FY 2020 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION 23

MANAGEMENT’S DISCUSSION AND ANALYSIS

 Financial Management Support System (FMSS).

 Contracts and Purchasing Support System (CPSS).

 Grants Management System (G5).

 E2 Travel System.

Across all its components, EDCAPS is serving 

approximately 2,800 Departmental internal users in 

Washington, D.C. and 10 regional offices throughout 

the United States and territories. EDCAPS is serving 

approximately 40,500 external users, mostly users of the 

G5. In FY 2020, the Department conducted an annual risk 

assessment of EDCAPS and tested 82 IT security controls 

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

deficiencies or material weaknesses were identified.

The Department designated the FMSS as a mission-critical 

system that provides core financial management services 

and focused its system strategy on the following areas 

during FY 2020: 

 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 (FFATA) and Digital Accountability and 

Transparency Act of 2014 (DATA Act).

 Transmitting the entire Department’s payments 

through the Department of Treasury Secure 

Payment System.

The FMSS Oracle E-Business Suite application is behind 

the Department firewall and not external-facing. FMSS 

includes the following interfaces to multiple applications 

which are either not part of the Oracle suite of applications 

in the Enterprise Resource Plan or are outside the financial 

management segment:

 Hyperion Budget Planning module—currently only 

the license fees are included in FMSS investment.

 ED Facilities Loan System (Nortridge)—currently only 

the license fees are included in FMSS investment.

 The Invoice Processing Platform (IPP).

 FSA-Financial Management System financial data.

A NA LYSIS OF FI NA NCI A L 

MANAGEMENT SYSTEMS

The Federal Financial Management Improvement Act of 

1996 (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 vision for its financial management 

systems is to provide objective financial information to 

stakeholders to support data-driven decision-making, 

promote sound financial management, and enhance 

financial reporting and compliance activities. The 

Department’s core financial applications are together under 

common management control as part of the Education 

Central Automated Processing System (EDCAPS). 

EDCAPS is a suite of financial applications (subsystems), 

including commercial off-the-shelf, custom code, and 

interfaces that encompass the Department’s core financial 

management processes. Specifically, EDCAPS provides the 

following functions:

 General ledger—Preparation of financial statements 

and reconciliation of general ledger balances with 

subsystems maintained in program areas and Treasury.

 Funds management—Budget formulation, budget 

execution, and funds control.

 Grants pre- and post-award processing, including grant 

payment processing.

 Contract pre- and post-award processing.

 Receivable management.

 Cost management.

 Recipient management.

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

miscellaneous payments).

EDCAPS is composed of four main 

integrated components: 
24 FY 2020 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION

MANAGEMENT’S DISCUSSION AND ANALYSIS

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

2020, the Department and FSA were not in compliance 

with the DCIA TOP 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 

2020, FSA continued to implement changes to its default 

loan servicing systems, procedures, and internal business 

process for referring eligible debts to the Treasury Offset 

Program sooner. FSA will build DCIA requirements 

into the NextGen FSA servicing platform. 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.

Federal Information Security Modernization Act 

of 2014

The Federal Information Security Modernization Act of 2014

(FISMA) requires federal agencies to develop, document, 

and implement an agency-wide program to provide 

security for the information and information systems that 

support the operations and assets of the agency and ensure 

the confidentiality, integrity, and availability of systemrelated information.

The Department’s and FSA’s information security 

programs completed several significant activities in FY 

2020 to improve cybersecurity capabilities and functions, 

some of which included:

 Office of the Chief Information Officer (OCIO) 

established the Department’s cybersecurity risk tolerance 

and appetite which integrates with the Department’s 

overall Enterprise Risk Management (ERM) program. 

Key Performance Indicators (KPIs) and Key Risk 

Indicators (KRIs) have been established to support 

tracking and reporting progress made towards the 

Department’s OCIO ERM target profile. 

 OCIO publishes monthly Department Cyber Security 

Framework (CSF) Risk Scorecards as part of the 

Department’s Information Security Continuous 

Monitoring efforts to identify cybersecurity risks, issues, 

and opportunities for improvements in our cybersecurity 

protections. The Department CSF Risk Scorecard 

provides a detailed analysis tool for Authorizing 

Officials, Information System Owners, and Information 

System Security Officers to prioritize and mitigate risks 

to the Department’s information systems. 

 Lockbox. 

 Department of the Treasury systems.

 Department of Interior systems.

The Department’s financial management systems are 

designed to support effective internal control and produce 

accurate, reliable, and timely financial data and information. 

Based on self-assessments, system-level general controls 

tests, and the results of internal and external audits, the 

Department has not identified any material weaknesses 

in controls over these systems. The Department has 

also determined that its financial management systems 

substantially comply with FFMIA requirements. However, 

as noted below in the Analysis of Legal Compliance section, 

the Department continues to address issues and improve its 

controls over systems.

ANALYSIS OF LEGAL COMPLIANCE

The Department is committed to maintaining 

compliance with applicable laws and regulations. Below 

are some examples:

Debt Collection Improvement Act of 1996

The Debt Collection Improvement Act of 1996 (DCIA), 

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

law as part of the Omnibus Consolidated Rescissions and 

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

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

collection of nontax debts owed to the federal government. 

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

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

referral of delinquent debt to Treasury’s Offset Program 

within 120 days. 

Due to unique program requirements of the Higher 

Education Act of 1965 (HEA), the Department requested 

guidance from the Chief Counsel of the Department of 

the Treasury’s Bureau of the Fiscal Service to interpret 

the impact of this revised DATA Act’s delinquent debt 

referral requirement on Title IV debt. In July 2015, the 

Fiscal Service’s Chief Counsel determined 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 (TOP) 

referral requirement for Title IV debt owned by FSA 

at the time of delinquency is 271 days delinquent, and 

the requirement for debt acquired via a FFEL guarantee 

default claim or default Perkins Loan assignment is 120 

days delinquent (per DCIA aging, which begins upon 
FY 2020 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION 25

MANAGEMENT’S DISCUSSION AND ANALYSIS

factor authentication solution providing continuity 

of critical business functions. Additionally, OCIO 

identified, analyzed, and recommended a cloud-based 

solution to provide rapid expansion of the Department’s 

VPN capacity supporting the workforce during 

COVID-19 telework phase. OCIO also performed 

outreach for increased vigilance during the COVID-19 

telework phase. OCIO implemented proactive security 

monitoring of PIV-A VPN connections by utilizing 

new data-lake-based Security Information and Event 

Management (SIEM) software solution. Department 

employees have also been educated regarding increased 

phishing and other cybercriminal scams targeting a 

largely at-home workforce (stimulus checks, spoofing 

legitimate Government Health organizations, etc.).

 OCIO completed the enhancement of the Department’s 

Network Access Control (NAC) capability for nongovernment furnished equipment (GFE) within the 

Department’s new IT environment that is superior to 

capabilities that existed prior to the FY 2019 transition. 

This provides a foundation to further implement the 

Department’s zero-trust architecture.

 To bolster the Department’s email security, OCIO fully 

deployed and monitored the Office 365 (O365) email 

Data Loss Prevention (DLP) capability. This capability 

enhances the Department’s overall DLP capabilities 

and works in concert with network and desktop DLP 

solutions. OCIO also deployed DLP desktop agents 

on nearly 100 percent of Department endpoint devices 

to further enhance the identification of personally 

identifiable information such as Social Security and 

credit card numbers. In FY 2020, the Department’s 

DLP solution identified and blocked 9,809 emails which 

prevented potential sensitive personally identifiable 

information security incidents. 

 Through enhanced reporting of email and web 

security posture, the Department was able to 

significantly increase U.S. Department of Homeland 

Security (DHS) Binding Operational Directive 

(BOD) 18-01 compliance from 54 percent to 100 

percent for email security and 87 percent to 96 

percent for Hypertext Transfer Protocol Secure 

(HTTPS) tracking. Additionally, there were no 

overdue critical or high vulnerabilities in FY 2020 for 

ED’s public facing assets reported in accordance with 

DHS BOD 19-02 Cyber Hygiene.

 In FY 2020, the CSF Risk Scorecard was enhanced to 

include risk scoring and reporting for privacy controls 

as well as additional reporting views for the recently 

released security authorization documentation and 

incident response plan testing status scoring risk factors. 

These enhancements further enable the Department’s 

stakeholders to effectively manage system level 

security and privacy risks while ensuring authorization 

documentation and processes are continuously 

monitored for effectiveness. CSF Risk Scorecard 

visualizations were also expanded upon to include 

specific views for FSA servicers and pertinent investment 

review board reporting to streamline communication 

of risk to appropriate stakeholders. These recent CSF 

Risk Scorecard enhancements have provided the 

Department’s executives with new capabilities to identify 

trends, patterns, and opportunities for improvement 

across the organization. Additionally, the scorecard is 

now updated daily for a timely view of risk.

 OCIO disseminated monthly ‘State of IT’ principal 

office-level reports for continued outreach to executive 

stakeholders to take the appropriate actions as 

necessary based on cyber data, trends, metrics, and key 

insights specific to their organization offered through 

cybersecurity data visualizations. 

 The average time to close a Plan of Action and 

Milestones (POA&M) was reduced from 167 days 

in 2019 to 47 days in 2020. The number of accepted 

POA&Ms also dropped from 53 to 29 during the 

same time period. At the closing of FY 2020, the 

Department achieved a 68 percent net reduction in 

past due POA&Ms since starting the reporting period 

on October 1, 2019.These positive metrics are direct 

indicators of the progress achieved in maturing risk 

management capabilities and reduction capabilities.

 OCIO authorized the FedRAMP compliant Splunk 

Cloud as the Department’s cybersecurity data lake and 

began initial configuration for ingestion of Continuous 

Diagnostics and Mitigation and continuous monitoring 

data. Currently, ten data sources have been identified 

for initial operational capabilities. These enhancements 

allow for better cyber risk visibility and monitoring of 

Department information systems to enable prompt data 

driven decisions. 

 To mitigate operational impacts of the COVID-19 

pandemic, OCIO delivered Personal Identity 

Verification authentication (PIV-A) as alternative multi-
26 FY 2020 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION

MANAGEMENT’S DISCUSSION AND ANALYSIS

 Quarterly Risk Management Assessment score. 

 Department Cyber Risk score. 

 Previous year IG FISMA maturity score. 

 DHS Cyber Hygiene Scorecard. 

 OCIO continued supporting the Scholarship for 

Service (SFS) program which is managed by the 

National Science Foundation in collaboration with 

the U.S. Office of Personnel Management (OPM) 

and DHS. This initiative reflects the critical need for 

IT professionals, industrial control system security 

professionals, and security managers in federal, state, 

local, and tribal governments. Upon graduation, 

scholarship recipients are required to work for a 

federal, state, local, or tribal government organization 

in a position related to cybersecurity. The Department 

spoke to students from SFS about the Department’s 

internship and upcoming employment opportunities. 

Over 100 students stopped by to learn about the 

Department’s cybersecurity initiatives and how their 

interests, knowledge, skills, and abilities aligned with 

future employment opportunities. OCIO continued 

to support the SFS program during COVID-19 by 

virtually onboarding a student internship team of 

eight students who performed a gap analysis, provided 

recommendations, and aided with next steps for 

adopting a Zero Trust Architecture environment at 

the Department.

 OCIO removed and blocked the Zoom video 

teleconferencing software across the enterprise after 

increased reports of security vulnerabilities. After 

thorough review of the risks associated with Zoom to 

Department users, updated guidance and notifications 

were communicated, allowing the use of Zoom for 

external hosted meetings with the understanding 

that there was no expectation of privacy, and meeting 

contents could be made public.

 OCIO nominated Subject Matter Experts (SMEs) to 

support the DHS Supply Chain Risk Management 

initiative, C-SCRM Cybersecurity Standards 

Innovation Group (CyberSIG). The SMEs contribute 

as key members of the CyberSIG under the 

sponsorship of the General Services Administration 

and OMB. The CyberSIG provides input into 

 Cybersecurity and personnel security requirements 

were incorporated into the Department’s acquisition 

regulations in December 2019. The Office of 

Acquisition Management issued Acquisition Alert 

2020-01, “Education Acquisition Regulation Class 

Deviation: Cyber and Personnel Security Requirements 

for Contractors”. This deviation ensures active contracts, 

solicitations, and future contracts communicate the 

Department’s cybersecurity and personnel security 

requirements to contractors and prospective contractors. 

 The Department deployed a “Report Phishing” button 

on March 25, 2020, to all Department email clients, 

allowing users to directly report suspicious emails 

to ED’s Security Operations Center (EDSOC) with 

a single click of a button. Prior to deployment, the 

average reporting rate for simulated exercises in FY 

2019 was 15.21 percent (the highest reporting rate was 

27.82 percent in March 2019). A phishing exercise 

conducted in the third quarter of FY 2020 resulted in 

a 41 percent reporting rate, with 91 percent of those 

who reported using the new “Report Phishing” button. 

The highest reporting rate noted in FY 2020 was 52.5 

percent in August 2020 in response to an exercise 

which appeared to contain an attachment. This was the 

highest reporting rate since the launch of the phishing 

program in FY 2014. The Department also improved 

its overall response time in reporting. During FY 2018 

and FY 2019 exercises, the first report from an end user 

was within an average of two minutes of the exercise 

launch. In FY 2020, the first report was received within 

an average of one minute of the exercise launch. In the 

event the email was an actual attack, early notification 

would enable the Department to block the internet 

addresses or domains associated with the email and 

reduce the potential impact and risk.

 OCIO continued conducting quarterly Departmentlevel system-tailored Incident Response and 

Contingency Plan testing tabletop exercises virtually, 

which focused on system contingency planning in the 

event of a cyber incident and how the Department 

would respond to such an incident. As of July 2020, 

100 percent of the Department’s FISMA reportable 

systems had a valid contingency plan test. Feedback 

reports were provided to system stakeholders on 

weaknesses and opportunities for improvement to their 

contingency plans:
FY 2020 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION 27

MANAGEMENT’S DISCUSSION AND ANALYSIS

 OCIO completed an engagement with the 

National Institute of Standards and Technology’s 

(NIST) Security and Privacy Implementation 

Collaboration Tiger Team to integrate cybersecurity 

and privacy more effectively across government 

and to promote collaborative working relationships 

between cybersecurity and privacy, regardless of 

organizational structure/reporting. As a result of this 

engagement, NIST determined they will not include 

the collaboration index in revision 5 but will instead 

develop a template of the index as a supplemental 

resource for individualized agency use.

capabilities and requirements that will be used for 

C-SCRM government wide shared services.

 OCIO established initial operating capabilities in 

support of standing-up the Department’s Information 

and Communications Technology SCRM program. An 

inter-agency agreement with the Department of Energy 

was established to use their operationalized enterprise 

SCRM program to help identify and reduce potential 

risks associated with third party vendor relationships. 

Through this shared service, the Department will 

receive vendor-specific risk assessment services for our 

information systems and our vendors. 
28 FY 2020 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’s Enterprise Risk Management (ERM) 

program supports agency-wide efforts to maximize the 

Department’s value to students and taxpayers through 

achievement of strategic goals and objectives. The 

Department’s ERM program strategically focuses on the 

complete spectrum of the organization’s significant risks 

and the combined impact of those risks as an interrelated 

portfolio rather than simply addressing risks within silos. 

This coordinated approach leverages data and analytical 

solutions to identify, measure, and assess challenges related 

to mission delivery and resource management. Through 

ERM, the Department seeks to embed a systematic and 

deliberate view of risk into key management practices, 

ultimately yielding more effective performance and 

operational outcomes. The Department’s implementation 

of ERM includes three critical strategies that are more 

fully described under Strategic Objective 4.2, Identify, 

assess, monitor and manage enterprise risks:

1. Creating a risk-aware culture that includes transparent 

discussions of risks.

2. Implementing an ERM framework and capability 

that leverages existing risk management activities and 

governance bodies.

3. Managing risks in a more coordinated and 

strategic manner.

In FY 2020, the Department took significant steps to 

further develop the ERM program by establishing the 

Office of Enterprise Data Analytics and Risk Management 

(OEDARM), within the Office of Finance and Operations 

(OFO), to direct the agency’s overall ERM strategy and 

formally align ERM and internal controls processes. 

OEDARM leadership established a formal Enterprise Risk 

Management Working Group (ERMWG) with senior 

representation across the agency to further solidify the 

Department’s ERM governance structure. The ERMWG 

helped to conduct coordinated risk assessments and 

incorporated the risks highlighted or exacerbated by the 

COVID-19 pandemic into short- and long-term risk 

planning. OEDARM leveraged partnerships with agency 

leaders to identify, measure, and assess challenges related 

to mission delivery and develop coordinated, actionable 

response plans.

OEDARM leadership actively sought to enhance 

strategic partnerships with ERM colleagues across the 

government as well as with Department’s own Office 

of Inspector General. To better understand how the 

Department’s ERM program has evolved over time, the 

Department enrolled in the Office of Management and 

Budget’s Pilot to validate the Federal ERM Maturity 

Model V1.0, a pilot that will extend through FY 2021. 

Through the pilot, the Department seeks to 1) test, assess, 

and validate sections or components of the Model for 

its iterative refinement; and 2) assess the maturity of the 

Department’s own ERM program. Evaluation will focus 

on an assessment of the Model’s operational viability and 

the influence of the Model on the Department’s riskinformed culture—including executive engagement and 

resourcing processes—with a goal of identifying potential 

improvements to the Model. 

Throughout FY 2021, the Department plans to further 

integrate ERM with key management processes to 

ensure risk indicators and considerations inform budget 

formulation, strategic planning, and performance 

management. OEDARM seeks to support a culture of 

continuous improvement within the Department—

where data and awareness of enterprise risk are used to 

objectively inform strategic and operational decisions 

and optimize agency performance. To that end, in FY 

2021, OEDARM plans to develop and implement a 

comprehensive ERM training program for all levels of 

the organization as well as to enhance digital tools for 

collecting, analyzing, and reporting risk data to promote 

transparency and accountability across the Department. 

In light of the current COVID-19 pandemic, the 

Department has intentionally shifted to an even more 

comprehensive, strategic approach to risk management—

one that seamlessly considers national health emergencies 

or other significant crises that could adversely impact 

continuity of operations.
FY 2020 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION 29

MANAGEMENT’S DISCUSSION AND ANALYSIS

 Continue to support the development of additional 

tools, such as the College Scorecard and Financial Aid 

Shopping Sheet, to increase transparency around higher 

education costs and outcomes that may 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 disbursements and collections 

associated with a cohort of loans 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, 

described below, that make estimating lifetime program 

costs a difficult task.

Legislative, Regulatory, and Policy Risk

There are inherent risks to estimating future lifetime 

disbursements and collections for a cohort stemming 

from legislative, regulatory, or administrative actions. For 

instance, the cost structure of the Direct Loan program 

may be significantly altered. In addition, the effects on 

financial modeling and estimation associated with recent 

legislative, regulatory, and policy action is difficult to 

interpret given the lack of actual trend data availability. 

Some examples of current risks include the following:

CARES Act and Presidential Memorandum 

(“Memorandum on Continued Student Loan Payment 

Relief During the COVID-19 Pandemic”): The CARES 

Act provided emergency relief measures in the Direct Loan 

program, including suspending loan payments, halting 

collections on defaulted loans, and setting interest rates 

to 0 percent through September 30, 2020. On August 

8, 2020, the President directed the Secretary to continue 

these measures through December 31, 2020. These actions 

have largely insulated federal student loan performance 

from economic disruption caused by the coronavirus 

pandemic, while at the same time reducing the amount 

of loan repayments being remitted to the Department 

of Education. As the pandemic is ongoing, there is great 

uncertainty regarding cost estimates as future legislative 

and administrative actions could extend these emergency 

relief measures past December 31, 2020.

Income-Driven Repayment Plans: Without 

consideration of impacts from the pandemic, IDR plans 

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 describes 

(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 

having a college degree remains high,1

 some students leave 

school poorly equipped to manage their debt.

Traditionally, federal student loans had fixed-payment 10-

year repayment schedules, making it difficult for borrowers 

to begin repaying at the start of their career when their 

salaries are low. The recent expansion of income-driven 

repayment (IDR) plans allows students the opportunity 

for greater financial flexibility as it pertains to their 

monthly repayment. For more details on these plans, visit 

FSA’s How to Repay Your Loans Portal.

Recent trends in student loan repayment data show that:

 Nearly 70 percent of the Direct Loan portfolio is in 

administrative forbearance, the suspended payment 

status provided to students through the CARES Act.

 As of June 2020, nearly 8.2 million Direct Loan 

recipients were enrolled in IDR plans, representing a 

7 percent increase from June 2019 and a 16 percent 

increase from June 2018. Overall, more than 50 

percent of Direct Loan dollars and 32 percent of 

borrowers in repayment are enrolled in an IDR plan.

The Department continues to work relentlessly to make 

student loan debt more manageable. Looking to the 

future, the Department will:

 Continue conducting outreach efforts to inform 

student loan borrowers of their repayment options 

before the emergency loan relief measures expire on 

December 31, 2020. 

 Work to improve customer service and student aid 

systems and processes by implementing FSA’s Next 

Generation Federal Student Aid (Next Gen FSA), see 

page 33. 1 https://libertystreeteconomics.newyorkfed.org/2019/06/despite-rising-costscollege-is-still-a-good-investment.html
30 FY 2020 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION

MANAGEMENT’S DISCUSSION AND ANALYSIS

organization continues to increase. As of September 30, 

2020, the number of borrowers with certified employment 

totaled 1,357,699. 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. In addition, many borrowers who 

file employment certification forms early in their careers 

may also move into private sector employment before 

completing the 10 years of qualifying payments and 

thus may (a) never apply for forgiveness or (b) apply for 

forgiveness much later after returning to public service 

work. The Consolidated Appropriations Act, FY 2018, and 

the Department of Education Appropriations Act, FY 2019, 

each provided $350 million toward Temporary Expanded 

Public Service Loan Forgiveness (TEPSLF) for borrowers 

who met eligibility for public service employment but 

were not enrolled in a qualified repayment plan. The 

Consolidated Appropriations Act, FY 2020, provided $50 

million for TEPSLF. Future congressional action that 

may affect eligibility for PSLF continues to be an area of 

uncertainty. Lastly, although the Department continues 

to remain informed on and manage the risk associated 

with estimating participation in this program, uncertainty 

remains about further borrower outreach to boost 

participation in the PSLF program.

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 significantly large number 

of borrower-level events and future economic factors that 

heavily impact the ultimate cost of student loans. For 

example, assumptions that need to be estimated for loans 

originating in FY 2020 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 loan discharge, 

borrower defense to repayment, etc.); whether the loan will 

go into deferment or forbearance; whether the loan will 

go into default and, if so, what collections will be received 

on the defaulted loan; and, if the loan is in an IDR plan, 

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

income and family status will be over the next 25 years. 

These projections are generally made based on historical 

data about borrower characteristics and behavior, which are 

more difficult to estimate during times of unprecedented 

tend to be more costly to the government than nonIDR plans. For the 2020 loan cohort, it is estimated that 

the government will recover 40 percent less for loans in 

IDR plans as compared to loans in standard plans. It is 

important to be careful in making such comparisons, 

however, as the underlying characteristics of borrowers 

(and the corresponding behavioral dynamics driving 

selection of plans) also impact the overall cost of loans 

under each plan. In general, the proliferation of IDR plans 

has made IDR terms more generous and made the plans 

available to a greater number of borrowers; however, these 

plans are traditionally more costly to the government. 

Also, having more repayment plan options complicates 

repayment plan selection, since the tradeoff decisions 

when selecting the plans vary by borrower and may not 

always be entirely clear. Selected comparisons between 

projected originations and borrower repayments under 

the different IDR plans are available on the Department’s 

website. Future commitment to market and increased 

participation in these plans are areas of uncertainty. Future 

legislative and regulatory activity could also affect the 

underlying cost of IDR plans.

Public Service Loan Forgiveness: Enacted in 2007, the 

Public Service Loan Forgiveness (PSLF) program allows 

a Direct student loan borrower to have the balance of 

their Direct student loans forgiven after having made 

120 qualifying monthly payments under a qualifying 

repayment plan, while working full time for a qualifying 

public service employer (such as government or certain 

types of nonprofit organizations). In general, forgiveness 

provided via PSLF raises the cost of the Direct Loan 

program; however, there is still uncertainty as to how 

many borrowers will take advantage of the program. 

Much of this uncertainty arises because borrowers are 

not required to apply for the program or provide any 

supporting documentation on their employment until 

after having made the 120 qualifying monthly payments, 

and data on actual PSLF forgiveness remains rather 

limited, as borrowers first became eligible in FY 2018.

Data on approved PSLF applications first became available 

in FY 2018 since borrowers first became eligible for PSLF 

loan forgiveness starting October 1, 2017, after having 

made 120 qualifying payments. As of September 30, 2020, 

the total number of borrowers who received forgiveness 

totaled 3,469. The value of this forgiveness totaled 

$260.49 million. Despite the relatively modest numbers 

of approved applications to date, the number of borrowers 

who have certified their employment in a public service 
FY 2020 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION 31

MANAGEMENT’S DISCUSSION AND ANALYSIS

issued to use alternative assumptions. Consequently, the 

Department explored the possibility of using economic 

factors from other sources, including, but not limited 

to, the Congressional Budget Office (CBO). Ultimately, 

the Department made the decision after extensive 

consultations with Education leadership and OMB to 

calculate the FY 2020 financial statement re-estimate 

using the President’s Budget 2021 assumptions (OMB 

assumptions). Factors contributing to this decision include 

the fact that any available economic projections have a 

high degree of uncertainty due to the uniqueness of the 

potential economic conditions caused by the pandemic. 

In addition, there is little historical data comparable 

to the current crisis that can be used to extrapolate 

and adjust student loan assumptions. Finally, current 

legislation and the presidential memorandum (i.e., the 

CARES Act) provided temporary relief to student loan 

borrowers through December 31, 2020; as a result, there 

is no meaningful data on the impact of current economic 

conditions on student loan performance. Alternatively, 

the Department conducted targeted sensitivity analysis to 

address potential economic impacts of the pandemic. 

The Department conducts sensitivity analyses as one 

way to assess the degree of uncertainty around the 

economic assumptions. In the analysis reported here, the 

Department replaced the most important inputs from 

the President’s Budget 2021 economic assumptions used 

in the models with the numbers from CBO’s July 2020 

economic package. The following examples show the 

projections of cohorts 1994-2019, where one specific 

assumption is varied from the assumption used in the 

financial statement re-estimate.

The monthly unemployment rate is an assumption 

used in the default projection model. For the sensitivity 

analysis, the CBO projected quarterly unemployment 

rate assumptions were used after June of 2020. Actual 

data from the Bureau of Labor Statistics was available 

for unemployment prior to June 2020; therefore, the 

rates used in the financial statement re-estimate do not 

differ from those used in the sensitivity analysis for 

that timeframe. Changing this assumption resulted in a 

projected increase to the re-estimate of $3.7 billion. The 

chart below shows the changes to the default rate for a sub 

population of loans.

uncertainty facing students and borrowers in repayment 

plans today. Lastly, the Direct student loan portfolio has 

grown from approximately $356 billion in FY 2011 to more 

than $1.2 trillion as of the end of FY 2020. This growth 

naturally results in larger re-estimates, since a re-estimate 

worth 1 percent of the portfolio today would be more than 

three times as large as a similar re-estimate in FY 2011.

Macroeconomic Risk

The ultimate amount, timing, and total value of future 

borrower repayments under the Direct Loan program are 

heavily affected by certain economic factors, especially 

since the introduction of IDR plans.

In 2020, the coronavirus pandemic caused widespread 

disruption to the American economy. The emergency 

relief measures provided by Congress and the President 

resulted in flexibilities for federal student loan borrowers, 

preventing spikes in delinquency and default rates. 

Involuntary loan collections from wage garnishment, 

tax refund reductions, and reductions of federal benefits 

such as Social Security are also suspended. However, the 

ultimate impact of the pandemic on long-term Direct 

Loan program costs is subject to significant uncertainty 

and will depend on, among other things, short and 

long-term unemployment, economic growth trends, 

and potential structural changes in the overall economy 

and job markets. Some types of macroeconomic risk 

are inherent to student loan cost estimation, and the 

Department analyzes them regularly—though some of 

these risks have been exacerbated by the unprecedented 

worldwide pandemic. New risks have also developed due 

to the conditions surrounding the pandemic. Specific 

examples of macroeconomic risk include:

Economic Assumptions: As part of its technical reestimate process for the financial statement re-estimates, 

the Department updates economic assumptions 

used to calculate forecasted borrower cash flows. The 

Department obtains the information used to update 

economic assumptions from the OMB. OMB typically 

provides an economic assumption package for MidSession Review (MSR) which updates the economic 

assumptions used for the President’s budget in November 

of the previous year. The Department historically has 

used the MSR assumptions for calculation of financial 

statement re-estimates.

OMB did not release a MSR economic assumptions 

package in FY 2020, and no official guidance was 
32 FY 2020 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION

MANAGEMENT’S DISCUSSION AND ANALYSIS

as a way to strengthen their credentials, change career 

paths, or improve future employment opportunities. 

While the coronavirus pandemic has been accompanied 

by a spike in unemployment (at least in the short term), 

the impact on student loan volume has been more mixed, 

as higher education has struggled to provide students the 

level of instruction they were receiving pre-pandemic. 

The exact impact on the cost estimates from the current 

recession remains a significant area of uncertainty. For 

instance, higher short-term unemployment rates could 

have an impact on future collections of already defaulted 

loans by increasing the risk of fewer collections from 

wage garnishment and tax refund reductions. A sensitivity 

analysis examining the impact of a 5 percent reduction in 

default collections for three years, starting in the second 

quarter of FY 2021 when the pandemic relief provisions 

are set to expire, resulted in a projected increase in the reestimate of $1 billion.

Wage Growth: The estimated costs of IDR plans are 

largely dependent on trends in observed wage growth. To 

the extent that future wage growth deviates significantly 

from prior wage growth, actual costs of IDR plans may 

deviate from estimated costs. The Department will 

closely monitor impacts to wage growth as a result of the 

pandemic. Data is not available for the FY 2020 financial 

statements, and the ultimate cost may not be known for 

some time. The estimates are sensitive to slight changes 

in model assumptions. For instance, a 10 percentage 

point increase in borrowers reporting zero discretionary 

income from FY 2020 to FY 2022 and a 5 percentage 

point increase for FY 2023 to FY 2025 would result in 

a projected increase to the re-estimate of $2.9 billion. 

The Department continues to manage risks in this area 

by building its knowledge about its borrower base and 

remaining informed of labor market statistics.

Operational Risk

Unforeseen issues in administering and servicing student 

loans may impact the cost estimates. For example, in 

December 2019, the President signed the Fostering 

Undergraduate Talent by Unlocking Resources for 

Education Act (FUTURE Act), which amends Section 

6103 of the Internal Revenue Code to allow the IRS to 

share taxpayer data directly with the Department. Once 

implemented, this will make it easier for borrowers to 

stay enrolled in an IDR plan by allowing automated data 

sharing between federal agencies and eliminating the need 

for borrowers to annually recertify their income. A timeline 

for implementation of the FUTURE Act is uncertain, 

which can make predicting the impact on student loan 

The IDR model is used to develop cash flows for Direct 

Loans being repaid under any of the IDR repayment 

plans, including the income contingent repayment (ICR) 

plan, the income based repayment (IBR) plan, the Pay as 

You Earn (PAYE) plan, and the Revised Pay as You Earn 

(REPAYE) plan. The IDR model also uses information 

from the OMB economic package on the Consumer Price 

Index (CPI-U) as a factor for borrower income inflation, 

balances, and poverty guidelines. A sensitivity analysis that 

replaces the CPI-U with the assumptions from the July 

CBO estimates resulted in a projected increase to the reestimate of $1.7 billion.

Interest Rates: Direct Loan program cost 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 the 

Department’s 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 

Direct Loan program cost.

Unemployment: Unemployment rates have been shown 

to affect both student loan volume and student loan 

repayment decisions and behavior. During periods of 

economic downturn, displaced workers have tended to 

pursue higher education opportunities in high numbers 

Figure 13. Default Rates Using Different 

Unemployment Rate Assumptions

(Subsidized Stafford Cohort 2012 Example)

4 Year Junior/Senior Standard Enter Repay=4
FY 2020 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION 33

MANAGEMENT’S DISCUSSION AND ANALYSIS

failing to understand how to apply for and maintain 

their aid eligibility, which repayment options they qualify 

for, and the financial implications of their student debt. 

Additionally, operational complexities and out-of-date 

contracts result in higher administrative costs and hinder 

effective oversight of our vendors.

Next Gen FSA Environment

Multiple websites, mobile applications, contact centers, 

and other customer interfaces have been combined into a 

simplified, consistent, and engaging customer experience, 

which will be enhanced by standardized training and 

tools. Since December 2019, FSA has launched a single 

front door on the web, Studentaid.gov, and has launched 

multiple modern self-service and consumer information 

tools that help our customers understand the aid they have 

received, their remaining eligibility, and how they can 

manage loan repayment in a way that meets their goals. 

While FSA’s digital platform helps customers cut through 

the information clutter and access robust self-service, other 

components of Next Gen will bring onboard multiple 

contact centers that provide customers and partners with 

support across the entire student aid lifecycle, all under the 

FSA brand.

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 application and loan processing and 

management of customer accounts. The contracts that 

bring onboard these new systems will include objective 

performance standards and accountability measures to 

ensure customers receive accurate, timely responses to 

their inquiries. These new technologies will also integrate 

modern cybersecurity protections, and a new enterprisewide data analytics platform will drive improved data and 

governance standards.

Solicitation and Procurement Process

In January 2019, FSA awarded a major contract for 

Digital and Customer Care, which provides FSA with 

new digital, marketing and communications, and 

customer care platforms that enable the implementation 

of a modern StudentAid.gov and myStudentAid mobile 

application, as well as improved tools for customer 

outreach. In June 2020, FSA awarded five Business 

Process Operations contracts, which bring on board 

vendors that will eventually provide enterprise-wide 

contact centers and back-office processing for all of FSA’s 

customers and institutional partners. In October 2020, 

FSA released a solicitation for the Interim Servicing 

Solution (ISS) which will provide the core processing 

cost estimates a challenge. The Department invests 

significant resources to ensure continuous improvements 

in cybersecurity defenses based on current and emerging 

threats. Despite this investment, security threats to 

operations are ongoing and incidents may happen without 

warning, potentially disrupting student loan administration 

and ultimately borrower cash flows, which can be impacted 

by the timing of when collections or disbursements are 

processed. Hence, there is an inherent risk that future, 

unpredictable disruptions in the administrative status quo 

may impact student loan cost estimates.

NEXT GEN FSA

About FSA

As the nation’s largest provider of financial aid for education 

beyond high school, FSA delivers more than $115 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 workstudy funds for college or career school. FSA also oversees 

the approximately 5,600 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 manages one of the largest consumer loan portfolios 

in the country, valued at $1.6 trillion.2

 It is critical that 

we provide an environment that provides customers with 

the services and experiences that they expect and the 

outcomes that they deserve. The Next Generation Federal 

Student Aid (Next Gen FSA) initiative is enabling FSA 

to realize this vision by modernizing the way we connect 

with our customers and streamlining our student aid 

systems and processes. This broad effort will deliver an 

improved customer experience for millions of Americans 

across the entire student aid life cycle, from fostering 

greater awareness about the availability of financial aid, 

to applying for aid, to repaying loans, to improving the 

participation experiences and oversight of our partners at 

postsecondary institutions.

Legacy 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 

2 Includes lender-held FFEL loans and school-held Perkins loans.
34 FY 2020 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION

MANAGEMENT’S DISCUSSION AND ANALYSIS

Open Data

The Evidence Act requires agencies to make data “open by 

default.” The Department is planning to develop, release, 

and execute the Act’s required open data plan consistent 

with OMB guidance. The Department will balance 

privacy and security with the open data mandate and the 

priority of the Department to enable broader public use 

of data paid for by its citizens. The Department is also 

developing an Open Data Platform (ODP), a central 

repository for its data assets. Recently released in beta, it is 

a fully featured, robust, and highly scalable data repository 

that maintains all data assets in a fully searchable catalog. 

As required by the Evidence Act, the Department will build 

towards a comprehensive data inventory by expanding on 

the ODP and increasing its catalogued data assets for both 

externally available open data and internal sources subject 

to open data priorities, reviewing all data assets for release 

consistent with Evidence Act mandates and exclusions, and 

incrementally expanding the number of Department open 

data assets listed in in the Federal Data Catalogue.

Evaluation Officer and Evidence 

Leadership Group

The Evidence Act created a new role, a Department 

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

developing the Department’s Learning Agenda by 

assessing the Department’s portfolio of evaluations, policy 

research, and ongoing evaluation activities; (b) assessing 

the Department’s capacity to support the development 

and use of evaluation; (c) establishing and implementing 

the Department’s evaluation policy; and (d) coordinating 

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

Commissioner of the National Center for Education 

Evaluation and Regional Assistance is the Department’s EO. 

As required by the Evidence Act, the Department submitted 

its Draft Learning Agenda to OMB at the end of fiscal 

year 2020. The Learning Agenda was developed in 

consultation with the Department’s Evidence Leadership 

Group (ELG). The ELG is co-chaired by the EO and the 

Director of the Department’s Grants Policy Office (GPO) 

and includes members from the Department’s primary 

grant-making offices as well as mission-support units, such 

as the Department’s Budget Service, and Office of General 

Counsel, and ex-officio representatives from the Office 

of the Chief Data Officer, the Statistical Official, and the 

Performance Improvement Officer. Feedback from OMB 

and consultation with stakeholders across government, 

education, and the general public will be used to inform the 

system, fulfillment, and labor servicing for the federally 

managed loan portfolio.

The current Title IV Additional Servicing (TIVAS) and 

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

contracts may be extended through December 2021 and 

March 2022, respectively. ISS will replace the current 

TIVAS and Not-for-Profit relationship upon award and 

migration of borrowers. In the event of a delay in the ISS 

implementation, the appropriate contractual actions will 

be taken to ensure continued servicing capabilities are 

maintained. FSA is taking a similar approach to all legacy 

contracts that will be impacted by the Next Gen FSA 

vision to ensure as smooth a transition as possible for our 

customers and partners.

L E V ER AGI NG DATA A S A 

STRATEGIC ASSET

The Department is focusing on further leveraging its data 

as a strategic asset, in part in response to requirements 

in the Foundations for Evidence-Based Policymaking 

Act (Evidence Act; P.L. 115-435) and the Federal Data 

Strategy. This section highlights three initiatives intended 

to help the Department realize the power of data in daily 

operations and national policy: (1) the development of an 

ED Data Strategy; (2) priorities for Open Data; and (3) a 

new focus for the Evidence Leadership Group in advising 

the Evaluation Officer and developing the Department’s 

learning agenda.

Data Strategy

The 22020 Action Plan under the Federal Data Strategy 

calls for agencies to “put in place a data strategy or road 

map.” The Agency-wide Data Governance Board (DGB) 

has initiated a process to develop the Department’s Data 

Strategy in order to realize the full potential of data to 

improve education outcomes and to lead the nation in a 

new era of evidence-based policy insights and data driven 

operations. This Department-wide effort will include 

agency-wide discussions about data priorities that will help 

improve data maturity and will focus on the Department’s 

capabilities to leverage data, operationalize and optimize 

data governance, and drive cultural change for the benefit 

of all stakeholders. It will build on strengths, weaknesses, 

and opportunities within the Department to 1) strengthen 

agency-wide data governance, 2) build human capacity to 

leverage data, 3) advance the strategic use of data, and 4) 

improve data access, transparency, and privacy.
FY 2020 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION 35

MANAGEMENT’S DISCUSSION AND ANALYSIS

Department’s Final Learning Agenda to be submitted to 

OMB at the end of fiscal year 2021.

In addition to advising the EO on the development of 

the Draft Learning Agenda, the ELG advises Department 

leaders on how to support the capacity of ED staff to 

make better use of data and evidence. GPO, led by the 

ELG co-chair, has spearheaded a range of internal training 

opportunities for Department staff to bolster the use of the 

Secretary’s policy priorities, including the use of evidence 

in program design, and to consider how the Department’s 

grantmaking activities can build evidence for improvement 

in the future. This work, done in close collaboration with 

partners across the Department, will be informed in fiscal 

year 2021 by the recently-completed Interim Capacity 

Assessment, which included a systematic effort to collect 

information about staff members’ capacity to use evidence 

in their day-to-day work.

CONTINUOUS IMPROVEMENT

Improving critical infrastructure, systems and overall 

capacity, and ensuring sound strategic decision making 

regarding allocation of resources are essential to the 

Department’s future progress and success. Implementing 

Technology Business Management Solutions is one of the 

Department’s key initiatives.

Technology Business Management 

Solutions (TBMS) 

The purpose of the TBMS project is to provide greater 

cost transparency into IT spending. The TBMS project 

will allow OCIO to communicate the cost drivers and 

value of IT to senior leadership, improve the efficiency and 

predictability of the formulation of the IT budget, and 

optimize IT costs. 

Beginning in 2017, OMB required agencies to begin 

reporting IT spending in alignment with the TBM 

Framework, including using Cost Pools and IT Towers to 

classify IT spending. The Department intends to leverage 

TBM beyond the minimum OMB reporting requirements 

to encompass the full implementation of the TBM cost 

accounting framework. The Department of Education 

is refining the TBM effort to: 1) provide accurate cost 

analysis and accounting of operations and services to 

improve tracking cost variances; 2) provide ad hoc reports 

to stakeholders on IT spending; and 3) contextualize ED’s 

internal resource costs with real world data to inform 

decisions. Ultimately, the goal is to provide a “bill of IT” 

to form the basis of a show-back model to drive more 

informed decision-making around IT.

The objective is to implement an integrated solution that 

will allow OCIO to:

 Accurately account for and categorize IT spending in 

IT Cost Towers and Pools.

 Evaluate IT spending using a method that helps 

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

and licenses).

 Extract cost elements from disparate sources, analyze 

these elements, and report cost stressors and trends 

to stakeholders.

 Prepare accurate pricing through a show-back model to 

client offices for the services provided and consumed 

by each client office.
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FINANCIAL

SECTION
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FY 2020 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION 39

Department’s financial statements and activities that 

contributed to the audit opinion. 

OFO provides stewardship and accountability of agency 

funds by leveraging new technologies to modernize 

outdated business processes, developing financial 

management policies and procedures, establishing and 

overseeing internal controls, and producing high-quality 

financial and managerial reports. Despite the challenges 

associated with the COVID-19 pandemic, the agency was 

able to maintain effective financial management operations 

even in a remote work environment.

We also received external validation of our sustained 

efforts to produce user-friendly, transparent financial 

reporting by earning the Department’s 16th award of the 

Association of Government Accountants’ Certificate of 

Excellence in Accountability Reporting. Federal financial 

reports must pass a rigorous independent review against 

a comprehensive set of standards to earn this prestigious 

recognition, which is the highest award bestowed for 

federal financial reporting.

The Department’s achievements illustrate the remarkable 

effort and dedication of our employees and partners. We 

will continue to serve as accountable and committed 

stewards supporting the Department’s mission on 

behalf of the public while enhancing our financial 

management capabilities.

Denise Carter

Delegated the authority to perform the functions and duties of 

the position of Chief Financial Officer

November 16, 2020

MESSAGE FROM THE CHIEF FINANCIAL OFFICER

MESSAGE FROM THE CHIEF FINANCIAL OFFICER | FINANCIAL SECTION

I am honored to join Secretary DeVos in issuing our Fiscal 

Year (FY) 2020 Agency Financial Report (AFR) for the 

Department of Education. The Department is committed 

to promoting student achievement and preparation for 

global competitiveness by fostering educational excellence 

and ensuring equal access. The Department’s Office of 

Finance and Operations (OFO) strives to cultivate a 

financial management environment that drives innovation, 

ensures accountability, and effectively manages risk related 

to the resources entrusted to the Department.

For the 19th consecutive year, we received an unmodified 

(clean) audit opinion on our financial statements from 

our independent auditor. A clean opinion confirms 

that our financial statements are presented fairly, in all 

material respects, and conform with generally accepted 

accounting principles. The internal control report 

identified one material weakness, “Controls over the 

Reliability of Underlying Data Used in Credit Reform 

Re-estimates Need Improvement.” The Department 

remains committed to evaluating its internal controls 

for improvement opportunities. The “Financial Section” 

of this report provides detailed information about the 
40 FY 2020 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION

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. COVID-19 Activity

Note 12. Statements of Budgetary Resources

Note 13. Reconciliation of Net Cost to Net Outlays 

Note 14. Commitments and Contingencies

Note 15. Reclassification of Balance Sheet, Statement of 

Net Cost, and Statement of Operations 

and Changes in Net Position for FR 

Compilation Process

ABOUT THE FINANCIAL SECTION

FINANCIAL SECTION | ABOUT THE FINANCIAL SECTION

I

n FY 2020, 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 

program, 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— Unexpended 

Appropriations and Cumulative Results of Operations. 

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 | FINANCIAL SECTION

FY 2020 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION 41

R EPORT OF T H E I NDEPENDENT 

AUDITORS

The results of the audit of the Department’s financial 

statements for FY 2020 and FY 2019 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, 2020, and September 30, 2019, and 

for the years then ended. 

R EQU IR ED SU PPL E M ENTA RY 

INFORMATION (UNAUDITED)

This section contains the Combining Statements of 

Budgetary Resources for the years ended September 30, 

2020, and September 30, 2019.
FINANCIAL SECTION | FINANCIAL STATEMENTS

42 FY 2020 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION

United States Department of Education 

Consolidated Balance Sheets 

As of September 30, 2020 and September 30, 2019 

(Dollars in Millions)

FY 2020 FY 2019

ASSETS (Note 2)

Intragovernmental:

Fund Balance with Treasury (Note 3) $ 136,015 $ 104,918 

Other Intragovernmental Assets (Note 4) 124 66 

Total Intragovernmental 136,139 104,984 

Public:

Credit Program Receivables, Net (Note 5)

Direct Loan Program 1,100,544 1,123,707 

FFEL Program 67,380 76,767 

Other Credit Programs for Higher Education 3,107 2,982 

Other Assets (Note 4) 2,216 2,256 

Total Public 1,173,247 1,205,712 

Total Assets $ 1,309,386 $ 1,310,696 

LIABILITIES (Note 6)

Intragovernmental:

Debt (Note 7)

Direct Loan Program $ 1,160,099 $ 1,192,138 

FFEL Program 88,986 94,671 

Other Credit Programs for Higher Education 2,302 2,196 

Subsidy Due to Treasury General Fund (Note 8) 3,298 10,302 

Other Intragovernmental Liabilities (Note 9) 2,612 2,686 

Total Intragovernmental 1,257,297 1,301,993 

Public:

Other Liabilities (Note 9) 7,158 12,213 

Total Liabilities $ 1,264,455 $ 1,314,206 

Commitments and Contingencies (Note 14)

NET POSITION

Unexpended Appropriations $ 99,314 $ 72,757 

Cumulative Results of Operations (54,383) (76,267)

Total Net Position $ 44,931 $ (3,510)

Total Liabilities and Net Position $ 1,309,386 $ 1,310,696 

The accompanying notes are an integral part of these statements.
FINANCIAL STATEMENTS | FINANCIAL SECTION

FY 2020 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION 43

United States Department of Education 

Consolidated Statements of Net Cost 

For the Years Ended September 30, 2020 and September 30, 2019

(Dollars in Millions)

FY 2020 FY 2019

IMPROVE LEARNING OUTCOMES FOR ALL P–12 STUDENTS

Gross Costs $ 40,145 $ 38,732 

Earned Revenue (129) (42)

Net Program Costs $ 40,016 $ 38,690 

EXPAND POSTSECONDARY OPPORTUNITIES, IMPROVE OUTCOMES TO FOSTER 

ECONOMIC OPPORTUNITY, AND PROMOTE PRODUCTIVE CITIZENRY

Direct Loan Program

Gross Costs $ 137,303 $ 96,696 

Earned Revenue (34,970) (33,817)

Net Cost of Direct Loan Program $ 102,333 $ 62,879 

FFEL Program

Gross Costs $ 5,419 $ 15,759 

Earned Revenue (3,108) (2,870)

Net Cost of FFEL Program $ 2,311 $ 12,889 

Other Credit Programs for Higher Education

Gross Costs $ 144 $ 121 

Earned Revenue (1,368) (171)

Net Cost of Other Credit Programs for Higher Education $ (1,224) $ (50)

Non-Credit Programs

Gross Costs $ 45,987 $ 40,331 

Earned Revenue (5) (10)

Net Cost for Non-Credit Programs $ 45,982 $ 40,321 

Net Program Costs $ 149,402 $ 116,039 

Total Program Gross Costs $ 228,998 $ 191,639 

Total Program Earned Revenue $ (39,580) $ (36,910)

Net Cost of Operations (Notes 10 & 13) $ 189,418 $ 154,729 

The accompanying notes are an integral part of these statements.
FINANCIAL SECTION | FINANCIAL STATEMENTS

44 FY 2020 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION

United States Department of Education 

Consolidated Statements of Changes in Net Position 

For the Years Ended September 30, 2020 and September 30, 2019

(Dollars in Millions)

FY 2020 FY 2019

 Unexpended 

Appropriations 

 Cumulative 

Results of 

Operations 

 Unexpended 

Appropriations 

 Cumulative 

Results of 

Operations 

Beginning Balances $ 72,757 $ (76,267) $ 72,166 $ (23,360)

Budgetary Financing Sources

Appropriations Received $ 245,237 $ - $ 122,058 $ - 

Appropriations Transferred - In/Out (154) - - - 

Other Adjustments (Rescissions, etc.) (871) - (4,007) - 

Appropriations Used (217,655) 217,655 (117,460) 117,460 

Nonexchange Revenue - 11 - 15 

Other Financing Sources

Imputed Financing from Costs Absorbed by Others - 30 - 37 

Negative Subsidy Transfers, Downward Subsidy

Re-estimates, and Other - (6,394) - (15,690)

Total Financing Sources $ 26,557 $ 211,302 $ 591 $ 101,822 

Net Cost of Operations $ - $ (189,418) $ - $ (154,729)

Net Change $ 26,557 $ 21,884 $ 591 $ (52,907)

Net Position $ 99,314 $ (54,383) $ 72,757 $ (76,267)

The accompanying notes are an integral part of these statements.
FINANCIAL STATEMENTS | FINANCIAL SECTION

FY 2020 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION 45

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, 2020 and September 30, 2019

(Dollars in Millions)

FY 2020 FY 2019

Budgetary 

 Non-Budgetary 

Credit Reform 

Financing Accounts 

Budgetary 

 Non-Budgetary 

Credit Reform 

Financing Accounts 

BUDGETARY RESOURCES

Unobligated Balance from Prior Year Budget Authority (Net) (Note 12) $ 17,756 $ 9,119 $ 18,231 $ 15,027 

Appropriations (Discretionary and Mandatory) 244,680 350 118,519 - 

Borrowing Authority (Discretionary and Mandatory) (Note 12) - 135,589 - 148,493 

Spending Authority from Offsetting Collections (Discretionary and Mandatory) 191 65,762 424 57,521 

Total Budgetary Resources $ 262,627 $ 210,820 $ 137,174 $ 221,041 

STATUS OF BUDGETARY RESOURCES

New Obligations and Upward Adjustments (Total) $ 242,724 $ 188,098 $ 120,400 $ 202,717 

Unobligated Balance, End of Year:

Apportioned, Unexpired Accounts 16,446 - 13,581 - 

Unapportioned, Unexpired Accounts 1,822 22,722 1,883 18,324 

Unexpired Unobligated Balance, End of Year $ 18,268 $ 22,722 $ 15,464 $ 18,324 

Expired Unobligated Balance, End of Year 1,635 - 1,310 - 

Unobligated Balance, End of Year (Total) $ 19,903 $ 22,722 $ 16,774 $ 18,324 

Total Status of Budgetary Resources $ 262,627 $ 210,820 $ 137,174 $ 221,041 

OUTLAYS, NET, AND DISBURSEMENTS, NET

Outlays, Net (Discretionary and Mandatory) $ 218,025 $ 116,636 

Distributed Offsetting Receipts (-) (Note 12) (13,610) (12,273)

Agency Outlays, Net (Discretionary and Mandatory) (Notes 12 & 13) $ 204,415 $ 104,363 

Disbursements, Net (Total) (Mandatory) $ (42,946) $ 40,102 
46 FY 2020 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION

Stafford loan. The other three loan programs are available 

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

to meet qualified educational expenses. 

The FFEL program, authorized by the HEA, operates 

through state and private nonprofit guaranty agencies that 

provided loan guarantees on loans made by private lenders 

to eligible students. The SAFRA Act, which was included 

in the Health Care and Education Reconciliation Act of 

2010, stated that no new FFEL loans would be made 

effective July 1, 2010. FFEL program receivables include 

defaulted FFEL loans and acquired FFEL loans. Acquired 

FFEL loans include student loan assets acquired using 

temporary authority provided in the Ensuring Continued 

Access to Student Loans Act of 2008 (ECASLA). ECASLA 

gave the Department temporary authority to purchase 

FFEL loans and participation interests in those loans. 

The Department implemented three activities under this 

authority: loan purchase commitments; purchases of loan 

participation interests; and a put, or forward purchase 

commitment, with an Asset-Backed Commercial Paper 

(ABCP) Conduit. This authority expired after September 

30, 2010; as a 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 include the Historically 

Black Colleges and Universities (HBCU) Capital 

Financing program, along with low-interest loans to 

institutions of higher education (IHEs) 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, 

Federal Pell Grant (Pell Grant), and the Individuals with 

Disabilities Education Act (IDEA) grants. In addition, 

the Department offers other discretionary grants under 

FINANCIAL SECTION | NOTES TO THE FINANCIAL STATEMENTS

NOTES TO THE FINANCIAL STATEMENTS FOR THE YEARS 

ENDED SEPTEMBER 30, 2020 AND SEPTEMBER 30, 2019

NOTE 1. Summary of Significant 

Accounting Policies

REPORTING ENTITY AND PROGRAMS

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

a cabinet-level agency of the executive branch of the 

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

Department of Education Organization Act (Public Law 96-

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

of the Department is to promote student achievement 

and preparation for global competitiveness by fostering 

educational excellence and ensuring equal access. 

The Department is a component of the U.S. Government. 

For this reason, some of the assets and liabilities reported 

by the Department may be eliminated for Governmentwide reporting because they are offset by assets and 

liabilities of another U.S. Government entity. These 

financial statements should be read with the realization 

that they are for a component of the U.S. Government, a 

sovereign entity. 

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, Parent Loan for Undergraduate Students (PLUS), 

and Consolidation. Evidence of financial need is required 

for an undergraduate student to receive a subsidized 
NOTES TO THE FINANCIAL STATEMENTS | FINANCIAL SECTION

FY 2020 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION 47

 Work-study payments, which will continue even if 

students can no longer work on-site.

 Pell Grants, financial aid, and loans originated for this 

term, which students who have had to leave college 

campuses will not have to pay back. Moreover, none 

of this aid will count against students’ financial aid 

lifetime limits.

 Waiving Satisfactory Academic Progress requirements 

will help to ensure that students do not lose academic 

standing and the ability to receive federal financial 

student aid.

 Tax credits that incentivize employers to help pay for 

student loans.

PROGRAM OFFICES

The Department has three major program offices that 

administer most of its loan and grant programs: 

 Federal Student Aid (FSA) administers financial 

assistance programs for students pursuing 

postsecondary education and makes available federal 

grants, direct loans, and work-study funding to eligible 

undergraduate and graduate students.

 The Office of Elementary and Secondary Education 

(OESE) assists state education agencies (SEAs) and local 

educational agencies (LEAs) to improve the achievement 

of preschool, elementary, and secondary school students, 

helps ensure equal access to services leading to such 

improvement—particularly children with high needs, 

and provides financial assistance to LEAs whose local 

revenues are affected by federal activities.

 The Office of Special Education and Rehabilitative 

Services (OSERS) supports programs that help provide 

early intervention and special education services to 

children and youth with disabilities. OSERS also 

supports programs for the vocational rehabilitation 

of youth and adults with disabilities, including 

preemployment transition services and other transition 

services designed to assist students with disabilities to 

enter postsecondary education and achieve employment.

Other offices that administer programs and provide 

leadership, technical assistance, and financial support to 

state and LEAs and IHEs for reform, strategic investment, 

and innovation in education include: the Office of 

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)

COVID-19. Congress has passed three coronavirus 

disease 2019 (COVID-19) relief bills: the Coronavirus 

Preparedness and Response Supplemental Appropriations 

Act of 2020: the Families First Coronavirus Response Act: 

and the Coronavirus Aid, Relief, and Economic Security 

(CARES) Act. The CARES Act totaled roughly $2 trillion 

dollars and included $31 billion for educational purposes. 

The Department was tasked with promptly disbursing 

these funds through a variety of grant programs, while 

ensuring the transparency and accountability of every 

dollar spent.

The largest component of this funding established a 

$30.75 billion state stabilization fund for K-12 and higher 

education. This fund is comprised of categories including 

(1) the Elementary and Secondary School Emergency 

Relief Fund, (2) the Higher Education Emergency Relief 

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

Fund, and (4) funds provided for Minority Serving 

Institutions (MSIs), Historically Black Colleges and 

Universities, and Schools serving low-income students. All 

of the Education Stabilization Fund is being distributed 

to recipients through various grant programs. The 

Department transferred $154 million of the fund to the 

Department of the Interior to be administered by the 

Bureau of Indian Education. (See Notes 3, 10, & 11)

The CARES Act also provides support for student loan 

borrowers primarily by suspending nearly all federal loan 

payments until September 30, interest free. The Department 

extended certain provisions of the student loan deferrals not 

covered by the CARES Act to defaulted guaranteed loans 

held by the Department. The Administration subsequently 

issued a Presidential Memorandum which extended the 

student loan deferrals for an additional three months 

through December 31, 2020. The Department also stopped 

all federal wage garnishments and collection actions for 

borrowers with federally held loans in default. Funding 

for the student debt provisions of the CARES Act and the 

Presidential Memorandum are provided through indefinite 

appropriations. (See Notes 5, 10 and 11) 

Other regulatory flexibilities and incentives provided in the 

CARES Act to help students through COVID-19 include:

 Federal Supplemental Educational Opportunity Grants 

(SEOG) to provide emergency aid to students.
FINANCIAL SECTION | NOTES TO THE FINANCIAL STATEMENTS

48 FY 2020 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION

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 the Department of Treasury (Treasury) 

and interest rates charged to particular borrowers is also 

subsidized (or may provide an offset to subsidy if the 

Department’s rate is less). 

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.

Subsidy cost 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 to the previous 

cost estimates for outstanding loans disbursed in prior 

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

estimates based on new legislation or other government 

actions that change the terms of existing loans (loan 

modifications) which alter the estimated subsidy cost and 

the present value of outstanding loans. Loan modifications 

can also include modification adjustment gains and losses 

to account for the difference between the discount rate 

used to calculate the cost of the modification and the 

interest rate at which the cohort pays or earns interest.

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.

Career, Technical, and Adult Education (OCTAE); 

Office of Postsecondary Education (OPE); Institute of 

Education Sciences (IES); and Office of English Language 

Acquisition (OELA). In addition, the Office for Civil 

Rights (OCR) works to ensure equal access to education, 

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)

BA SIS OF ACCOU NT I NG 

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 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 standards require all reporting entities 

to disclose that accounting standards allow certain 

presentations and disclosures to be modified, if needed, to 

prevent the disclosure of classified information.

ACCOU NT I NG FOR FEDER A L 

CR EDIT PROGR A MS 

The Department’s accounting for its loan and loan 

guarantee programs is based on the requirements of the 
NOTES TO THE FINANCIAL STATEMENTS | FINANCIAL SECTION

FY 2020 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION 49

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 8.2 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 borrower. Interest accrues 

while a loan is in deferment or forbearance. Loans are 

cancelled if a person dies, meets disability requirements, 

or occasionally 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.

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 

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 Notes 12 and 13) 

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 
FINANCIAL SECTION | NOTES TO THE FINANCIAL STATEMENTS

50 FY 2020 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION

current Budget of the United States Government presumes 

all programs continue in accordance with congressional 

budgeting rules. (See Note 12)

ENTITY AND NON-ENTITY ASSETS

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

Entity assets are those that the Department has authority 

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

held by the Department but not available for use in its 

operations. Non-entity assets are offset by liabilities to 

third parties and have no impact on net position. The 

Department combines its entity and non-entity assets on 

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

notes. (See Note 2)

FUND BALANCE WITH TREASURY

Fund Balance with Treasury includes amounts available to 

pay current liabilities and finance authorized purchases, 

as well as funds restricted until future appropriations 

are received. Treasury processes cash receipts and cash 

disbursements for the Department. The Department’s 

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

ACCOUNTS RECEIVABLE

Accounts receivable are amounts due to the Department 

from the public and other federal agencies. Receivables 

from the public result from overpayments to recipients 

of grants and other financial assistance programs, as well 

as disputed costs resulting from audits of educational 

assistance programs. Amounts due from federal agencies 

result from reimbursable agreements entered into by 

the Department with other agencies to provide various 

goods and services. Accounts receivable are reduced to net 

realizable value by an allowance for uncollectible amounts. 

The estimate of an allowance for loss on uncollectible 

accounts is based on the Department’s experience in the 

collection of receivables and an analysis of the outstanding 

balances. (See Note 4)

GUA R A N T Y AGE NCI E S’ 

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, 

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 prior-year 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, Federal Family Education Loan 

Program, and D, Federal Direct Student Loan, 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 
NOTES TO THE FINANCIAL STATEMENTS | FINANCIAL SECTION

FY 2020 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION 51

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)

PROPERT Y A ND EQU IPM ENT, 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 14)

LIABILITIES

Liabilities represent actual and estimated amounts to 

be paid as a result of transactions or events that have 

already occurred.

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 23 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)

CR E DIT PROGR A M R EC E I VA BL E S, 

NET A ND LI A BILIT IE S FOR 

LOA N GUA R A NT E E S 

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. 
FINANCIAL SECTION | NOTES TO THE FINANCIAL STATEMENTS

52 FY 2020 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION

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)

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)

PER SON NE L COMPENSAT ION A ND 

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 

 Liabilities are classified as covered by budgetary 

resources if budgetary resources are available to pay 

them. Credit program liabilities funded by permanent 

indefinite appropriations are also considered covered by 

budgetary resources. 

 Liabilities are classified as not covered by budgetary 

resources when congressional action is needed before 

they can be paid. Although future appropriations to 

fund these liabilities are likely, it is not certain that 

appropriations will be enacted to fund these liabilities. 

 Liabilities not requiring appropriated budgetary 

resources include those related to deposit funds, 

Subsidy Due to Treasury General Fund for Future 

Liquidating Account Collections (pre-1992 loan 

guarantee programs), and Federal Perkins Loan 

Program balances due to be repaid to the Treasury 

General Fund. (See Note 6) 

DEBT 

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) 

SU BSIDY DU E TO T R E A SU RY 

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 
NOTES TO THE FINANCIAL STATEMENTS | FINANCIAL SECTION

FY 2020 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION 53

those related to employee benefits are not included in the 

Department’s financial statements.

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. 

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)

Credit Program Subsidy Expense. Subsidy expense is 

an estimate of the present value cost of providing loans, 

excluding 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 re-estimates); 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.

3 percent and 5 percent of the employee’s basic pay. For 

FERS employees, the Department also contributes the 

employer’s share of Medicare.

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 30th, 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)

IMPUTED COSTS

Services are received from other federal entities at no cost 

or at a cost less than the full cost to the Department. 

Consistent with accounting standards, certain costs of 

the providing entity that are not fully reimbursed by 

the Department are recognized as imputed cost in the 

Statements of Net Cost and are offset by imputed revenue 

in the Statements of Changes in Net Position. Such 

imputed costs and revenues relate to employee benefits. 

However, unreimbursed costs of services other than 
FINANCIAL SECTION | NOTES TO THE FINANCIAL STATEMENTS

54 FY 2020 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION

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)

The Department’s estimates for credit programs are 

calculated using a series of assumption models that are 

updated using a statistically valid sample of National 

Student Loan Data System (NSLDS®) data, data from 

the Debt Management and Collection System, and 

economic assumptions provided by OMB. Actual 

results may differ from those assumptions and estimates. 

Differences between actual results and these estimates 

may occur in the valuation of credit program receivables 

and liabilities for loan guarantees under guidelines in 

the FCRA. The Department recognizes the sensitivity 

of credit reform modeling. Slight changes in modeling 

methodology or data used to derive assumptions can 

produce largely varied results. The Department therefore 

continually reviews its model factors and statistical 

modeling techniques to reflect the most accurate 

credit program costs possible in its annual financial 

statements. The Department updates its assumption 

models in accordance with its model update plan, which 

takes into consideration statutory or new program 

requirements, major changes to the model structure or 

methodology, and data updates. This level of granularity 

in the modeling methodology is essential to the 

financial reporting and budgeting processes so that the 

Department can forecast the costs of various program 

options when making policy decisions. (See Note 5)

R ECL A SSIFIC AT IONS 

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. 

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 with 

other Federal agencies as both a transferring (parent) entity 

and a receiving (child) entity. Allocation transfers are 

legal delegations by one entity of its authority to obligate 

budget authority and outlay funds to another entity. A 

separate fund account (allocation account) is created in the 

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 from which 

the underlying legislative authority, appropriations, and 

budget apportionments are derived.

The Department is a party to allocation transfers as a 

parent entity to the Department of the Interior and 

receives allocation transfers as a child entity from the 

Department of Health and Human Services. 

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.
NOTES TO THE FINANCIAL STATEMENTS | FINANCIAL SECTION

FY 2020 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION 55

 The FY 2019 Outlays, Net line of Combined Statements of Budgetary Resources was reclassified to present net 

disbursements associated with credit financing accounts on a separate Disbursements, Net line to conform to FY 2020 

changes in OMB Circular A-136.

 Note 13, Reconciliation of Net Cost to Net Outlays, was reclassified to exclude the credit financing account net 

disbursement amount that was reclassified on the Combined Statements of Budgetary Resources to conform to FY 2020 

changes in OMB Circular A-136.

NOTE 2. Non-Entity Assets

2020 2019

Intragovernmental With the Public Intragovernmental With the Public

Non-Entity Assets

Fund Balance with Treasury $ 233 $ - $ 294 $ - 

Credit Program Receivables, Net - 633 - 607 

Other Assets

 Guaranty Agencies’ Federal Funds - 1,943 - 1,956 

 Accounts Receivable, Net - 42 - 84 

Total Non-Entity Assets 233 2,618 294 2,647 

Entity Assets 135,906 1,170,629 104,690 1,203,065 

Total Assets $ 136,139 $ 1,173,247 $ 104,984 $ 1,205,712 

(Dollars in Millions)

The Department’s FY 2020 assets are predominantly entity assets (99.8 percent), leaving a small portion of assets 

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

accounts. Non-entity assets with the public primarily consist of guaranty agency reserves (74.2 percent), reported as 

Guaranty Agencies’ Federal Funds, and Federal Perkins Loan program loan receivables (24.2 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).
FINANCIAL SECTION | NOTES TO THE FINANCIAL STATEMENTS

56 FY 2020 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION

NOTE 3. Fund Balance with Treasury 

(Dollars in Millions)

2020 2019

COVID-19 Funds All Other Funds Total Total

Unobligated Balance

 Available $ 672 $ 15,774 $ 16,446 $ 13,578 

 Unavailable - 24,236 24,236 19,564 

Obligated Balance, Not Disbursed 18,944 124,403 143,347 127,291 

Authority Temporarily Precluded from Obligation - - - 1 

Borrowing Authority Not Yet Converted to Fund Balance with 

Treasury (Note 11) - (48,230) (48,230) (55,845)

Other - 216 216 329 

Total Fund Balance with Treasury $ 19,616 $ 116,399 $ 136,015 $ 104,918 

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 ($24.2 

billion) differs from unapportioned and expired amounts on the SBR ($26.1 billion) due to the Guaranty Agencies’ 

Federal Funds ($1.9 billion).

In FY 2020 and FY 2019, $305 and $405 million, respectively, of unused funds from canceled appropriations were 

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

with Treasury guidelines (see Note 12).

NOTE 4. Other Assets 

(Dollars in Millions)

2020 2019

Intragovernmental With the Public Intragovernmental With the Public

Guaranty Agencies’ Federal Funds $ - $ 1,943 $ - $ 1,956 

Accounts Receivable, Net 3 234 2 251 

Advances 120 32 64 35 

Property and Equipment, Net - 6 - 8 

Other 1 1 - 6 

Total Other Assets $ 124 $ 2,216 $ 66 $ 2,256 

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, 2020 related to criminal restitutions totaled $114 million and ($102) million, respectively.
NOTES TO THE FINANCIAL STATEMENTS | FINANCIAL SECTION

FY 2020 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION 57

2020

 Acquisition Value Accumulated Depreciation Net 

Balance Beginning of the Year $ 169 $ (161) $ 8 

Dispositions (2) 1 (1)

Depreciation Expense - (1) (1)

Balance At End of Year $ 167 (161) 6 

Property and Equipment 

(Dollars in Millions)

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 Net

2020

Direct Loan Program $ 1,224,816 $ 92,132 $ (216,404) $ 1,100,544 

FFEL Program 84,765 24,110 (41,495) 67,380 

Other Credit Programs for Higher Education 3,364 373 (630) 3,107 

Total Credit Program Receivables $ 1,312,945 $ 116,615 $ (258,529) $ 1,171,031 

2019

Direct Loan Program $ 1,164,883 $ 83,262 $ (124,438) $ 1,123,707 

FFEL Program 90,218 22,267 (35,718) 76,767 

Other Credit Programs for Higher Education 3,225 396 (639) 2,982 

Total Credit Program Receivables $ 1,258,326 $ 105,925 $ (160,795) $ 1,203,456 

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

costs. Funding for these programs is provided through permanent indefinite budget authority. The emergency relief 

measures provided by Congress and the Administration in response to the coronavirus pandemic were recorded as loan 

modifications and are described in each of the programs below. Per OMB guidance, loan modifications were calculated 

using the FY 2020 President’s Budget formulation discount rates. The net loans receivable or the value of assets related to 

direct loans is not the same as expected proceeds from selling the loans.

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

DIR EC T LOA N PROGR A M 

The federal government makes loans directly to students and parents through participating IHEs under the Direct Loan 

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

Direct Loan program loan receivables include defaulted and nondefaulted loans owned by the Department. Of the $1,317.0 

billion in gross loan receivables, as of September 30, 2020, $100.3 billion (7.6 percent) in loan principal was in default and 

had been transferred to the Department’s defaulted loan servicer, compared to $99.7 billion (8.0 percent) as of September 

30, 2019.

Changes in property and equipment balances for the current year were as follows:
FINANCIAL SECTION | NOTES TO THE FINANCIAL STATEMENTS

58 FY 2020 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION

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

(Dollars in Millions)

2020 2019

Interest Expense on Treasury Borrowing $ 34,705 $ 33,817 

Total Interest Expense $ 34,705 $ 33,817 

Interest Revenue from the Public 28,161 59,815 

Interest Revenue on Uninvested Funds 4,786 4,082 

Administrative Fees 163 210 

Amortization of Subsidy 1,595 (30,290)

Total Revenues $ 34,705 $ 33,817 

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 $30.4 billion during FY 2020 and $39.8 billion during FY 2019. The effect of the early 

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

that cohort.

Direct Loan Program Loan Disbursements by Loan Type

(Dollars in Millions)

2020 2019

Stafford 19,126 $ 19,984 

Unsubsidized Stafford 46,077 48,142 

PLUS 21,735 22,709 

Consolidation 30,427 39,829 

Total Disbursements $ 117,365 $ 130,664 
NOTES TO THE FINANCIAL STATEMENTS | FINANCIAL SECTION

FY 2020 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION 59

Direct Loan Program Subsidy Expense 

(Dollars in Millions)

2020 2019

Subsidy Expense for Direct Loans Disbursed in the Current Year

 Interest Rate Differential $ 19,022 $ 11,440 

 Defaults, Net of Recoveries 1,925 1,862 

 Fees (1,676) (1,720)

 Other (14,131) (14,563)

Total Subsidy Expense for Direct Loans Disbursed in the Current Year 5,140 (2,981)

Modifications and Re-estimates

Loan Modifications

 Modification Adjustment Transfer Gain (265) - 

 Modification Adjustment Transfer Loss 347 - 

 Loan Modifications 39,576 - 

 Total Loan Modifications 39,658 - 

Net Upward Subsidy Re-estimates

 Interest Rate Re-estimates (967) (981)

 Technical and Default Re-estimates 57,077 65,472 

 Total Net Upward Subsidy Re-estimates 56,110 64,491 

Total Modifications and Re-estimates 95,768 64,491 

Direct Loan Subsidy Expense $ 100,908 $ 61,510 

Subsidy Expense for Direct Loans Disbursed in the Current Year. The two major components of the total subsidy expense 

for direct loans disbursed in the current year (subsidy transfers) are Interest Rate Differential and Other Components. 

Interest rate differential is attributable to the difference between the borrowers’ interest payments due to the Department 

and the Department’s estimated cost to finance the direct loan on a present value basis. The Other Components of subsidy 

transfers primarily consists of contract collection costs, program review collections, fees, and loan forgiveness.

Loan Modifications. Loan modifications for the Direct Loan program for FY 2020 included the following:

 CARES Act. The CARES Act automatically suspended principal and interest payments and set interest rates to 0 percent 

on federally held student loans starting in March through September 30, 2020. The relief for borrowers resulted in an 

upward modification cost of $24.6 billion, with an additional $459 million for cancelled loans for students that did 

not complete the semester due to a qualifying emergency. There was a net positive $82 million modification adjustment 

transfer associated with this modification, bringing the total to $25.0 billion.

 Presidential Memorandum (“Memorandum on Continued Student Loan Payment Relief During the COVID-19 

Pandemic”). On August 8, 2020, the Administration issued a Presidential Memorandum that continued the temporary 

suspension of payments and the waiver of all interest on federally held student loans through December 31, 2020. 

The relief for borrowers resulted in an upward modification cost of $13.5 billion. There was a net negative $66 million 

modification adjustment transfer associated with this modification, bringing the total to $13.6 billion.

 Total and Permanent Disability. The Department recorded an upward modification for costs associated with the 

regulatory action to provide proactive discharge (unless the borrower elects to reject the discharge) to borrowers for 

whom the Department of Veterans Affairs provides information showing the borrower has a total and permanent 

disability. These discharges resulted in an upward modification cost of $1.0 billion. There was a net negative $98 million 

modification adjustment transfer associated with this modification, bringing the total to $1.1 billion.

Net Upward Subsidy Re-estimates for All Prior Year Loan Cohorts. The Direct Loan program subsidy re-estimate increased 

subsidy expense in FY 2020 by $56.1 billion. Re-estimated costs only include cohorts that are 90 percent disbursed (i.e., cohort 

years 1994–2019). The re-estimate reflects the assumption updates and other changes described below. 
FINANCIAL SECTION | NOTES TO THE FINANCIAL STATEMENTS

60 FY 2020 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION

Direct Loan Subsidy Rates—Cohort 2020

 Interest Differential Defaults Fees Other Total

Stafford 25.47% 2.61% -1.06% -12.99% 14.03%

Unsubsidized Stafford 19.27% 2.28% -1.06% -19.74% 0.75%

PLUS 8.16% 1.46% -4.24% -18.63% -13.25%

Consolidation 14.70% 1.16% 0.00% 4.88% 20.74%

Weighted Average Total 17.01% 1.88% -1.33% -11.66% 5.90%

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

during the current reporting year to yield the subsidy expense. The subsidy expense for new loans reported in the current year 

could result from disbursements of loans from both current year cohorts and prior years cohorts. The subsidy expense reported 

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

*

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

In addition to the major assumption updates described below, the re-estimate reflects several other assumption updates, 

including interest rates provided by OMB, loan volume, and contract collection costs. 

 IDR Model Changes (including PSLF). The Department completed a standard IDR data update to reflect the immediate 

prior cycle for defaults, prepayments and Death, Disability, and Bankruptcy (DDB). The DDB update includes 

adjustments for the Total Permanent Disability for Veterans regulation. In addition, an existing borrower income file 

was calibrated using an additional year of IDR application data through 2018. The additional year of borrower income 

data taken from IDR applications has been substantially lower than projected. As such, the Department reduced its 

projections of future borrower income by 35%, increasing costs associated with IDR. The Department also analyzed 

the actual PSLF approval rates and supplementary data. As a result of that analysis, the PSLF approval rate was adjusted 

downward for initial cohorts to better reflect the actual data. Trends indicate that there has been some improvement in 

PSLF approval rates over time as borrowers better understand the application process. PSLF estimates were revised to 

reflect the most recent borrower behavior and adjust the temporal element to ramp up PSLF forgiveness over time. The 

combined effect of these updates led to a net upward re-estimate of $35.5 billion. 

 Repayment Plans. The Department updated the data and made an adjustment to exclude special consolidation of FFEL 

loans in FY 2012 and FY 2013 from the model. These loans are modeled separately and were less likely to enroll in 

income dependent repayment plans than typical consolidation loans. The combined effect of these changes led to a net 

upward re-estimate of $6.5 billion.

 Default. In addition to the adjustments for the CARES Act, the Department updated the data and incorporated actual 

unemployment rates from the Bureau of Labor Statistics through June 2020. The combined effect of these changes led to 

a net upward re-estimate of $1.8 billion.

 2019 Cohort Assumption Changes. The technical re-estimate cannot reflect the impacts of certain assumption changes 

applicable to the current year loan cohort until the following fiscal year per OMB guidance. The current year’s reestimate includes a net upward adjustment of $4.8 billion for these current year assumption changes attributable to the 

FY 2019 cohort.

 Interest on the Re-estimate. Interest on re-estimates is the amount of interest that would have been earned or paid by 

each cohort on the subsidy re-estimate, if the re-estimated subsidy had been included as part of the original subsidy 

estimate. The interest on the re-estimate calculated on the overall subsidy re-estimate resulted in a net upward re-estimate 

of $5.9 billion.

 Interactive Effects. The re-estimate includes a net upward re-estimate of $1.5 billion attributed to the interactive effects 

of the assumption changes described above. Each assumption described above is run independently. The interactive effect 

is a result of combining all assumptions together to calculate the final re-estimate.
NOTES TO THE FINANCIAL STATEMENTS | FINANCIAL SECTION

FY 2020 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION 61

Direct Loan Program Reconciliation of Allowance for Subsidy 

(Dollars in Millions)

2020 2019

Beginning Balance of Allowance for Subsidy $ 124,438 $ 40,663 

Total Subsidy Expense for Direct Loans Disbursed in the Current Year 5,140 (2,981)

Adjustments

Loan Modifications 39,658 - 

Fees Received 1,609 1,693 

Loans Written Off (7,833) (9,096)

Subsidy Allowance Amortization (1,595) 30,290 

Other Activities (1,123) (622)

Ending Balance of the Subsidy Cost Allowance Before Re-estimates 160,294 59,947 

Net Upward Subsidy Re-estimates 56,110 64,491 

Ending Balance of Allowance for Subsidy $ 216,404 $ 124,438 

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 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 longterm 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 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 high percentage of borrowers in Income 

Driven 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.

Loans written off result from borrowers having died, becoming disabled, or declaring bankruptcy. The interest rate reestimate 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. 

FEDERAL FAMILY EDUCATION LOAN PROGRAM.

FFEL was established in FY 1965 and is a guaranteed loan program. As a result of the Student Aid and Fiscal Responsibility 

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.

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.
FINANCIAL SECTION | NOTES TO THE FINANCIAL STATEMENTS

62 FY 2020 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION

FFEL Program Loan Receivables 

(Dollars in Millions)

Principal Accrued Interest

Allowance for 

Subsidy 

(Present Value)

Net

2020

DEFAULTED FFEL GUARANTEED LOANS

FFEL GSL Program (Pre-1992) $ 3,627 $ 5,809 $ (8,249) $ 1,187 

FFEL GSL Program (Post-1991) 33,057 9,121 (22,286) 19,892 

Total Defaulted FFEL Guaranteed Loans 36,684 14,930 (30,535) 21,079 

ACQUIRED FFEL LOANS

Loan Purchase Commitment 16,009 2,797 (4,102) 14,704 

Loan Participation Purchase 30,683 6,005 (6,424) 30,264 

ABCP Conduit 1,389 378 (434) 1,333 

Total Acquired FFEL Loans 48,081 9,180 (10,960) 46,301 

FFEL Program Loan Receivables $ 84,765 $ 24,110 $ (41,495) $ 67,380 

2019

DEFAULTED FFEL GUARANTEED LOANS

FFEL GSL Program (Pre-1992) $ 3,729 $ 5,858 $ (8,776) $ 811 

FFEL GSL Program (Post-1991) 33,780 8,561 (20,113) 22,228 

Total Defaulted FFEL Guaranteed Loans 37,509 14,419 (28,889) 23,039 

ACQUIRED FFEL LOANS

Loan Purchase Commitment 17,536 2,519 (2,531) 17,524 

Loan Participation Purchase 33,696 4,983 (3,843) 34,836 

ABCP Conduit 1,477 346 (455) 1,368 

Total Acquired FFEL Loans 52,709 7,848 (6,829) 53,728 

FFEL Program Loan Receivables $ 90,218 $ 22,267 $ (35,718) $ 76,767 

As of September 30, 2020, the total principal value of guaranteed loans outstanding and the amount of that principal which 

is guaranteed is approximately $128.9 billion. 

Additionally, the FFEL program guarantees outstanding interest balances. As of September 30, 2020, the interest balances 

outstanding for guaranteed loans held by lenders was approximately $4.6 billion. 

The Department’s total FFEL program guarantees (principal and interest) are approximately $133.5 billion as of September 

30, 2020. Of the total guaranteed amount, the Department would expect to pay a smaller amount to the guaranty agencies. 

The guarantee rates range from 75 to 100 percent of the principal and interest balance depending on the type of claim, 

when the loan was made, and the guaranty agency’s claim experience. For purposes of disclosing the Department’s total risk 

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

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

FFEL Guaranteed Loans Outstanding

(Dollars in Billions)

2020

Outstanding Principal of Guaranteed Loans, Face Value $ 128.9 

Amount of Outstanding Principal Guaranteed $ 128.9 
NOTES TO THE FINANCIAL STATEMENTS | FINANCIAL SECTION

FY 2020 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION 63

FFEL Program Subsidy Expense 

(Dollars in Millions)

2020 2019

Loan Modification Costs

FFEL Guaranteed Loan Program

 Net Modification Adjustment Transfer (Gain)/Loss $ (9) $ - 

 Loan Modifications 835 - 

 Total FFEL Guaranteed Loan Program Loan Modifications 826 - 

Loan Purchase Commitment

 Net Modification Adjustment Transfer (Gain)/Loss (7) - 

 Loan Modifications 958 - 

 Total Loan Purchase Commitment Loan Modifications 951 - 

Loan Participation Purchase

 Net Modification Adjustment Transfer (Gain)/Loss (10) - 

 Loan Modifications 1,658 - 

 Total Loan Participation Purchase Loan Modifications 1,648 - 

Total Loan Modification Costs 3,425 - 

Upward/(Downward) Subsidy Re-estimates

 FFEL Loan Guarantee Program (3,451) 6,866 

 Loan Purchase Commitment 802 2,144 

 Loan Participation Purchase 1,376 3,644 

Total FFEL Program Subsidy Re-estimates (1,273) 12,654 

FFEL Program Subsidy Expense $ 2,152 $ 12,654 

Loan Modifications. Loan modifications for the FFEL Loan program for FY 2020 included the following:

 CARES Act. The CARES Act automatically suspended principal and interest payments and set interest rates to 0 percent 

on federally held student loans, including loans purchased under ECASLA, starting in March through September 30, 

2020. The relief for borrowers resulted in a net upward modification cost of $1,775 million that included a positive 

modification transfer of $15 million. 

 Presidential Memorandum (“Memorandum on Continued Student Loan Payment Relief During the COVID-19 

Pandemic”). On August 8, 2020, the Administration issued a Presidential Memorandum that continued the temporary 

suspension of payments and the waiver of all interest on federally held student loans through December 31, 2020. The 

relief for borrowers resulted in an upward modification cost of $1,051 million that included a positive modification 

transfer of $9 million.

 Secretary’s Discretion. The Department extended certain provisions of the student loan deferrals not covered by the 

CARES Act to defaulted guaranteed loans held by the Department, resulting in an upward modification cost of $492 

million that included a positive modification adjustment transfer of $4 million.

 Total and Permanent Disability. The Department recorded an upward modification for costs associated with the regulatory 

action to provide proactive discharge (unless the borrower elects to reject the discharge) to borrowers for whom the 

Department of Veterans Affairs provides information showing the borrower has a total and permanent disability. These 

discharges resulted in an upward modification cost of $127 million across the FFEL and ECASLA programs.

Net Downward Subsidy Re-estimates. The FFEL subsidy re-estimate decreased subsidy expense in FY 2020 by $1.3 

billion. The net downward re-estimates in these programs were due primarily to interest rates provided by OMB used in the 

calculation of special allowance payments, updated disability discharges, and prepayment rates.
FINANCIAL SECTION | NOTES TO THE FINANCIAL STATEMENTS

64 FY 2020 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION

FFEL Program Reconciliation of Liabilities for Loan Guarantees 

(Dollars in Millions)

2020 2019

Beginning Balance of Post-1991 FFEL Loan Guarantee Liability $ 5,205 $ 2,591 

Adjustments

 Loan Modifications 826 - 

 Interest Supplements Paid (757) (1,332)

 Claim Payments to Lenders (4,285) (5,583)

 Fees Received 1,215 1,385 

 Interest on Accumulation on the Liability Balance (1,064) (1,096)

 Other Activities 3,195 2,374 

 Net Upward/(Downward) Subsidy Re-estimates (3,451) 6,866 

Ending Balance of Post-1991 FFEL Loan Guarantee Liability 884 5,205 

Pre-1992 FFEL Liquidating Account Liability for Loan Guarantees 1 1 

FFEL Liabilities for Loan Guarantees $ 885 $ 5,206 

Liabilities for Loan Guarantees is included as a component of other liabilities on the balance sheets (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

2020

Beginning Balance of Allowance for Subsidy $ 2,531 $ 3,843 $ 455 $ 6,829 

Adjustments

 Loan Modifications 951 1,648 - 2,599 

 Subsidy Allowance Amortization 3 (89) - (86)

 Loan Written Off (140) (271) (16) (427)

 Other Activities (45) (83) (5) (133)

Ending Balance of Allowance for Subsidy Before Re-estimates $ 3,300 $ 5,048 $ 434 $ 8,782 

Net Upward Subsidy Re-estimates 802 1,376 - 2,178 

Ending Balance of Allowance for Subsidy $ 4,102 $ 6,424 $ 434 $ 10,960 

2019

Beginning Balance of Allowance for Subsidy $ 21 $ (458) $ 426 $ (11)

Adjustments

 Subsidy Allowance Amortization 571 1,027 52 1,650 

 Loan Written Off (165) (308) (18) (491)

 Other Activities (40) (62) (5) (107)

Ending Balance of Allowance for Subsidy Before Re-estimates $ 387 $ 199 $ 455 $ 1,041 

Net Upward Subsidy Re-estimates 2,144 3,644 - 5,788 

Ending Balance of Allowance for Subsidy $ 2,531 $ 3,843 $ 455 $ 6,829 
NOTES TO THE FINANCIAL STATEMENTS | FINANCIAL SECTION

FY 2020 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION 65

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

2020

Federal Perkins Loans $ 615 $ 202 $ (184) $ 633 

TEACH Program Loans 764 88 (182) 670 

HEAL Program Loans 396 29 (38) 387 

Facilities Loan Programs 1,589 54 (226) 1,417 

Total $ 3,364 $ 373 $ (630) $ 3,107 

2019

Federal Perkins Loans $ 532 $ 235 $ (160) $ 607 

TEACH Program Loans 764 99 (247) 616 

HEAL Program Loans 396 33 (34) 395 

Facilities Loan Programs 1,533 29 (198) 1,364 

Total $ 3,225 $ 396 $ (639) $ 2,982 

Federal Perkins Loan Program. Loans made through the Federal Perkins Loan program were low-interest federal student 

loans for undergraduate and graduate students with exceptional financial needs. Schools made these Perkins loans to their 

students and are responsible for servicing the loans throughout the repayment term. Borrowers who undertake certain 

public, military, or teaching service employment are eligible to have all or part of their loans cancelled. 

The Perkins Loan program was a revolving loan program where the loan repayments collected from former students were 

utilized to make new loans to current students. The Department provided most of the capital used by schools to make 

these loans to eligible students. Participating schools provided the remaining program funding. In some statutorily defined 

cases, funds were provided by the Department to reimburse schools for loan cancellations. The above schedule includes only 

Perkins loans which were assigned to the Department when schools discontinued their participation in the program. For 

these assigned Perkins loans, collections of principal, interest, and fees, net of amounts paid to cover contract collection costs 

totaled $38 million and $80 million for FY 2020 and FY 2019, respectively.

The Federal Perkins Loan Program Extension Act of 2015 (Extension Act) eliminated the authorization for schools to make 

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

Prior to the authority for new Perkins loans ending, collections made by the schools would go back into each school’s 

Perkins fund to be utilized to make more loans. Schools are required to return to the Department the federal share of any 

excess beyond what is needed (excess liquid capital). 

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

continue to take in collections and are required to return the federal share of the capital that is collected to the Department 

on an annual basis. Schools returned $1,279 million and $10 million to the Department in FY 2020 and FY 2019, 

respectively, for the federal share of collected cash. 

Schools will continue to service outstanding Perkins loans to recover the money they contributed to their Perkins funds for 

as long as it is feasible to do so or until the eventual wind-down of their portfolios. Schools that liquidate and close out their 

programs must transfer any outstanding portfolio to the Department and liquidate any final cash. Most recent data from 

the 2018-2019 reporting year shows a $5.2 billion outstanding principal balance on Perkins loans held by schools, and the 

Department’s equity interest on this portfolio is $4.3 billion.

The amounts collected by the Department annually for defaulted Perkins loans and for the return of the federal share of 

schools’ Perkins capital contributions are returned to the Treasury General Fund (see Note 12).
FINANCIAL SECTION | NOTES TO THE FINANCIAL STATEMENTS

66 FY 2020 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION

TEACH Subsidy Rates—Cohort 2020

Interest Differential Defaults Fees Other Total

Subsidy Rates 70.46% 0.35% 0.00% -41.88% 28.93%

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. The 

relief for borrowers provided by the Executive Action and the Department’s extension of the CARES Act provisions for loan 

deferrals resulted in upward modification costs of $1 million and $2 million, respectively.

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

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

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

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

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

and interest on bonds for loans in default. 

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

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

approximately $1.5 billion in outstanding borrowing from the FFB to support loans made to HBCU institutions and $453 

million obligated to support near term lending as of September 30, 2020.

The CARES Act authorized the Secretary to grant a deferment to HBCU institutions that have loans under the HBCU 

Capital Financing for the duration of the national emergency period. The relief for HBCU institutions provided by the 

CARES Act resulted in an upward modification cost of $32 million.

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

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

IHEs for the construction, reconstruction, and renovation of housing, academic, and other educational facilities.

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

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

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

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

requirement, the grants are converted to direct unsubsidized Stafford Loans. The relief for borrowers provided by the CARES 

Act and Executive Action loan deferrals resulted in upward modification costs of $11 million and $5 million, respectively. 

The regulatory action to provide Total and Permanent Disability discharges resulted in an upward modification of less than 

$0.1 millions.

*

 The Other component reflects costs associated with loan cancellations and the interactive effects of payment plans on the components of subsidy.
NOTES TO THE FINANCIAL STATEMENTS | FINANCIAL SECTION

FY 2020 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION 67

NOTE 6. Liabilities Not Covered by Budgetary Resources 

(Dollars in Millions)

2020 2019

Intragovernmental With the Public Intragovernmental With the Public

Liabilities Not Covered by Budgetary Resources

 Other Liabilities

 Accrued Unfunded Annual Leave $ - $ 47 $ - $ 35 

 FECA Liabilities 2 13 3 11 

Total Liabilities Not Covered by Budgetary Resources 2 60 3 46 

Liabilities Not Requiring Budgetary Resources

 Subsidy Due to Treasury General Fund 1,451 - 1,239 - 

 Federal Perkins Loan Program 619 - 593 - 

 Miscellaneous Receipt, Deposit Funds and Clearing Accounts 36 239 123 303 

Total Liabilities Not Requiring Budgetary Resources 2,106 239 1,955 303 

Total Liabilities Covered by Budgetary Resources 1,255,189 6,859 1,300,035 11,864 

Total Liabilities $ 1,257,297 $ 7,158 $ 1,301,993 $ 12,213 

NOTE 7. Debt

(Dollars in Millions)

Beginning Balance Borrowing Repayments Accrued Interest Ending Balance

2020

Debt to Treasury

 Direct Loan Program $ 1,192,138 $ 116,883 $ (148,922) $ - $ 1,160,099 

 FFEL Program 94,671 10,997 (16,682) - 88,986 

 Other Credit Programs for Higher Education 702 154 (72) - 784 

 Total Debt to Treasury 1,287,511 128,034 (165,676) - 1,249,869 

Debt to the Federal Financing Bank

 Other Credit Programs for Higher Education 1,482 165 (142) 13 1,518 

Total $ 1,288,993 $ 128,199 $ (165,818) $ 13 $ 1,251,387 

2019

Debt to Treasury

 Direct Loan Program $ 1,150,610 $ 137,583 $ (96,055) $ - $ 1,192,138 

 FFEL Program 107,261 - (12,590) - 94,671 

 Other Credit Programs for Higher Education 609 123 (30) - 702 

 Total Debt to Treasury 1,258,480 137,706 (108,675) - 1,287,511 

Debt to the Federal Financing Bank

 Other Credit Programs for Higher Education 1,473 74 (65) - 1,482 

Total $ 1,259,953 $ 137,780 $ (108,740) $ - $ 1,288,993 

The Department borrows from Treasury’s Bureau of the Public Debt and the Federal Financing Bank to fund the 

disbursement of new loans and the payment of credit program outlays and related costs. During FY 2020, debt decreased 

2.9 percent from $1,289.0 billion in the prior year to $1,251.4 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 92.7 percent of the Department’s debt, as of September 30, 2020, 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.
FINANCIAL SECTION | NOTES TO THE FINANCIAL STATEMENTS

68 FY 2020 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION

NOTE 9. Other Liabilities

(Dollars in Millions)

2020 2019

Intragovernmental With the Public Intragovernmental With the Public

Accounts Payable $ - $ 3,773 $ - $ 3,765 

Accrued Grant Liability - 1,939 - 2,637 

Guaranty Agencies’ Funds Due to Treasury 1,943 - 1,956 - 

Loan Guarantee Liability - 1,123 - 5,436 

Federal Perkins Loan Program 619 - 593 - 

Miscellaneous Receipt, Deposit Funds and Clearing Accounts 36 239 123 303 

Advances from Others and Deferred Credits 2 - 3 8 

Accrued Unfunded Annual Leave - 47 - 35 

FECA Liabilities 2 13 3 11 

Accrued Payroll and Benefits - 23 - 17 

Employer Contributions and Payroll Taxes 8 1 7 1 

Custodial Liabilities 2 - 1 - 

Total Other Liabilities $ 2,612 $ 7,158 $ 2,686 $ 12,213 

NOTE 8. Subsidy Due to Treasury General Fund 

(Dollars in Millions)

2020 2019

Credit Program Downward Subsidy Re-estimates

 Direct Loan Program $ 1,773 $ 2,718 

 FFEL Program 74 6,345 

Total Credit Program Downward Subsidy Re-estimates 1,847 9,063 

Future Liquidating Account Collections

 FFEL Program 1,436 1,239 

 Other Credit Programs for Higher Education 15 -

Total Future Liquidating Account Collections 1,451 1,239 

Total Subsidy Due to Treasury General Fund $ 3,298 $ 10,302 

During FY 2020, TEACH net borrowing of $59 million was used for the advance of new grants and repayments of 

principal made to Treasury. In FY 2020, debt in HBCU increased by $85 million, or 5.7 percent. This total represents the 

aggregate of new bonds administered and repayments made on previously issued bonds.
NOTES TO THE FINANCIAL STATEMENTS | FINANCIAL SECTION

FY 2020 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION 69

NOTE 10. 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 as shown below. Goals 3 and 4 in the 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. Programs associated with COVID-19 activities are administered by multiple program offices but are 

summarized separately. (See also Note 11)

Program Offices Strategic Goal Net Cost Program

NET COST STATEMENT PROGRAM ALIGNMENT WITH STRATEGIC PLAN

OESE 

OSERS 

Other: 

 OCTAE

 IES

 OELA

 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: 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
FINANCIAL SECTION | NOTES TO THE FINANCIAL STATEMENTS

70 FY 2020 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION

Gross Costs and Earned Revenue by Program 

(Dollars in Millions)

2020

FSA OESE OSERS COVID-19 Other Total

IMPROVE LEARNING OUTCOMES FOR ALL P–12 STUDENTS

Gross Cost

 Grants $ - $ 22,544 $ 12,801 $ 1,839 $ 2,145 $ 39,329 

 Other - 67 - - 749 816 

Earned Revenue - - - - (129) (129)

Net Program Costs - 22,611 12,801 1,839 2,765 40,016 

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

PRODUCTIVE CITIZENRY

Direct Loan Program

 Gross Cost

 Credit Program Interest Expense 34,705 - - - - 34,705 

 Subsidy Expense 62,348 - - 38,825 - 101,173 

 Administrative Expenses 1,425 - - - - 1,425 

 Earned Revenue

 Subsidy Expense (2) - - (263) - (265)

 Interest & Administrative Fees (33,110) - - - - (33,110)

 Subsidy Amortization (1,595) - - - - (1,595)

Net Cost of Direct Loan Program 63,771 - - 38,562 - 102,333 

FFEL Program

 Gross Cost

 Credit Program Interest Expense 4,021 - - - - 4,021 

 Subsidy Expense (1,145) - - 3,325 - 2,180 

 Subsidy Amortization (Guaranteed Loans) (1,064) - - - - (1,064)

 Guaranty Agencies 126 - - - - 126 

 Administrative Expenses 156 - - - - 156 

 Earned Revenue

 Subsidy Expense (1) - - (27) - (28)

 Interest & Administrative Fees (2,871) - - - - (2,871)

 Subsidy Amortization (Acquired FFEL Loans) (86) - - - - (86)

 Guaranty Agencies (123) - - - - (123)

Net Cost of FFEL Program (987) - - 3,298 - 2,311 

Other Credit Programs for Higher Education

 Gross Cost

 Credit Program Interest Expense 23 - - - 59 82 

 Subsidy Expense 9 - - 51 - 60 

 Administrative Expenses 2 - - - - 2 

 Earned Revenue

 Subsidy Expense - - - (2) - (2)

 Interest & Administrative Fees (26) - - - (52) (78)

 Subsidy Amortization 1 - - - (5) (4)

 Other (1,281) - - - (3) (1,284)

Net Cost of Other Credit Programs for Higher 

Education (1,272) - - 49 (1) (1,224)

Non-Credit Programs

 Gross Cost

 Grants 28,113 25 3,494 9,420 4,304 45,356 

 Other 348 - 3 10 270 631 

Earned Revenue - - - - (5) (5)

Net Cost of Non-Credit Programs 28,461 25 3,497 9,430 4,569 45,982 

Net Program Costs 89,973 25 3,497 51,339 4,568 149,402 

Total Program Gross Costs 129,067 22,636 16,298 53,470 7,527 228,998 

Total Program Earned Revenues (39,094) - - (292) (194) (39,580)

Net Cost of Operations $ 89,973 $ 22,636 $ 16,298 $ 53,178 $ 7,333 $ 189,418 
NOTES TO THE FINANCIAL STATEMENTS | FINANCIAL SECTION

FY 2020 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION 71

Gross Costs and Earned Revenue by Program 

(Dollars in Millions)

2019

FSA OESE OSERS Other Total

IMPROVE LEARNING OUTCOMES FOR ALL P–12 STUDENTS

Gross Cost

 Grants $ - $ 22,873 $ 12,630 $ 2,369 $ 37,872 

 Other - 74 2 784 860 

Earned Revenue - (5) - (37) (42)

Net Program Costs - 22,942 12,632 3,116 38,690 

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

PRODUCTIVE CITIZENRY

Direct Loan Program

 Gross Cost

 Credit Program Interest Expense 33,817 - - - 33,817 

 Subsidy Expense 61,510 - - - 61,510 

 Administrative Expenses 1,369 - - - 1,369 

 Earned Revenue

 Subsidy Expense - - - - - 

 Interest & Administrative Fees (64,107) - - - (64,107)

 Subsidy Amortization 30,290 - - - 30,290 

Net Cost of Direct Loan Program 62,879 - - - 62,879 

FFEL Program

 Gross Cost

 Credit Program Interest Expense 3,838 - - - 3,838 

 Subsidy Expense 12,654 - - - 12,654 

 Subsidy Amortization (Guaranteed Loans) (1,096) - - - (1,096)

 Guaranty Agencies 212 - - - 212 

 Administrative Expenses 151 - - - 151 

 Earned Revenue

 Subsidy Expense - - - - - 

 Interest & Administrative Fees (4,392) - - - (4,392)

 Subsidy Amortization (Acquired FFEL Loans) 1,650 - - - 1,650 

 Guaranty Agencies (128) - - - (128)

Net Cost of FFEL Program 12,889 - - - 12,889 

Other Credit Programs for Higher Education

 Gross Cost

 Credit Program Interest Expense 22 - - 37 59 

 Subsidy Expense (4) - - 48 44 

 Administrative Expenses 2 - - 16 18 

 Earned Revenue

 Subsidy Expense

 Interest & Administrative Fees (50) - - (49) (99)

 Subsidy Amortization 28 - - 12 40 

 Other (111) - - (1) (112)

Net Cost of Other Credit Programs for Higher Education (113) - - 63 (50)

Non-Credit Programs

 Gross Cost

 Grants 32,208 24 3,559 4,092 39,883 

 Other 182 - 3 263 448 

Earned Revenue - - (1) (9) (10)

Net Cost of Non-Credit Programs 32,390 24 3,561 4,346 40,321 

Net Program Costs 108,045 24 3,561 4,409 116,039 

Total Gross Costs 144,865 22,971 16,194 7,609 191,639 

Total Earned Revenues (36,820) (5) (1) (84) (36,910)

Net Cost of Operations $ 108,045 $ 22,966 $ 16,193 $ 7,525 $ 154,729 
FINANCIAL SECTION | NOTES TO THE FINANCIAL STATEMENTS

72 FY 2020 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION

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

2020

Direct Loan Program $ 34,705 $ - $ 34,705 $ 4,786 $ 28,324 $ 1,595 $ 34,705 

FFEL Program 4,021 (1,064) 2,957 1,435 1,436 86 2,957 

Other Credit Programs for 

Higher Education 82 - 82 14 64 4 82 

Total $ 38,808 $ (1,064) $ 37,744 $ 6,235 $ 29,824 $ 1,685 $ 37,744 

2019

Direct Loan Program $ 33,817 $ - $ 33,817 $ 4,082 $ 60,025 $ (30,290) $ 33,817 

FFEL Program 3,838 (1,096) 2,742 905 3,487 (1,650) 2,742 

Other Credit Programs for 

Higher Education 59 - 59 11 88 (40) 59 

Total $ 37,714 $ (1,096) $ 36,618 $ 4,998 $ 63,600 $ (31,980) $ 36,618 

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.
NOTES TO THE FINANCIAL STATEMENTS | FINANCIAL SECTION

FY 2020 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION 73

2020 2019

IMPROVE LEARNING OUTCOMES FOR ALL P–12 STUDENTS

CARES Act $ 1,839 $ - 

Education for the Disadvantaged 15,750 16,318 

Special Education—IDEA Grants 12,801 12,630 

School Improvement Programs 4,755 4,477 

Impact Aid 1,466 1,420 

Innovation and Improvement 907 945 

English Language Acquisition 676 749 

Career, Technical, and Adult Education 383 480 

Hurricane Education Recovery 253 345 

Institute of Education Sciences 179 195 

Other 320 313 

 Subtotal 39,329 37,872 

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

PRODUCTIVE CITIZENRY

 CARES Act $ 9,420 $ - 

 Student Financial Assistance

 Pell Grants 25,882 30,530 

 Federal Work-Study Program 1,203 1,030 

 Federal Supplemental Educational Opportunity Grants 1,028 648 

 Rehabilitation Services 3,133 3,210 

 Higher Education 2,738 2,528 

 Career, Technical, and Adult Education 1,284 1,282 

 Special Education—IDEA Grants 118 124 

 Hurricane Education Recovery 25 24 

 Institute of Education Sciences 42 45 

 Other 483 462 

 Subtotal 45,356 39,883 

Total Grant Costs $ 84,685 $ 77,755 

Grant Expenses by Appropriation

(Dollars in Millions)

The Department has more than 100 grant programs. Descriptions of CARES Act funded grant programs are provided in 

Note 11. Descriptions of non-CARES Act major grant program areas 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 percent of a student’s hourly wage, with the remaining 25 

percent 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.
FINANCIAL SECTION | NOTES TO THE FINANCIAL STATEMENTS

74 FY 2020 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION

Career, Technical, and Adult Education—includes 

programs that are related to adult education and literacy, 

career and technical education, community colleges and 

correctional education.

Impact Aid—provides funds to LEAs 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 LEAs 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 discretionary 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. 

Hurricane Education Recovery—provides onetime emergency-relief grants, funded by supplemental 

appropriations acts enacted in response to specific events, 

to support schools and students directly affected by natural 

disasters. Assists students displaced or disrupted by such 

disasters as well as eligible agencies and institutions that 

require funding to cover unexpected expenses and return to 

normal operations. 

Institute of Education Sciences—provides funding to: 

support research, development, and dissemination activities 

that provide parents, teachers, and schools with evidencebased 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.

Education for the Disadvantaged—primarily consists 

of grants that provide financial assistance through SEAs to 

LEAs 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 IHEs 

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 SEAs 

to make competitive subgrants to LEAs 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 IHEs, with an emphasis on 

institutions that enroll large proportions of minority and 

financially disadvantaged students. Also includes Student 

Service grant programs supporting low-income, firstgeneration 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 childcare, 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.
NOTES TO THE FINANCIAL STATEMENTS | FINANCIAL SECTION

FY 2020 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION 75

NOTE 11. COVID-19 Activity 

(Dollars in Millions)

FY 2020

Appropriation Appropriation 

Transfer Obligated Unobligated Outlays Transfers to 

General Fund

Net Costs 

(See Note 10)

CARES Act

 Education Stabilization Fund

 Elementary and Secondary School 

Emergency Relief Fund $ 13,229 $ - $ 13,229 $ - $ 1,552 $ - $ 1,552 

 Higher Education Emergency Relief 

Fund

 Higher Education Funds to Students 6,279 - 6,188 91 5,382 - 5,396 

 Higher Education Funds to 

Institutions 6,279 - 6,127 152 3,320 - 3,387 

 MSIs 

 Minority Serving Institutions 270 - 265 5 66 - 66 

 Historically Black Colleges & 

Universities 577 - 577 - 161 - 161 

 Tribally Controlled Colleges and 

Universities 50 - 50 - 17 - 17 

 Strengthening Institutions 

Program 149 - 141 8 43 - 43 

 Fund for the Improvement of 

Postsecondary Education 349 - 145 204 64 - 65 

 Governor’s Emergency Education 

Relief Fund 2,953 - 2,905 48 535 - 536 

 Outlying Areas 154 - 154 - 21 - 21 

 Bureau of Indian Education 154 (154) - - - - - 

 Discretionary Grants 307 - 307 - - - - 

 Total Education Stabilization Fund 30,750 (154) 30,088 508 11,161 - 11,244 

 Safe Schools & Citizenship Education 100 - - 100 - - - 

 Gallaudet University 7 - 7 - 2 - 2 

 Howard University 13 - 13 - 13 - 13 

 HBCU Loan Deferment 62 - 32 30 32 - 32 

 Student Aid Administration 40 - 17 23 9 - 9 

 Program Administration 8 - 4 4 - - - 

 Inspector General 7 - - 7 - - - 

 Total CARES Act Direct Appropriations 30,987 (154) 30,161 672 11,217 - 11,300 

 Student Loan Deferrals

 Direct Loan Program 25,246 - 25,246 - 25,246 236 25,010 

 FFEL Program 1,770 - 1,770 - 1,770 15 1,755 

 TEACH Program 11 - 11 - 11 - 11 

 Total CARES Act Student Loan 

Deferrals 27,027 - 27,027 - 27,027 251 26,776 

 Total CARES Act 58,014 (154) 57,188 672 38,244 251 38,076 

Secretary's Discretion Student Loan 

Deferrals

 FFEL Program 496 - 496 - 496 4 492 

 HEAL Program 2 - 2 - 2 - 2 

 Total Secretary's Discretion Student 

Loan Deferrals 498 - 498 - 498 4 494 

Presidential Memorandum Student Loan 

Deferrals

 Direct Loan Program 13,579 - 13,579 - 13,579 27 13,552 

 FFEL Program 1,059 - 1,059 - 1,059 9 1,050 

 HEAL Program 1 - 1 - 1 - 1 

 TEACH Program 5 - 5 - 5 - 5 

 Total Presidential Memorandum 

Student Loan Deferrals 14,644 - 14,644 - 14,644 36 14,608 

Total COVID-19 Activity $ 73,156 $ (154) $ 72,330 $ 672 $ 53,386 $ 291 $ 53,178 
FINANCIAL SECTION | NOTES TO THE FINANCIAL STATEMENTS

76 FY 2020 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION

The CARES Act provided direct appropriations to the 

Department to fund a variety of programs administered 

primarily through grant programs, as described below. 

Obligated and unobligated CARES Act funds remaining 

to be disbursed total $19.6 billion (see Note 3). Indirect 

appropriations were provided to fund loan modifications 

resulting from student loan deferrals authorized under 

the CARES Act and extended by the Administration’s 

Presidential Memorandum. The Department also extended 

the provisions of the student loan deferrals to guaranteed 

loans not covered by the CARES Act. (See Note 5)

Elementary and Secondary School Emergency Relief 

(ESSER) Fund—$13,229 million provided for SEAs and 

LEAs to support continued learning for K-12 students 

whose education has been disrupted by COVID-19. 

Education leaders have the flexibility to use ESSER funds 

for immediate needs, such as tools and resources for 

distance education, ensuring student health and safety, 

and developing and implementing plans. Local leaders are 

empowered with the flexibility to determine how to use 

their ESSER funds, as long as they are used in ways that 

comply with applicable federal education laws. ESSER 

funds have important safeguards in place to ensure that 

this funding goes to help students continue learning. SEAs 

must allocate 90 percent of their ESSER funds to LEAs, 

including public charter schools, in proportion to the 

amount of FY 2019 funds the LEA received under Title 

I, Part A of the Elementary and Secondary Education 

Act. Up to 10 percent of the SEA’s award may be retained 

for the state agency to use to address needs related to 

responding to COVID-19. After one year, SEAs must 

return any funds that have not been awarded, and the 

Secretary will reallocate those funds to the states.

Higher Education Emergency Relief (HEER) Fund—

$13,953 million provided for IHEs to address needs 

directly related to COVID-19, including transitioning 

courses to distance education and granting aid to 

students for educational costs such as food, housing, 

course materials, health care, and child care. The fund is 

distributed through the following grant programs. 

 Higher Education Funds to Students—$6,279 

million provided institutions to provide emergency 

financial aid grants to students whose lives have 

been disrupted, many of whom are facing financial 

challenges and struggling to make ends meet. 

Institutions have the responsibility of determining 

how grants will be distributed to students, how the 

amount of each student grant is calculated, and the 

development of any instructions or directions that are 

provided to students about the grant. 

 Higher Education Funds to Institutions—$6,279 

million provided to higher education institutions. 

Institutions can use up to one-half of the total funds 

to cover any costs associated with significant changes 

to the delivery of instruction due to COVID-19. 

Institutions are encouraged to use the funds to expand 

remote learning programs, build IT capacity to support 

such programs, and train faculty and staff to operate 

effectively in a remote learning environment. They are 

also encouraged to use the funds to expand support 

for students with the most significant financial needs 

arising from the COVID-19 pandemic, including 

eligible expenses under a student’s cost of attendance, 

such as course materials, technology, health care, 

childcare, food, and housing.

 Minority Serving Institutions (MSIs)—$270 million 

provided to MSIs to defray institutional expenses, 

which may include lost revenue, reimbursement for 

expenses already incurred, technology costs associated 

with the transition to distance education, faculty and 

staff training, and payroll. MSIs include institutions 

that are eligible to participate in the following 

programs: Predominantly Black Institutions, Alaska 

Native and Native Hawaiian-Serving Institutions, 

Asian American and Native American Pacific IslanderServing Institutions, Native American-Serving 

Nontribal Institutions, Developing Hispanic-Serving 

Institutions Program, and Promoting Postbaccalaureate 

Opportunities for Hispanic Americans. MCIs are 

encouraged to use as much of these funds as possible 

to provide students eligible for financial aid with grants 

for any component of the student’s cost of attendance, 

including tuition, course materials, and technology.

 Historically Black Colleges & Universities 

(HBCUs)—$577 million provided to HBCUs to 

defray institutional expenses, which may include lost 

revenue, reimbursement for expenses already incurred, 

technology costs associated with the transition to 

distance education, faculty and staff training, and 

payroll. HBCUs are also encouraged to use as much 

of these funds as possible to provide students eligible 

for financial aid with grants for any component of the 

student’s cost of attendance, including tuition, course 

materials, and technology.
NOTES TO THE FINANCIAL STATEMENTS | FINANCIAL SECTION

FY 2020 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION 77

to enable governors to decide how best to meet the needs 

of students, schools (including charter schools and nonpublic schools), postsecondary institutions, and other 

education-related organizations. 

Outlying Areas, Bureau of Indian Education, and 

Discretionary Grants—$615 million provided for 

outlying areas and states with the highest COVID-19 

burdens. These funds are distributed through the following 

grant programs.

 Outlying Areas—$154 million provided for the 

outlying areas of the United States, specifically: the 

U.S. Virgin Islands, Guam, the Commonwealth of 

the Northern Mariana Islands, and American Samoa. 

Money made available from these grants will be used 

in response to COVID-19 and will be calculated via 

formula. Each Outlying Area received two block grants 

from the Education Stabilization Fund—one to the 

Governor’s offices and one to the SEA.

 Bureau of Indian Education—$154 million for 

programs operated by the Bureau of Indian Education 

(BIE), in consultation with the Secretary of Interior. 

The Department transferred these funds to BIE.

 Discretionary Grants—$307.5 million provided to 

states to use to create adaptable, innovative learning 

opportunities for K-12 and postsecondary learners in 

response to the COVID-19 national emergency. 

 Rethink K-12 Education Models Grants—$180 

million aimed at opening new, innovative ways for 

students to access K-12 education with an emphasis 

on meeting students’ needs during the COVID-19 

national emergency.

 Reimagining Workforce Preparation 

Grants—$127 million to expand short-term 

postsecondary programs and work-based learning 

programs in order to get Americans back to work 

and help small businesses return to being our 

country’s engines for economic growth. 

In addition to the Education Stabilization Fund, the 

CARES Act also included funding for the following.

Safe Schools & Citizenship Education—$100 million 

additional funding for this program to prevent, prepare for, 

and respond to COVID-19, including disinfecting affected 

schools, and assisting in counseling and distance learning.

 Tribally Controlled Colleges and Universities 

(TCCUs)—$50 million provided to TCCUs to 

defray institutional expenses, which may include lost 

revenue, reimbursement for expenses already incurred, 

technology costs associated with the transition to 

distance education, faculty and staff training, and 

payroll. TCCUs are also encouraged to use as much 

of these funds as possible to provide students eligible 

for financial aid with grants for any component of the 

student’s cost of attendance, including tuition, course 

materials, and technology. 

 Strengthening Institutions Program—$149 million 

provided to institutions that are not participating 

in the MSI programs but have at least 50 percent of 

their degree students receiving need-based assistance 

under Title IV of the Higher Education Act or have 

a substantial number of enrolled students receiving 

Pell Grants, and have low educational and general 

expenditures. These funds can be used to defray 

institutional expenses, which may include lost 

revenue, reimbursement for expenses already incurred, 

technology costs associated with the transition to 

distance education, faculty and staff training, and 

payroll. These institutions are encouraged to use as 

much of these funds as possible to provide students 

eligible for financial aid with grants for any component 

of the student’s cost of attendance, including tuition, 

course materials, and technology. 

 Fund for the Improvement of Postsecondary 

Education (FIPSE)—$349 million provided for this 

grant program which supports projects to encourage 

innovative reform and expand education opportunities 

to underrepresented groups. Institutions can use these 

additional FIPSE funds to defray institutional expenses, 

which may include lost revenue, reimbursement for 

expenses already incurred, technology costs associated 

with the transition to distance education, faculty 

and staff training, and payroll. Institutions are also 

encouraged to use as much of these funds as possible 

to provide students eligible for financial aid with grants 

for any component of the student’s cost of attendance, 

including tuition, course materials, and technology.

Governor’s Emergency Education Relief (GEER) 

Fund—$2,953 million provided to state governors 

to ensure education continues for students of all ages 

impacted by the COVID-19 national emergency. The 

GEER Fund is a flexible emergency block grant designed 
FINANCIAL SECTION | NOTES TO THE FINANCIAL STATEMENTS

78 FY 2020 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION

Student Aid Administration—$40 million provided to 

fund the additional costs of administering the CARES Act

provisions affecting student financial aid programs.

Program Administration—$8 million provided to the 

Department to fund costs of administrating the CARES Act.

Inspector General—The CARES Act appropriated $7 

million for salaries and expenses necessary for Office 

of Inspector General oversight and audit of CARES Act

programs, grants, and projects.

Gallaudet University—$7 million to help address 

challenges associated with COVID-19.

Howard University—$13 million to help address 

challenges associated with COVID-19.

HBCU Loan Deferment—$62 million provided to 

fund the deferment of loan repayments for HBCUs that 

were provided low-cost capital financing for campus 

maintenance and construction projects. During the 

period of the deferment, the Department is required to 

pay the required principal and interest due. At the end 

of the deferment, the HBCU is required to repay the 

Department for payments made on its behalf.
NOTES TO THE FINANCIAL STATEMENTS | FINANCIAL SECTION

FY 2020 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION 79

Unused Borrowing Authority 

(Dollars in Millions)

2020 2019

Beginning Balance, Unused Borrowing Authority $ 55,845 $ 62,752 

Current Year Borrowing Authority 135,589 148,493 

Funds Drawn from Treasury (128,200) (137,880)

Borrowing Authority Withdrawn (15,004) (17,520)

Ending Balance, Unused Borrowing Authority $ 48,230 $ 55,845 

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.

Undelivered Orders

(Dollars in Millions)

2020 2019

Intragovernmental With the Public Intragovernmental With the Public

Unpaid $ 180 $ 138,621 $ 215 $ 121,561 

Paid 121 503 64 563 

Undelivered Orders $ 301 $ 139,124 $ 279 $ 122,124 

Net Adjustments to Unobligated Balances Brought Forward

(Dollars in Millions)

2020 2019

Budgetary

Non-Budgetary 

Credit Reform 

Financing Accounts

Budgetary

Non-Budgetary 

Credit Reform 

Financing Accounts

Prior Year Unobligated Balance, End of Year (Total) $ 16,774 $ 18,324 $ 17,850 $ 23,728 

Recoveries of Prior Year Unpaid Obligations 1,426 18,220 1,158 24,841 

Borrowing Authority Withdrawn - (15,004) - (17,520)

Actual Repayments of Debt, Prior-Year Balances - (12,720) - (16,261)

Actual Capital Transfers to the Treasury General Fund (265) - (328) - 

Canceled Authority (305) - (405) - 

Downward Adjustments of Prior-Year Paid Delivered Orders 128 301 6 342 

Other Differences (2) (2) (50) (103)

Unobligated Balance from Prior Year Budget Authority (Net) $ 17,756 $ 9,119 $ 18,231 $ 15,027 

NOTE 12. Statements of Budgetary Resources

The SBR compares budgetary resources with the status of those resources. As of September 30, 2020, budgetary resources 

were $473.2 billion and net agency outlays were $161.5 billion. As of September 30, 2019, budgetary resources were $358.2 

billion and net agency outlays were $144.5 billion.

During the years ended September 30, 2020 and September 30, 2019, certain adjustments were made to the balance of 

unobligated budgetary resources available as of October 1, 2019 and October 1, 2018. These adjustments included, among 

other things, recoveries of prior year unpaid obligations that result from downward adjustments of undelivered orders that 

were obligated in a prior fiscal year.
FINANCIAL SECTION | NOTES TO THE FINANCIAL STATEMENTS

80 FY 2020 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION

Distributed Offsetting Receipts

(Dollars in Millions)

2020 2019

Negative Subsidies and Downward Re-estimates of Subsidies:

 Direct Loan Program $ 5,382 $ 9,906 

 FFEL Program 6,865 2,099 

 HEAL Program - 34 

 TEACH Program 36 1 

 Facilities Loan Programs 48 5 

 Total Negative Subsidies and Downward Re-estimates 12,331 12,045 

Repayment of Perkins Loans and Capital Contributions 1,317 90 

Other (38) 138 

Distributed Offsetting Receipts $ 13,610 $ 12,273 

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.

Reconciliation of SBR to Budget of the United States Government

(Dollars in Millions)

Budgetary 

Resources

New Obligations 

and Upward 

Adjustments 

(Total)

Distributed Offsetting 

Receipts Net Outlays

Combined Statements of Budgetary Resources $ 358,215 $ 323,117 $ 12,273 $ 104,363 

 Expired Funds (1,859) (551) - - 

 FFEL Guaranty Agency Amounts Included in the 

President’s Budget 7,342 7,341 - - 

 Distributed Offsetting Receipts - - - 12,273 

 Other (2) - 1 4 

Budget of the United States Government1 $ 363,696 $ 329,907 $ 12,274 $ 116,640 

1

 Amounts obtained from the Appendix, Budget of the United States Government, FY 2021.

The FY 2022 Budget of the United States Government (President’s Budget), which presents the actual amounts for the 

year ended September 30, 2020, has not been published as of the issue date of these financial statements. The FY 2022 

President’s Budget is scheduled for release in February 2021 and will be made available on OMB’s website. The table above 

reconciles the FY 2019 SBR to the FY 2021 President’s Budget (FY 2019 actual amounts) for budgetary resources, new 

obligations and upward adjustments, 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 new obligations and upward adjustments 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.

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

received. Paid amounts include any orders which may have been prepaid or advanced but for which delivery or performance 

has not yet occurred.
NOTES TO THE FINANCIAL STATEMENTS | FINANCIAL SECTION

FY 2020 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION 81

NOTE 13. Reconciliation of Net Cost to Net Outlays

(Dollars in Millions)

2020 2019

IntragovernmentalWith the 

Public Total Intragovernmental

With the 

Public Total

Net Cost of Operations $ 33,158 $ 156,260 $ 189,418 $ 33,374 $ 121,355 $ 154,729 

Components of Net Operating Cost Not Part of the Net 

Budgetary Outlays

Excess of Accrual-Basis Expenses Over Budget 

Outlays

Current-Year Subsidy Expense - (52,571) (52,571) - (67,225) (67,225)

Loan Modification Adjustment Transfer Gains/

(Losses), Net - (54) (54) - 1 1

Federal Employee Retirement Benefit Costs Paid by 

OPM and Imputed to Agency (30) - (30) (37) - (37)

Other Liabilities 64 600 664 (142) (632) (774)

Excess of Accrual-Basis Revenue Over Budget 

Receipts

Accounts Receivable 1 (43) (42) 1 16 17 

Offset to Non-Entity Accrued Collections - (42) (42) - 17 17 

Total Components of Net Operating Cost Not Part of 

the Net Budgetary Outlays 35 (52,110) (52,075) (178) (67,823) (68,001)

Components of the Net Budgetary Outlays Not Part of 

Net Operating Costs

Current-Year Budget Subsidy Costs - 67,225 67,225 - 17,954 17,954 

Other Loan Activities, Net - (150) (150) - 31 31 

Other Assets 57 (16) 41 (87) (222) (309)

Financing Sources Transferred In from Custodial 

Statement Collections (12) - (12) (15) - (15)

Total Components of the Net Budgetary Outlays Not 

Part of Net Operating Costs 45 67,059 67,104 (102) 17,763 17,661 

Other Reconciling Differences

Increase/(Decrease) in Deposit Funds - (32) (32) - (26) (26)

Total Other Reconciling Differences - (32) (32) - (26) (26)

Net Outlays (Calculated Total) $ 33,238 $ 171,177 $ 204,415 $ 33,094 $ 71,269 $ 104,363 

Related Amounts on the Statement of Budgetary 

Resources

Outlays, Net (Discretionary and Mandatory) 218,025 116,636 

Distributed Offsetting Receipts (13,610) (12,273)

Agency Outlays, Net (Discretionary and Mandatory) $ 204,415 $ 104,363 

This reconciliation explains the relationship between the Department’s net cost of operations and its net outlays. Reconciling 

items result from transactions which did not result in a current period outlay but did result in a current period cost, and current 

period outlays that did not result in a current period cost. 

Disbursements for new FCRA loans and collections of principal and interest on existing FCRA loans are recorded in nonbudgetary credit reform financing accounts. These disbursements and collections are reported on the Statement of Budgetary 

Resources as disbursements, net, and not as agency outlays, net. Since these disbursements and collections affect neither net 

cost of operations nor agency outlays, net, they are excluded from this reconciliation as are any increases or decreases in the 

FCRA loan receivable balances. 
FINANCIAL SECTION | NOTES TO THE FINANCIAL STATEMENTS

82 FY 2020 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION

GUARANTY AGENCIES

The Department may assist guaranty agencies experiencing 

financial difficulties. The Department has not done so 

in fiscal years 2020 or 2019 and does not expect to in 

future years. No provision has been made in the financial 

statements for potential liabilities.

LITIGATION AND OTHER CLAIMS

The Department is involved in various lawsuits incidental 

to its operations. In the opinion of management, the 

ultimate resolution of pending litigation will not have a 

material impact on the Department’s financial position. 

As appropriate, the Department would seek recovery from 

Treasury’s Judgment Fund for any loss in litigation that 

may occur. The Judgment Fund is a permanent, indefinite 

appropriation available to pay judgments against the 

government, if appropriated funds cannot be used. 

The cost of loan forgiveness related to borrower defense 

claims reflected in the accompanying financial statements 

is limited to loans originated through September 30, 

2020. The final disposition of claims filed and those yet 

to be filed from loans originated before September 30, 

2020, is not expected to have a material impact on these 

financial statements.

OT H ER M AT T ER S 

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.

The Department leases from the General Services 

Administration all or a portion of 13 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.

Future Minimum Lease Payments

(Dollars in Millions)

2020 2019

2021 $ 72 2020 $ 73 

2022 75 2021 78 

2023 77 2022 81 

2024 74 2023 83 

2025 75 2024 86 

After 2025 77 After 2024 87 

Total $ 450 Total $ 488

The two major reconciling differences, both associated with 

the Department’s FCRA loan programs, are for current-year 

subsidy accrual costs and current-year budget subsidy costs.

 Current-year subsidy accrual costs are the portion 

of the current-year loan subsidy re-estimates not 

impacting the current year outlays.

 Current-year budget subsidy costs are current year 

indirect appropriations provided to fund subsidy costs 

accrued in the prior year. This includes the portion 

of the current year’s executed President’s budget reestimates not included in this year’s net cost 

subsidy expense. 

NOTE 14. 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.
NOTES TO THE FINANCIAL STATEMENTS | FINANCIAL SECTION

FY 2020 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION 83

NOTE 15. Reclassification of Balance Sheet, 

Statement of Net Cost, and Statement of 

Operations and Changes in Net Position for 

FR Compilation Process

To prepare the Financial Report of the U.S. Government 

(FR), Treasury requires agencies to submit an adjusted 

trial balance, which is a listing of accounts that appear in 

the financial statements. Treasury uses the trial balance 

information reported in the Governmentwide Treasury 

Account Symbol Adjusted Trial Balance System to develop 

a Reclassified Balance Sheet, Reclassified Statement of 

Net Cost, and a Reclassified Statement of Operations and 

Changes in Net Position for each agency, all of which show 

how agency amounts are related to particular FR statement 

line items. Treasury eliminates all intragovernmental 

balances from the reclassified statements and aggregates lines 

with the same title to develop the FR statements. 

The three schedules in this note show the Department’s 

financial statements and the Department’s reclassified 

statements prior to elimination of intragovernmental 

balances and prior to aggregation of repeated FR line items. 

The term “Non-Federal” is used in this note to refer to 

Federal government amounts that result from transactions 

with non-Federal entities. These include transactions with 

individuals, businesses, non-profit entities, and state, local, 

and foreign governments.

A copy of the September 30, 2019 FR can be found on 

Treasury’s website and a copy of the September 30, 2020 FR 

will be posted to this site as soon as it is released.
FINANCIAL SECTION | NOTES TO THE FINANCIAL STATEMENTS

84 FY 2020 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION

Reclassification of Balance Sheet to Line Items Used for the Government-wide Balance Sheet

as of September 30, 2020

(Dollars in Millions)

 FY 2020 Department Balance Sheet Line Items Used to Prepare FY 2020 Government-wide

 Balance Sheet

Financial Statement Line Amounts Amounts Reclassified Financial Statement Line

ASSETS ASSETS

Intragovernmental: Intragovernmental:

 Fund Balance with Treasury $ 136,015 $ 136,015 Fund Balance with Treasury

 Other Intragovernmental Assets 124 3 Accounts Receivable

 121 Other Advances and Repayments

Total Intragovernmental 136,139 136,139 Total Intragovernmental Assets

Public: Non-Federal:

 Credit Program Receivables, Net

 Direct Loan Program 1,100,544 1,100,544 Direct Loan and Loan Guarantees, Net

 FFEL Program 67,380 67,380 Direct Loan and Loan Guarantees, Net

 Other Credit Programs for Higher Education 3,107 3,107 Direct Loan and Loan Guarantees, Net

 Other Assets 2,216 1,943 Cash and Other Monetary Assets

 6 General Property, Plant, and Equipment, Net

 234 Accounts Receivable, Net

 33 Other Assets

Total Public 1,173,247 1,173,247 Total Non-Federal Assets

Total Assets $ 1,309,386 $ 1,309,386 Total Assets

LIABILITIES LIABILITIES

Intragovernmental: Intragovernmental:

 Debt

 Direct Loan Program $ 1,160,099 $ 1,160,099 Debt Associated with Loans

 FFEL Program 88,986 88,986 Debt Associated with Loans

 Other Credit Programs for Higher Education 2,302 2,302 Debt Associated with Loans

 Subsidy Due to Treasury General Fund 3,298 3,298 Other Liabilities

 Other Intragovernmental Liabilities 2,612 9 Accounts Payable

 2,603 Other Liabilities

Total Intragovernmental 1,257,297 1,257,297 Total Intragovernmental Liabilities

Public:

 Other Liabilities 7,158 1,123 Loan Guarantee Liabilities

 3,773 Accounts Payable

 61 Federal Employee and Veteran Benefits

 2,201 Other Liabilities

Total Public 7,158 7,158 Total Non-Federal Liabilities

Total Liabilities $ 1,264,455 $ 1,264,455 Total Liabilities

NET POSITION NET POSITION

 Unexpended Appropriations $ 99,314 $ 99,314 Unexpended Appropriations - Funds Other Than Those 

from Dedicated Collections

 Cumulative Results of Operations (54,383) (54,383) Cumulative Results of Operations - Funds Other Than 

Those from Dedicated Collections 

Total Net Position $ 44,931 $ 44,931 Total Net Position

Total Liabilities & Net Position $ 1,309,386 $ 1,309,386 Total Liabilities & Net Position
NOTES TO THE FINANCIAL STATEMENTS | FINANCIAL SECTION

FY 2020 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION 85

Reclassification of Statement of Net Cost to Line Items Used for the Government-wide Statement

of Net Cost for the Year Ending September 30, 2020

(Dollars in Millions)

FY 2020 Department Statement of Net Cost Line Items Used to Prepare FY 2020 Government-wide 

Statement of Net Cost

Financial Statement Line Amounts Amounts Reclassified Financial Statement Line

Total Gross Cost $ 228,998 $ 189,605 Non-Federal Gross Cost

 124 Benefit Program Costs

 30 Imputed Costs

 410 Buy/Sell Cost

 38,808 Borrowing and Other Interest Expense

 7 Borrowing losses

 14 Other Expenses (Without Reciprocals)

 Total Program Gross Cost $ 228,998 $ 228,998 Department Total Gross Cost

Total Earned Revenue $ (39,580) $ (33,345) Non-Federal Earned Revenue

 (6,235) Borrowing and Other Interest Revenue (Exchange)

 Total Earned Revenue (39,580) (39,580) Department Total Earned Revenue

 Net Cost of Operations $ 189,418 $ 189,418 Net Cost of Operations

Reclassification of Statement of Changes in Net Position to Line Items Used for the

Government-wide Statement of Operations and Changes in Net Position for the Year

Ending September 30, 2020 

(Dollars in Millions)

FY 2020 Department Statement of Changes in Net Position Line Items Used to Prepare FY 2020 Government-wide 

Statement of Operations and Changes in Net Position

Financial Statement Line Amounts Amounts Reclassified Financial Statement Line

Unexpended Appropriations

 Beginning Balance $ 72,757 $ 72,757 Net Position, Beginning of Period

 Appropriations Received 245,237 244,366 

Appropriations Received as Adjusted (Rescissions and 

Other Adjustments)

 Other Adjustments (Rescissions, etc.) (871)

 Appropriations Transferred (154) (154)

Non-Expenditure Transfers-out of Unexpended 

Appropriations and Financing Sources

 Appropriations Used (217,655) (217,655) Appropriations Used

 Unexpended Appropriations, Ending Balance $ 99,314 $ 99,314 

Cumulative Results of Operations

 Beginning Balance $ (76,267) $ (76,267) Net Position, Beginning of Period

 Appropriations Used 217,655 217,655 Appropriations Expended

 Nonexchange Revenue 11 11 

Collections Transferred Into a TAS Other Than the 

General Fund of the U.S. Government

 Imputed Financing from Costs Absorbed by Others 30 30 Imputed Financing Sources

 Negative Subsidy Transfers, Downward Subsidy 

 Re-estimates, and Other (6,394) (14,364)

Non-Entity Collections Transferred to the General Fund 

of the U.S. Government

 7,252 

Accrual for Non-Entity Amounts to be Collected and 

Transferred to the General Fund of the U.S. Government

 6 Other Taxes and Receipts

 711 Other Budgetary Financing Sources

 1 Other Non-Budgetary Financing Sources

 Net Cost of Operations (189,418) (189,418) Net Cost of Operations

 Cumulative Results of Operations, 

 Ending Balance $ (54,383) $ (54,383)

 Net Position $ 44,931 $ 44,931 Net Position, End of Period
86 FY 2020 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION

United States Department of Education Combining Statement of Budgetary Resources 

For the Year Ended September 30, 2020

(Dollars in Millions)

(Unaudited)

Federal Student Aid Office of Elementary and 

Secondary Education

Budgetary

Non-Budgetary Credit 

Reform Financing 

Accounts

Budgetary 

BUDGETARY RESOURCES

Unobligated Balance from Prior Year Budget Authority (Net) $ 14,938 $ 8,939 $ 2,103 

Appropriations (Discretionary and Mandatory) 163,672 349 24,379 

Borrowing Authority (Discretionary and Mandatory) (Note 12) - 135,300 - 

Spending Authority from Offsetting Collections (Discretionary and Mandatory) 232 65,625 - 

Total Budgetary Resources $ 178,842 $ 210,213 $ 26,482 

STATUS OF BUDGETARY RESOURCES

New Obligations and Upward Adjustments (Total) $ 162,465 $ 187,667 $ 24,680 

Unobligated Balance, End of Year:

Apportioned, Unexpired Accounts 13,386 - 1,736 

Unapportioned, Unexpired Accounts 1,819 22,546 - 

Unexpired Unobligated Balance, End of Year $ 15,205 $ 22,546 $ 1,736 

Expired Unobligated Balance, End of Year 1,172 - 66 

Unobligated Balance, End of Year (Total) $ 16,377 $ 22,546 $ 1,802 

Total Status of Budgetary Resources $ 178,842 $ 210,213 $ 26,482 

OUTLAYS, NET

Outlays, Net (Discretionary and Mandatory) $ 160,912 $ 22,656 

Distributed Offsetting Receipts (-) (Note 12) (13,606) - 

Agency Outlays, Net (Discretionary and Mandatory) (Notes 12 & 13) $ 147,306 $ 22,656 

Disbursements, Net (Total) (Mandatory) $ (42,956) 

REQUIRED SUPPLEMENTARY INFORMATION (UNAUDITED)
REQUIRED SUPPLEMENTARY INFORMATION (UNAUDITED) | FINANCIAL SECTION

FY 2020 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION 87

Office of Special Education 

and Rehabilitative Services

Education Stabilization 

Fund Other Combined

Total

Budgetary Budgetary Budgetary

Non-Budgetary 

Credit Reform 

Financing 

Accounts

Budgetary

Non-Budgetary 

Credit Reform 

Financing Accounts

$ 274 - $ 441 $ 180 $ 17,756 $ 9,119 $ 26,875 

 17,676 30,750 8,203 1 244,680 350 245,030 

- - - 289 - 135,589 135,589 

- (154) 113 137 191 65,762 65,953 

$ 17,950 $ 30,596 $ 8,757 $ 607 $ 262,627 $ 210,820 $ 473,447 

$ 17,571 $ 30,088 $ 7,920 $ 431 $ 242,724 $ 188,098 $ 430,822 

138 508 678 - 16,446 - 16,446 

- - 3 176 1,822 22,722 24,544 

$ 138 508 $ 681 $ 176 $ 18,268 $ 22,722 $ 40,990 

241 - 156 - 1,635 - 1,635 

$ 379 508 $ 837 $ 176 $ 19,903 $ 22,722 $ 42,625

$ 17,950 $ 30,596 $ 8,757 $ 607 $ 262,627 $ 210,820 $ 473,447 

$ 16,268 $ 11,160 $ 7,029 $ 218,025 $ 218,025

- - (4) (13,610) (13,610)

$ 16,268 $ 11,160 $ 7,025 $ 204,415 $ 204,415

$ 10 $ (42,946) $ (42,946)
FINANCIAL SECTION | REQUIRED SUPPLEMENTARY INFORMATION (UNAUDITED)

88 FY 2020 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION

United States Department of Education Combining Statement of Budgetary Resources 

For the Year Ended September 30, 2019

(Dollars in Millions)

(Unaudited)

Federal Student Aid 

Budgetary

Non-Budgetary Credit 

Reform Financing 

Accounts

BUDGETARY RESOURCES

Unobligated Balance from Prior Year Budget Authority (Net) $ 15,378 $ 14,858 

Appropriations (Discretionary and Mandatory) 69,804 - 

Borrowing Authority (Discretionary and Mandatory) (Note 12) - 148,272 

Spending Authority from Offsetting Collections (Discretionary and Mandatory) 409 57,418 

Total Budgetary Resources $ 85,591 $ 220,548 

STATUS OF BUDGETARY RESOURCES

New Obligations and Upward Adjustments (Total) $ 71,433 $ 202,405 

Unobligated Balance, End of Year:

Apportioned, Unexpired Accounts 11,361 - 

Unapportioned, Unexpired Accounts 1,935 18,143 

Unexpired Unobligated Balance, End of Year $ 13,296 $ 18,143 

Expired Unobligated Balance, End of Year 862 - 

Unobligated Balance, End of Year (Total) $ 14,158 $ 18,143 

Total Status of Budgetary Resources $ 85,591 $ 220,548 

OUTLAYS, NET

Outlays, Net (Discretionary and Mandatory) $ 69,396 

Distributed Offsetting Receipts (-) (Note 12) (12,145) 

Agency Outlays, Net (Discretionary and Mandatory) (Notes 12 & 13) $ 57,251 

Disbursements, Net (Total) (Mandatory) $ 40,085 
REQUIRED SUPPLEMENTARY INFORMATION (UNAUDITED) | FINANCIAL SECTION

FY 2020 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION 89

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

$ 2,049 $ 242 $ 562 $ 169 $ 18,231 $ 15,027 $ 33,258 

23,773 17,150 7,792 - 118,519 - 118,519 

- - - 221 - 148,493 148,493 

2 - 13 103 424 57,521 57,945 

$ 25,824 $ 17,392 $ 8,367 $ 493 $ 137,174 $ 221,041 $ 358,215 

$ 23,934 $ 17,151 $ 7,882 $ 312 $ 120,400 $ 202,717 $ 323,117 

1,847 22 351 - 13,581 - 13,581 

- - (52) 181 1,883 18,324 20,207 

$ 1,847 $ 22 $ 299 $ 181 $ 15,464 $ 18,324 $ 33,788 

43 219 186 - 1,310 - 1,310 

$ 1,890 $ 241 $ 485 $ 181 $ 16,774 $ 18,324 $ 35,098 

$ 25,824 $ 17,392 $ 8,367 $ 493 $ 137,174 $ 221,041 $ 358,215 

$ 23,123 $ 16,581 $ 7,536 $ 116,636 $ 116,636 

- - (128) (12,273) (12,273)

$ 23,123 $ 16,581 $ 7,408 $ 104,363 $ 104,363

$ 17 $ 40,102 $ 40,102
90 FY 2020 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION

REPORT OF THE INDEPENDENT AUDITORS
REPORT OF INDEPENDENT AUDITORS | FINANCIAL SECTION

FY 2020 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION 91
FINANCIAL SECTION | REPORT OF INDEPENDENT AUDITORS

92 FY 2020 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION
REPORT OF INDEPENDENT AUDITORS | FINANCIAL SECTION

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OTHER

INFORMATION
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CI V IL MONETA RY PENA LT Y 

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.

T H E GR A NTS OV ER SIGHT A ND NE W 

E F F ICI E NC Y (G ON E) AC T OF 2016 

A ND EDUC AT ION’S GR A NT 

CLOSEOUT PROCESS

This section provides a high-level summary of the 

Department’s expired, but not closed, Federal grants and 

cooperative agreements.

REAL PROPERTY3

The Department’s Space Modernization Program strives 

to bring a new approach to its workplaces: 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. Updated square footage information is 

posted on performance.gov at https://www.performance.

gov/real-property-metrics/.

3 This subsection does not have its own page due to the limited requirements 

provided in the Office of Management and Budget (OMB) Circular A-136.

The Other Information section includes:

OFFICE OF I NSPEC TOR 

GENER A L’S (OIG) M A NAGE M ENT A ND 

PERFORMANCE CHALLENGES

Management and Performance Challenges Report 

provides a summary of what the OIG believes are the 

Department’s biggest challenges for FY 2021. The OIG 

identified the following five challenges: (1) Implementing 

the Coronavirus Aid, Relief, and Economic Security Act 

(CARES Act), (2) Oversight and Monitoring, (3) Data 

Quality and Reporting, (4) Improper Payments, and 

(5) Information Technology Security. The full report is 

available at the OIG website.

SU MM A RY OF FI NA NCI A L 

STAT E M ENT AU DIT A ND 

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.

PAY M ENT I NT EGR IT Y I NFOR M AT ION 

ACT REPORTING

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.

ABOUT THE OTHER INFORMATION SECTION
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OTHER INFORMATION | MEMORANDUM FROM THE OFFICE OF INSPECTOR GENERAL
FY 2020 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION 109

OFFICE OF INSPECTOR GENERAL’S (OIG) MANAGEMENT 

AND PERFORMANCE CHALLENGES FOR FISCAL 

YEAR 2021

MANAGEMENT CHALLENGE 1—

C A R E S AC T 

The Coronavirus Aid, Relief, and Economic Security Act 

(CARES Act) was signed into law on March 27, 2020, and 

includes more than $30 billion in emergency education 

funding for students, elementary and secondary schools, 

postsecondary institutions, and States in response to 

the Coronavirus Disease 2019 (COVID-19) pandemic. 

The CARES Act also allowed the U.S. Department of 

Education (Department) to provide State educational 

agencies (SEA) and local educational agencies (LEA) with 

waivers of certain statutory or regulatory requirements and 

included provisions intended to provide borrowers with 

emergency relief.

Why This Is a Challenge

The CARES Act poses new challenges for the Department 

as it must effectively oversee and monitor new grant 

programs and additional Federal education funds, 

implement additional student financial assistance program 

requirements, and ensure that quality data are reported. 

While the CARES Act provides $40 million to the 

Department for student aid administration and $8 million 

for program administration, the Department must design 

and implement these processes timely and effectively to 

help ensure the overall success of its CARES Act activities.

New Grant Programs and Additional Federal 

Education Funds 

The CARES Act provided about $30.8 billion for an 

Education Stabilization Fund to prevent, prepare for, and 

respond to COVID-19. This new funding authorized 

under the CARES Act is about 64 percent of the amount 

Source: U.S. Department of Education Agency Financial Report FY 2019 and 

the CARES Act

Figure 14. FY 2019 Non-Pell Grant Outlays 

and CARES Act Education Stabilization 

Fund Appropriation

(Dollars in Billions)

that the Department reported as grant outlays for fiscal 

year (FY) 2019, excluding the Pell Grant program. 

The Education Stabilization Fund includes more than 

$16 billion for State and local agencies and about $14 

billion for higher education. As shown in Table 4 below, 

this includes three large new relief funds and additional 

discretionary grant programs.
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OTHER INFORMATION | OFFICE OF INSPECTOR GENERAL’S MANAGEMENT CHALLENGES FOR FY 2021

Each of the new programs must be effectively implemented and monitored by the Department to ensure that the legislation 

is followed, and that States, elementary and secondary schools, and postsecondary institutions and students receive support 

in response to COVID-19. Overall, the effective oversight and monitoring of CARES Act funds are critical to ensure that 

they are used for the purposes intended and that goals and objectives are achieved. Because the CARES Act programs have 

different purposes, allowable uses of funds, and grant recipients, it is vital that the Department provides effective guidance, 

training, technical assistance, and outreach. These additional responsibilities pose a significant challenge to the Department 

given the large amount of funding involved, the number of entities receiving funds, and the need to administer its existing 

programs. Additionally, the Department must ensure that the primary recipients, such as Governors’ offices and SEAs, 

effectively fulfill their critical role in overseeing and monitoring subrecipients, such as LEAs.

Student Financial Assistance Program Requirements

The CARES Act includes student financial assistance provisions intended to provide emergency relief to borrowers and to 

allow institutions to meet student needs more easily. These provisions include borrower and teacher assistance provisions, 

waivers of student financial assistance refunds and loan cancellations, and adjustments to lifetime Pell Grant and subsidized 

Direct Loan usage. The Department will need to provide guidance to and rely on postsecondary institutions, contracted 

servicers, collection agencies, guaranty agencies, and accrediting agencies to effectively implement these and other 

provisions. The Department will be challenged to provide adequate oversight of existing student aid program participants 

while it implements and oversees the student aid provisions in the CARES Act. Additionally, the Department faces the 

challenge of ensuring that postsecondary institutions continue to meet financial responsibility requirements, as the 

pandemic may negatively impact the enrollment and financial health of many institutions.

Data Quality 

The CARES Act includes several reporting provisions that are intended to provide transparency and public accountability 

regarding the use of funds and their estimated impact on the economy. For example, all institutions that receive Higher 

Education Emergency Relief funds and all grantees that receive more than $150,000 in CARES Act funding are required 

Program Funding Overview

Higher Education 

Emergency Relief 

Fund

$13.9 billion Provided $13.5 billion in formula grants for postsecondary institutions for costs that include COVID-19 

prevention, preparation, and response to COVID-19. An additional $349 million is provided to postsecondary 

institutions that the Department determines have the greatest unmet needs related to COVID-19. 

Postsecondary institutions must use no less than 50 percent of funds received under Section 18004(a)(1) of 

the CARES Act to provide emergency financial aid grants to students.

Elementary and 

Secondary School 

Emergency Relief 

Fund

$13.2 billion Provided formula grants to SEAs, who in turn provide subgrants to LEAs to address the impact of COVID-19 

on elementary and secondary schools. Funds may be used for activities authorized by several Federal 

education laws and a broad range of activities necessary to maintain operations and continuity of services, 

respond to COVID-19, and continue to employ existing staff. 

Governor’s 

Emergency 

Education Relief 

Fund

$3 billion Provided formula grants to Governor’s offices, who in turn provide subgrants to postsecondary institutions 

and LEAs that have been most significantly impacted by COVID-19 and other essential education-related 

entities. Funds are intended to support the impacted entities’ ability to continue to provide educational 

services. The Department encouraged investment of these funds in technology infrastructure and 

professional development to improve capacity in providing high-quality, accessible, distance education or 

remote learning.

Discretionary Grants 

to States

$307.5 million Provided discretionary grants to States with the highest COVID-19 burden. The Department awarded funds 

through two separate grant competitions. Education Stabilization Fund-Rethink K-12 Education Models 

grants ($180 million) provided support to SEAs to address educational needs of students, their parents, and 

teachers. Education Stabilization Fund-Reimagining Workforce Preparation grants ($127.5 million) provided 

support to help States create new educational opportunities and pathways to help citizens return to work, 

small businesses recover, and new entrepreneurs thrive.

Other Funding $307.5 million Provided funding for programs operated or funded by the Bureau of Indian Education and for outlying areas.

Table 4. Education Stabilization Fund Summary
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to publicly report on their use of funds. Administering the programs and operations funded by the CARES Act will require 

the Department to collect, analyze, and report on data for many purposes, such as evaluating programmatic performance, 

assessing fiscal compliance, and informing management decisions. For this reason, the Department, its grant recipients and 

subrecipients, and other program participants must have effective systems, processes, and procedures in place to ensure that 

CARES Act reported data are accurate and complete.

Ongoing and Planned Work

Our ongoing audit and inspection work related to the CARES Act in this area includes reviews of multiple schools’ use of 

professional judgment to adjust Free Application for Federal Student Aid (FAFSA) data elements, Federal Student Aid’s 

(FSA) implementation of temporary borrower relief to suspend involuntary collections on defaulted student loans, States’ 

monitoring related to Governor’s Emergency Education Relief Fund awards, and the Department’s plan for returning 

employees to Federal offices in the wake of the coronavirus pandemic. 

Additional planned projects for FY 2021 are identified in Table 5 below.

Progress in Meeting the Challenge 

The Department stated that CARES Act grant oversight and monitoring has been a continued focus of senior leadership 

and managers. The Department added that it took immediate steps to ensure appropriate interpretation of CARES Act

requirements, this included the establishment of formal Steering and Operations Committees to administer new grant 

programs and additional Federal education funds. The Department stated it implemented processes that (1) established 

preventative controls; (2) ensured statutory requirements were met; (3) communicated and shared information on 

program implementation, execution, data collection, and reporting; (4) and collaboratively resolved issues. According to 

the Department, these activities enabled it to make nearly all CARES Act formula grant funds available within 1 month of 

enactment, about twice as fast as the first awards under the American Recovery and Reinvestment Act of 2009. 

State and Local Program-Related

Elementary and Secondary School Emergency Relief Fund

• Department oversight of the Elementary and Secondary School Emergency Relief Fund 

• LEAs’ use of funding under the Elementary and Secondary School Emergency Relief Fund for technology purchases

Discretionary Grants

• Department monitoring of Rethink K-12 Education Models Grants

• Department awarding and monitoring of Reimagining Workforce Preparation Grants

Higher Education-Related

Higher Education Emergency Relief Fund

• Department oversight of the Higher Education Emergency Relief Fund

• Schools’ use of funding under the Higher Education Emergency Relief Fund

Student Financial Assistance Program Requirements

• Cancellation of Borrower Loans and Implementation of Return of Title IV Waiver Requirements

• Exclusion of Subsidized Loan Usage and Federal Pell Grant Lifetime Usage

• Department’s processes to implement flexibilities to Teacher Education Assistance for College and Higher Education grant service obligations

Table 5. Anticipated FY 2021 CARES Act Related Work
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MANAGEMENT CHALLENGE 2—

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 

programs and grantees. 

Oversight and Monitoring—Student Financial 

Assistance Programs 

FSA, a principal office of the Department, seeks to ensure 

that all eligible individuals can benefit from Federal 

financial assistance for education beyond high school. FSA 

is the nation’s largest provider of student financial aid and 

is responsible for implementing and managing the Federal 

student financial assistance programs authorized under 

Title IV of the Higher Education Act of 1965, as amended. 

These programs provide grants, loans, and work-study 

funds to students attending colleges or career schools. FSA 

directly manages or oversees a loan portfolio of over $1.5 

trillion, representing almost 210 million student loans to 

more than 45 million borrowers. FSA also oversees about 

6,000 postsecondary institutions that participate in the 

Federal student aid programs. 

In FY 2019, FSA performed these functions with 

an administrative budget of $1.7 billion and 1,251 

employees, along with contractors that provide outsourced 

business operations. From FY 2015 to FY 2019, FSA 

delivered an average of $124.2 billion in Federal student 

aid to an average of 12.2 million students.

The Department stated that its staff has provided support 

that included written guidance, blog posts, webinars, 

technical assistance, and post-award calls. The Department 

added that that it approved the addition of 25 temporary 

staff to assist with CARES Act related administrative, 

monitoring, and oversight workload. The Department 

further indicated that it plans to develop a centralized portal 

that will disseminate information regarding Education 

Stabilization Funds and serve as a tool for grantees to 

submit data to address annual reporting requirements. 

The Department noted that the CARES Act contained 

provisions to provide substantial relief for student loan 

borrowers. The Department stated that it took actions 

to (1) reduce the interest rate for all federally held 

student loan borrowers to zero, (2) place all borrowers in 

administrative forbearance status, which allowed them 

to temporarily stop making monthly loan payments, 

(3) refund involuntary payments made by borrowers 

with defaulted loans who were subject to having certain 

Treasury payments offset or wage garnishment, and (4) 

ensure all eligible borrowers were notified of the benefits 

afforded to them under the CARES Act. The Department 

added that the $40 million in CARES Act funds provided 

for student aid administration supports communication to 

borrowers explaining changes in loan terms and flexibility 

provisions as well as FSA system changes to implement the 

CARES Act provisions. 

What the Department Needs to Do 

To effectively oversee the CARES Act programs, the 

Department should provide appropriate technical 

assistance to grantees, especially for those who may not 

be familiar with Federal grant requirements; closely 

monitor grant implementation; and ensure that published 

data are of sufficient quality for use in assessing program 

compliance and effectiveness. 

To implement the student financial assistance related 

CARES Act provisions, waivers, and flexibilities, the 

Department needs to continue to provide guidance to and 

work with postsecondary institutions, contracted servicers, 

collection agencies, guaranty agencies, and accrediting 

agencies. The Department also needs to monitor and 

oversee these entities to ensure that the provisions are 

implemented effectively. Lastly, when these provisions 

expire, the Department will need to carefully reinstate 

the student loan provisions for which the relief was 

temporarily provided. 
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Within the Department, FSA administers the Federal student assistance programs, and the Office of Postsecondary 

Education develops Federal postsecondary education policy and regulations for the Federal student assistance programs. 

The Office of Postsecondary Education also administers the review process for accrediting agencies to ensure that the 

Department recognizes only agencies that are reliable authorities for evaluating the quality of education and training 

postsecondary institutions and programs offer.

Why This Is a Challenge

The Department must provide effective oversight and monitoring of the student financial assistance programs to ensure 

that the programs are not subject to fraud, waste, and abuse. The Department’s responsibilities include coordinating and 

monitoring the activity of many Federal, State, nonprofit, and private entities involved in Federal student aid delivery, 

within a statutory framework established by Congress and a regulatory framework established by the Department. These 

entities include lenders, guaranty agencies, postsecondary institutions, contracted servicers, collection agencies, and 

accrediting agencies. 

Audits Relating to Student Financial Assistance Programs 

Our audits involving the oversight and monitoring of student financial assistance programs continue to identify instances 

of noncompliance as well as opportunities for the Department to further improve its processes. The Office of Inspector 

General’s (OIG) recent audit-related work within this area has covered a wide range of activities, as shown in Table 6 on the 

following page.

Figure 15. Student Aid Delivered and Postsecondary Students Receiving Aid FYs 2015–2019

Source: Federal Student Aid Annual Reports FY 2015–FY 2019
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Activities 

Reviewed Review Results

Accreditation We found that the Department’s process for reviewing agency petitions for recognition did not provide reasonable 

assurance that the Department recognized only agencies meeting Federal criteria. We also reported that the Office of 

Postsecondary Education’s post-recognition oversight was not adequate to ensure agencies consistently and effectively 

carried out their responsibilities.

Contractor 

Oversight

In our audit of FSA’s oversight of loan servicers, we found that FSA did not track all identified instances of loan servicer 

noncompliance and rarely held loan servicers accountable for noncompliance with requirements. We also noted that the 

information FSA collected was not always sufficient to ensure that loan servicers complied with requirements for servicing 

federally held student loans. 

In an audit of FSA’s contractor personnel security clearance process, we found that FSA had not effectively implemented 

Department requirements to ensure that all contractor employees had appropriate security screening.

Heightened Cash 

Management

We found that FSA consistently administered its heightened cash monitoring payment methods when utilizing this process 

for one of the top five reasons. We also concluded that FSA’s use of heightened cash monitoring was an effective oversight 

tool. However, we noted opportunities for FSA to improve its controls to better ensure that it (1) consistently places schools 

on a heightened cash monitoring payment status when they submitted late annual financial statements or had composite 

scores that fell below the minimum financial responsibility score, (2) tracks a school’s method of payment status from 

the time of recommendation for heightened cash monitoring placement until the placement was made, and (3) retains all 

required documentation.

Satisfactory 

Academic Progress

We found that FSA did not always ensure that schools completed corrective actions related to satisfactory academic progress 

findings that independent public accountants identified in compliance audits and FSA identified in program reviews.

Total and 

Permanent Disability 

(TPD) Discharges

We found that FSA appropriately approved and rejected TPD applications and its contractor generally serviced TPD accounts 

in accordance with Federal program requirements. However, we identified design weaknesses in FSA’s control activities for 

the TPD discharge application review process that may negatively affect the operating efficiency and effectiveness of the 

process and increase the risk that FSA approves applications that are inaccurate or incomplete. We also found weaknesses 

in FSA’s documented procedures and its quality control review for its TPD discharge application review process, as well as 

weaknesses in FSA’s monitoring of the TPD discharge process.

Verification of 

FAFSA Data

We found that FSA did not evaluate its process for selecting FAFSA data elements that institutions were required to verify and 

generally did not effectively evaluate and monitor its processes for selecting students for verification. We also performed a 

series of external audits of selected schools to assess their compliance with Federal verification and reporting requirements. 

Of six schools covered by these audits, three did not always complete verification of applicant data in accordance with Federal 

requirements, and two did not always accurately report verification results to FSA.

Table 6. OIG’s Recent Reports Relating to the Oversight and Monitoring of Student Financial 

Assistance Programs
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Ongoing and Planned Work

Our ongoing audit and inspection work in this area includes reviews of the Department’s compliance with regulations 

in its recognition of a selected accreditor, the Department’s involvement in and oversight of activities related to the sale 

and operations of a chain of career colleges, FSA’s controls over the FAFSA verification process, FSA’s accountability as a 

performance based organization, and selected schools’ controls over Clery Act reporting. Additional planned projects for FY 

2021 include audits of schools’ compliance with career pathway programs and ability to benefit provisions, the Department’s 

plans and processes to proactively monitor the financial health of postsecondary schools, FSA’s transition to the Next 

Generation Financial Services Environment, and FSA’s implementation of its Next Generation Payment Vehicle Account 

Program pilot.

Progress in Meeting the Challenge

The Department and FSA stated that it has taken steps and has additional plans to improve its oversight and monitoring of 

the student financial assistance programs. This included activities related to schools, accreditors, and its FAFSA verification 

process. FSA stated that it worked to address weaknesses in the single audit process that will improve its usefulness as a 

school oversight tool and that it deployed an analytical model that will improve its ability to identify at-risk schools and 

better prioritize support. The Department stated that it plans to implement additional procedures to identify accrediting 

agencies having a higher risk of noncompliance with statutory and regulatory requirements and would subsequently 

prioritize oversight of those agencies. FSA also stated that it implemented an improved model for verification selection and 

evaluation of data elements from the FAFSA. According to FSA, this will allow the Department to better identify applicants 

for whom errors would result in a change in their Federal aid award, potentially reducing improper payments. 

FSA further noted that the Fostering Undergraduate Talent by Unlocking Resources for Education Act could help it ensure the 

accuracy of income information used to determining Pell Grant eligibility and allow borrowers to more easily recertify their 

income to stay enrolled in income-driven repayment plans. 

Investigations of Student Financial Assistance Program Participants

The OIG’s investigative recent work continues to identify fraud, waste, and abuse of student financial assistance program 

funds. This includes each of the areas in Table 7 below.

Area Example of Related Investigative Activity

Institutions OIG investigations have identified instances where schools violated the Federal ban on incentive compensation. Title IV of 

the Higher Education Act prohibits any institution that receives Federal student aid from compensating student recruiters 

with a commission, bonus, or other incentive payment based on the recruiters’ success in securing student enrollment. 

The incentive compensation ban protects students against admissions and recruitment practices that serve the financial 

interests of the recruiter rather than the educational needs of the student.

School Officials OIG investigations identified improper activities of school officials that included falsifying student eligibility information, 

embezzling portions of student’s Federal student financial assistance awards, using a corporate credit card for personal 

benefit, and overriding academic holds on students’ financial aid records to allow improper award and disbursement of Federal 

student assistance. 

Program 

Participants

OIG investigations identified instances where program participants gave kickback payments in exchange for unjustified 

financial aid payments, used fraudulently obtained social security numbers to obtain direct loans, and made false claims of 

earning a high school diploma to receive student financial assistance.

Distance Education 

Fraud Rings

Fraud rings are large, loosely affiliated groups of criminals who seek to exploit vulnerabilities in distance education programs. 

The OIG has investigated numerous instances where these groups use the identities of others (with or without their consent) 

in order to fraudulently obtain Federal student aid.

Table 7. OIG’s Recent Investigative Activity Relating to the Student Financial Assistance Programs
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What the Department Needs to Do

The Department needs to continue its efforts to enhance 

its oversight of student financial assistance programs, 

participants, and partners. This includes taking steps to 

ensure that its management of related internal control 

systems is effective to ensure that they are appropriately 

designed and implemented, operating as intended, and 

correcting identified weaknesses in a timely manner. 

The Department further needs to ensure its oversight 

functions work together to effectively provide the 

intended additional protections to students and taxpayers. 

While FSA’s Next Gen initiative has significant potential 

to improve FSA’s ability to oversee and hold accountable 

its key contractors servicing Federal student aid, the 

initiative is still being implemented. It will be important 

for FSA to ensure that this initiative is effectively 

implemented and that it follows through to hold its 

contractors accountable for effectively administering their 

responsibilities. The Department should position itself 

to assess the effectiveness of its initiatives to improve 

oversight of student financial assistance programs by 

setting goals for and measuring results that demonstrate 

progress of its efforts.

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 variety of effectiveness and 

compliance elements. This area remains a management 

challenge given our continued findings in this area.

Oversight and Monitoring—Grantees

The Department is responsible for administering 

education programs that Congress authorized and the 

President signed into law. This responsibility includes 

awarding program funds to eligible recipients and 

monitoring their progress in meeting program objectives, 

ensuring that programs are administered fairly, 

ensuring grants are executed in conformance with both 

authorizing statutes and laws prohibiting discrimination 

in federally funded activities, collecting data and 

conducting research on education, and helping to focus 

attention on education issues of national importance. 

The funding for many grant programs flows through 

primary recipients, such as SEAs, to subrecipients, such 

as LEAs or other entities. The primary recipients must 

oversee and monitor the subrecipients’ activities to ensure 

compliance with Federal requirements.

The Department’s early learning, elementary, and 

secondary education programs annually serve about 

18,400 school districts and more than 55 million students 

attending more than 98,000 public schools and 34,000 

private schools. The Department awards discretionary 

grants using competitive processes and priorities and 

formula grants using formulas determined by Congress. 

In all cases, the Department’s activities are governed by 

the program authorizing legislation and implementing 

regulations. One of the key programs the Department 

administers is Title I, Part A, which provided about $17 

billion in FY 2020 for local programs that provide extra 

academic support to help an estimated 25 million students 

in high-poverty schools meet State academic standards. 

Another key program is the Individuals with Disabilities 

Education Act, Part B Grants to States. This program 

provided more than $12.7 billion in FY 2020 to help 

States and school districts meet the special educational 

needs of an estimated 7 million students with disabilities.

Why This Is a Challenge

Effective monitoring and oversight are essential to ensure 

that grantees meet grant requirements and achieve program 

goals and objectives. Our recent audits related to several 

grant programs identified weaknesses in grantee oversight 

and monitoring that included concerns with SEA and LEA 

controls and Department oversight processes.
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Audits Relating to Federal Education Grant Programs 

Our recent audits at the SEA and LEA levels identified weaknesses that could have been limited through more effective 

oversight and monitoring. The internal control issues identified within these areas could impact the effectiveness of the 

entities reviewed and their ability to achieve intended programmatic results. This included work related to the programs and 

activities identified in Table 8 below.

Area Reviewed Review Results

Adult Education We identified opportunities for an SEA to better ensure that it used funds in compliance with applicable laws and regulations 

and obtained and reviewed single audit reports of subgrantees.

Auditee Response 

to Prior Audit 

Findings

In our series of work on the status of corrective actions on previously reported Title I findings at four school districts, we found 

weaknesses in the design or implementation of related procedures at three of the four districts.

Charter Schools, 

Replication and 

Expansion Grants

In the first of a series of audit work in this area, we found that a nonprofit charter management organization did not fully 

comply with Federal grant reporting requirements and did not always spend grant funds in accordance with Federal cost 

principles and its grant application. 

Disaster Recovery We have issued five audit reports relating to disaster recovery funding authorized under the Bipartisan Budget Act of 2018. 

• Our work at two SEAs relating to internal controls over the Immediate Aid to Restart School Operations (Restart) program 

identified weaknesses in programmatic monitoring processes, internal audit division staffing, processes to assess fraud 

risks, internal controls over procurement, and segregation of duties. 

• Our work relating to Restart allocations and uses of funds found that one audited SEA established and implemented 

effective controls over Restart allocations and uses of funds. However, we identified instances of noncompliance that 

included one district inappropriately charging unallowable personnel expenditures to the program and failure by another 

entity to obtain control and ownership of materials at nonpublic schools funded by the Restart program. We found that 

another SEA also established and implemented effective controls over Restart allocations and uses of funds but could 

better maintain and manage its records for the Restart program.

• Our work relating to the Temporary Emergency Impact Aid for Displaced Students (EIA) program found that an SEA did not 

ensure that LEAs accounted for program funds received for students reported as children with disabilities in accordance 

with Federal requirements and that LEAs did not use program funds to pay salaries only for employees who supported 

schools with displaced students.

McKinneyVento Homeless 

Assistance Act

We found that an SEA generally provided effective oversight of LEAs and coordinated with other entities to implement selected 

requirements related to identifying and educating homeless children and youths. However, we noted that the SEA could 

improve its internal controls by better documenting policies, procedures, and roles.

Table 8. OIG’s Recent Reports Relating to SEA and/or LEA Implementation of Federal Education 

Grant Programs
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Our recent audits of the Department’s oversight and monitoring processes over several grant programs identified internal 

control weaknesses and opportunities for improvement. These weaknesses could limit the Department’s ability to ensure 

that grantees demonstrated progress towards meeting programmatic objectives and properly safeguarded and used Federal 

education funds. As noted in Table 9 below, our work included audits within several areas.

Area Reviewed Review Results

Disaster Recovery We found that the Department designed policies and procedures that should have provided reasonable assurance that it 

awarded and monitored Defraying Costs of Enrolling Displaced Students in Higher Education Program and Emergency 

Assistance to Institutions of Higher Education Program funds in accordance with applicable guidance. However, we found 

that the Department did not implement all processes and risk mitigation strategies as designed. As a result, the Department 

inappropriately awarded funds to some of the grantees whose applications we reviewed.

Every Student 

Succeeds Act

We found that the Department designed processes that would provide reasonable assurance of (1) identifying and resolving 

potential instances of State plans’ noncompliance with applicable requirements and (2) complying with Department policy. 

However, the Department did not always implement these processes as designed. As a result, we could not determine why 

the Department selected certain peer reviewers, ensure that the Department determined whether some peer reviewers 

had conflicts of interest or the appearance of conflicts of interest, and could not always determine whether the Department 

considered the results of the peer review process when providing States feedback to strengthen the technical and overall 

quality of their plans.

Federal Funding for 

Charter Schools

We found that the Department’s oversight and monitoring efforts were not effective to ensure that the SEAs performed 

charter school closure processes in accordance with Federal laws and regulations. The Department did not provide 

adequate guidance to SEAs on how to effectively manage charter school closures and did not monitor SEAs to ensure that 

they had an adequate internal control system for the closure of charter schools.

Indian Education We identified weaknesses in the Department’s monitoring activities that included a lack of policies and procedures on 

monitoring grantees’ performance and use of funds. We found that monitoring efforts were primarily limited to ensuring that 

grantees spent funds by established deadlines.

Rehabilitative 

Services

We identified weaknesses in controls over the data quality of case service reports in areas that included monitoring 

procedures, data certifications, and procedures related to the use of edit check programs.

Investigations of Federal Education Grant Program Participants

The OIG’s recent investigative work continues to identify fraud relating to Federal education grant programs. This includes 

the areas identified in Table 10 below.

Subject Area Example of Related Investigative Activity

Contractors OIG investigations identified instances where contractors invoiced for services that it did not perform, fraudulently obtained 

contracts, committed bribery, and made kickback payments.

LEA Officials OIG investigations identified instances where LEA officials allowed fraudulent credit card use in exchange for kickbacks, 

embezzled cash, and executed a scheme to obtain funds for personal use by creating false invoices and issuing 

fraudulent checks. 

Charter School 

Officials

OIG investigations identified instances involving charter school founders and senior officials who participated in conspiracy, fraud, 

theft, money laundering, false bankruptcy declarations, and other scams, abusing their positions of trust for personal gain. 

Table 9. OIG’s Recent Reports Relating to the Department’s Oversight and Monitoring of Federal 

Education Grant Programs

Table 10. OIG’s Recent Investigative Activity Relating to Federal Education Grant Programs
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acquired contractor assistance to develop a standard virtual 

monitoring program for its discretionary and formula 

grant programs. 

The Department stated that it has implemented initiatives 

intended to ensure that grants management systems 

can be used to effectively collect grantee data, analyze 

performance, and detect risk. This includes plans to create 

a more modern, modular, secure, and user-friendly grants 

management system that meets the needs of all internal 

and external users. The Department added that it has 

continued to enhance its Entity Risk Review capabilities 

to conduct risk assessments for grant applicants 

recommended for initial or continuation funding. This 

application provides administrative, financial, and internal 

controls information by linking disparate data sets.

What the Department Needs to Do

The Department’s oversight and monitoring of grantees 

remains a management challenge given our continued 

findings in this area. However, the Department continues 

to report progress in enhancing its grantee oversight 

processes, citing numerous actions it has taken to address 

risks, including those identified in a number of OIG 

audit reports, and to improve outcomes across multiple 

program offices. The Department should continue its 

efforts to offer common training, encourage collaboration 

and communication within and across program offices, 

and take steps to ensure that its program offices are 

consistently providing effective risk-based oversight of 

grant recipients—to include both technical assistance and 

monitoring. The Department should also ensure that passthrough entities are providing effective oversight of their 

subrecipients and identifying and correcting any instances 

of noncompliance. Further, to the extent that it is using 

contractors to assist in improving and modernizing its 

grants management capabilities, the Department should 

ensure that deliverables are received timely and meet 

specifications. Lastly, 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, including those conducting single audits under 

OMB 2 Code of Federal Regulations 200, Subpart F, given 

its generally limited staffing in relation to the amount of 

Federal funding that it oversees.

Ongoing and Planned Work

Ongoing work in this area includes reviews of the 

Charter School Program Grants for Replication and 

Expansion of High-Quality Charter Schools, Restart, 

and EIA programs, and oversight of virtual charter 

schools’ implementation of selected requirements under 

IDEA. Planned projects for FY 2021 include work on 

Statewide accountability systems under the Every Student 

Succeeds Act, controls over Student Support and Academic 

Enrichment Program grants, and the effectiveness of 

Charter School Program Grants in increasing the number 

of high-quality charter schools. 

Progress in Meeting the Challenge

The Department indicated that it has taken steps to 

improve its oversight and monitoring of grantees. This 

included activities to define skills needed by grants 

administration staff and improve their expertise, 

enhancing policy and related training opportunities, 

advancing and standardizing award and virtual monitoring 

processes, and improving grants management systems.

The Department stated that it has prioritized building 

the capacity of grants administration staff to provide 

appropriate oversight and monitoring. This included 

creating a competency model, career map, and training 

plan for the grant management job series. The Department 

stated that this initiative was intended to identify core 

competencies and training opportunities needed to close 

competency gaps. 

The Department added that it revised the discretionary 

grant policy to provide a more comprehensive guide for 

administering grants in a standardized manner across 

program offices. The Department also stated that it 

developed and provided comprehensive training resources 

and continuing education workshops for program office 

staff and technical assistance resources related to internal 

controls requirements for grant recipients.

The Department noted that it reviewed the continuation 

award process to encourage cross-office alignment and 

provided training to promote a stronger continuation 

funding process. The Department added that it continued 

to leverage virtual monitoring approaches to provide 

necessary oversight and support to grant recipients, 

updated a resource related to virtual monitoring, and 
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M A NAGE M ENT CH A L L ENGE 3—DATA QUA LIT Y A ND R EPORT I NG 

The Department collects, analyzes, and reports on data for many purposes that include enhancing the public’s ability 

to access high-value education-related information, reporting on programmatic performance, informing management 

decisions, and improving education in the United States. The Department collects data from numerous sources, including 

States, which compile information relating to about 18,400 public school districts and 98,000 public schools; about 6,000 

postsecondary institutions, including universities and colleges, as well as institutions offering technical and vocational 

education beyond the high school level; and surveys of private schools, public elementary and secondary schools, students, 

teachers, and principals. 

Why This Is a Challenge

The Department, its grantees, and its subrecipients must have effective controls to ensure that reported data are accurate and 

complete. The Department relies on program data to evaluate program performance and inform management decisions. 

Audits and Inspections Involving Data Quality and Reporting 

Our recent audit work identified a variety of weaknesses in the quality of reported data and recommended improvements at 

the Department and at SEAs and LEAs. This included the following areas, as shown in Table 11, below.

Area Reviewed Review Results

Adult Education We found that an SEA used incomplete data obtained from two educational regions, two adult education centers, and one 

subgrantee to prepare its program performance report. 

Borrower Defense We found that FSA did not have an adequate information system to manage borrower defense claim data. We also identified 

weaknesses with FSA’s procedures to review and process borrower defense claims. 

Clery Act In the first of a series of audits, we found a postsecondary institution did not have effective controls to ensure that it reported 

complete and accurate Clery Act crime statistics. We concluded that the school’s Clery Act crime statistics were not complete 

and accurate and did not provide reliable information to current and prospective students, their families, and other members 

of the campus community for making decisions about personal safety and security.

Disaster Recovery We found that an SEA did not ensure that the data it provided to the Department were accurate and complete.

Graduation Rates In a series of reports on SEAs’ processes to calculate and report graduation rates, we concluded that internal controls at 

each of the SEAs that we reviewed did not provide reasonable assurance that reported graduation rates were accurate and 

complete. We identified specific weaknesses that included lack of oversight of LEA controls over data quality and processes. 

Specifically, some LEAs improperly included or excluded students from graduate rate calculations based on Federal 

requirements. 

Income-Driven 

Repayment Plans

We found that the Department could have provided more detailed information on specific income-driven repayment plans and 

its loan forgiveness programs to fully inform decision makers and the public about current and future program management 

and financial implications of these plans and programs.

McKinneyVento Homeless 

Assistance Act

We found that an SEA conducted edits and reasonableness checks of data that LEAs submitted, but it did not review LEA 

homeless student data when conducting monitoring reviews. We also noted that LEAs were not required to certify that controls 

over the data were working as intended and known issues were disclosed. 

Table 11. OIG’s Recent Data Quality Related Reports
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Ongoing and Planned Work

Ongoing work in this area includes additional reviews of 

the accuracy and completeness of displaced student count 

data provided by SEAs under the EIA program, and an 

additional review of the accuracy and completeness of 

a school’s campus crime statistics under the Clery Act. 

Planned projects for FY 2021 include additional work 

related to the EIA program and reviews of Charter School 

Program grants. 

Progress in Meeting the Challenge

The Department stated that it is developing a coordinated 

approach to data governance, data management, and data 

quality to ensure that education data provide high value 

for internal decision makers and external stakeholders. The 

Department added that it has taken comprehensive steps 

to promote cohesive data governance initiatives, build 

staff capacity around data, and improve data management 

practices and systems.

The Department stated that it established an agencywide Data Governance Board to take agency-wide 

action in developing an open data culture, improving 

the Department’s capacity to leverage data as a strategic 

asset for evidence building and operational decisions, 

and developing the data skills of staff. The Department 

noted that the Data Governance Board initiated the 

Department’s first data maturity assessments that 

will allow the Department to evaluate itself against 

documented best practices, determine gaps, and identify 

priority areas for improvement. The Department expects 

the assessments to provide a baseline to measure progress 

and growth and to be used to guide the creation of 

its inaugural data strategy and inform program office 

investment decisions.

The Department stated that it also identified an approach 

to address root causes and improve data quality that 

included ensuring grantee awareness of their data 

responsibilities and consequences for noncompliance. 

The Department noted that the approach also includes 

provisions to improve the varying capacity of grantees in 

reporting data and among Department staff in reviewing 

grantee-reported data. The Department expects this effort 

will include technical assistance to grantees, additional 

resources for data quality review, and expanded use of 

technological solutions to automate and reduce the need 

for manual reporting and review.

The Department stated that it initiated a process to 

develop a data strategy to realize the full potential of data 

to improve education outcomes. The Department stated 

that this effort includes agency-wide discussions about 

data priorities that will help improve data maturity and 

will focus on the Department’s capabilities to leverage 

data, operationalize and optimize data governance, and 

drive cultural change for the benefit of all stakeholders. 

The Department also identified system- and programspecific activities that included improving the quality and 

use of Government and Performance Results Act measures, 

launching a new annual performance reporting tool for the 

Office of Special Education Programs formula grantees, 

and implementing a central unified data platform for FSA 

aid lifecycle data. 

What the Department Needs to Do

The Department’s efforts to improve the quality of data are 

critically important to program management. While the 

Department has made progress in strengthening grantees’ 

data quality processes, findings from our recent audit 

reports show that this area remains an ongoing challenge. 

The Department should continue its efforts to promote 

strong data management practices across its program 

offices, from the development of sound data collection 

protocols to the implementation of comprehensive data 

verification processes. As discussed in its response, the 

Department should ensure that it uses the results of 

its data maturity assessments to measure progress and 

growth and to guide the creation of its inaugural data 

strategy and related action plans, inform program office 

investment decisions, and track its returns on those 

investments. The Department should also continue 

performing outreach to States and other entities that 

report data to the Department to reinforce requirements 

and expectations around good data quality practices—of 

particular importance given the substantial amount of 

funding for new programs and emphasis on transparency 

and accountability under the CARES Act. Lastly, 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 its grantees and subgrantees.
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PIIA also requires each agency’s Inspector General to 

determine the agency’s compliance with the statute for 

each fiscal year. To be considered compliant with PIIA, an 

agency must (1) publish an Agency Financial Report, (2) 

conduct a program-specific risk assessment, (3) publish 

improper payment estimates, (4) publish corrective 

action plans to reduce improper payments, (5) publish 

and meet improper payment reduction targets, and (6) 

report improper payment rates of less than 10 percent. 

Additionally, an Inspector General must evaluate the 

accuracy and completeness of the agency’s reporting and 

performance in preventing, reducing, and recapturing 

improper payments. 

Why This Is a Challenge

The Department must ensure that the billions of dollars 

entrusted to it reach 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, 

and OMB has designated these programs as highpriority programs, which are subject to greater levels of 

oversight. The Department changed its improper payment 

estimation methodologies for both the Pell and Direct 

Loan programs for FY 2019 and reported a significant 

decrease in improper payments in those programs from 

FY 2018. However, we found that its FY 2019 estimates 

for the Pell and Direct Loan programs were unreliable 

because they were not statistically valid. It is important 

for the Department to develop valid and reliable estimates 

so that it can identify the root causes and take actions to 

prevent and reduce improper payments. Figure 3 shows 

the reported improper payment estimates for these two 

programs from FY 2017 through FY 2019.

MANAGEMENT CHALLENGE 4—

IMPROPER PAYMENTS

“Improper payments” are payments the government 

makes to the wrong person, in the wrong amount, or for 

the wrong reason. Although not all improper payments 

are fraudulent or represent a loss to the government, all 

improper payments degrade the integrity of government 

programs and compromise citizens’ trust in government. 

To reduce instances of improper payments, agencies must 

properly identify the cause of the improper payment, 

implement effective mitigation strategies to address 

the cause, and regularly assess the effectiveness of those 

strategies, refining them as necessary.

The Payment Integrity Information Act of 2019 (PIIA) 

reorganized and revised several existing improper 

payments statutes, including the Improper Payments 

Elimination and Recovery Act of 2010 (IPERA). PIIA 

requires Federal agencies to reduce improper payments 

and to report annually on their efforts. It specifically 

requires that each agency, in accordance with guidance 

prescribed by the Office of Management and Budget 

(OMB), periodically review all programs and activities 

that the agency administers and identify those that may 

be susceptible to significant improper payments. For 

each program and activity identified as susceptible to 

significant improper payments, the agency is required 

to produce a statistically valid estimate (or an estimate 

that is otherwise appropriate using a methodology that 

OMB approved) of the improper payments made by each 

program and activity. The agency must include those 

estimates in the accompanying materials to its annual 

Agency Financial Report. 
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The authorizing legislation for the Restart (total FY 2019 outlays of $34 million) and EIA (total FY 2019 outlays of $160 

million) programs designated them as susceptible to significant improper payments, thereby requiring the Department to 

report improper payment estimates for these programs beginning with its FY 2019 Agency Financial Report.

Audits and Inspections Involving Improper Payments

The OIG’s most recent statutorily required work found that the Department complied with improper payment reporting 

requirements. However, as shown in Table 12 below, our audits identified opportunities for improvement in multiple areas. 

Figure 16. Pell and Direct Loan Improper Payment Estimates FY 2017–2019

Source: U.S. Department of Education Agency Financial Reports (FY 2017–FY 2019)

FY Complied 

with IPERA Identified Concerns

2019 Yes The Department published improper payment estimates for the Pell, Direct Loan, Emergency Impact Aid, 

and Restart programs as required by IPERA. However, we found that the published estimates for three of 

these programs were unreliable because the methodologies used to develop them were not statistically 

valid. 

2018 Yes The Department reported inaccurate and incomplete information regarding the amounts of identified and 

recaptured improper payments in its FY 2018 Agency Financial Report. As a result, we could not accurately 

evaluate the Department’s performance in recapturing improper payments for its programs and activities. 

2017 No The Department did not meet all requirements for compliance with IPERA because it did not meet its 

reduction target for the Pell program.

Table 12. Results of Recent OIG Statutorily Required Improper Payment Audits
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Other audit work has identified potential improper 

payments in the student financial assistance programs and 

by SEAs and LEAs. Our semiannual reports to Congress 

from April 1, 2017, through March 31, 2020, included 

more than $725 million in questioned costs from audit 

activity and more than $94 million in restitution payments 

from investigative activity. These examples demonstrate 

that there may be other potential opportunities for the 

Department to identify and prevent improper payments.

Ongoing and Planned Work

Planned projects include our annual review of the 

Department’s compliance with the improper payment 

reporting requirements and its performance in preventing, 

reducing, and recapturing improper payments. We 

will also complete the required risk assessment of the 

Department’s purchase card program and, if deemed 

necessary, conduct an audit of Department purchase 

card transactions. Our planned activities for FY 2021 

include multiple projects involving grant recipients where 

improper payments could be identified.

Progress in Meeting the Challenge

The Department stated that it is addressing this 

management challenge on several fronts. The Department 

stated that it performed compliance activities in FY 2020 

that included improper payment estimation of programs 

deemed susceptible to significant improper payments 

and qualitative and quantitative improper payment risk 

assessments for programs and activities. The Department 

added that it reviewed and revised its methodology for 

the Emergency Impact Aid program in FY 2020 and that 

it strengthened its risk assessment process to include an 

improper payment threshold analysis of all its programs 

and activities.

According to the Department, FSA implemented a 

daily pre-payment interface with the Department of the 

Treasury’s Do Not Pay web service that matches intended 

recipients with multiple data sources to identify potential 

improper payments. The Department noted that it is 

participating in a pilot with the Do Not Pay analytics team 

to research possible payment integrity checks that could be 

applied to the Department’s payment data.

According to the Department, FSA continued to refine 

its methodology to estimate improper payments. The 

Department also noted that FSA worked with OMB to 

gain increased support for using compliance audit data 

as improper payment estimation and added requirements 

for compliance auditors to provide FSA with population 

and sample information necessary to estimate improper 

payments. Additionally, the Department stated that FSA 

also implemented enhanced quality control procedures 

over its improper payment estimation process to increase 

validation of compliance audit data and calculations 

and ensure only sustained questioned costs, rather than 

questioned costs, identified in compliance audits are used 

in improper payment estimates.

What the Department Needs to Do 

The Department needs to ensure that revised estimation 

methodology for the Emergency Impact Aid program is 

properly implemented and documented. The Department 

needs to ensure that the refined estimation methodologies 

for the Pell and Direct Loan programs produce statistically 

valid and rigorous improper payment estimates that 

are consistent with the requirements in OMB Circular 

A-123 Appendix C. In addition, the Department needs 

to properly implement its enhanced quality control 

procedures over its improper payment estimation process. 

The OIG has not assessed the Department’s FY 2020 

estimation methodologies or the accuracy and validity 

of the Department’s estimates. The OIG will review the 

accuracy and validity of these measurements as part of 

the FY 2020 PIIA audit. Depending on whether the OIG 

finds issues with these estimation methodologies and 

estimates, this Management Challenge Area is subject to 

review and reconsideration.
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MANAGEMENT CHALLENGE 5—

I NFOR M AT ION T ECH NOLOGY 

SECURITY

The Department’s systems house millions of sensitive 

records on students, their parents, and others, and are 

used to process billions of dollars in education funding. 

These systems are primarily operated and maintained by 

contractors and are accessed by thousands of authorized 

people (including Department employees, contractor 

employees, and other third parties such as school financial 

aid administrators). As shown in Figure 4, as of September 

30, 2020, the Department reported $844 million in total 

information technology (IT) spending for FY 2020 and 

estimated that it would spend more than $886 million on 

IT in FY 2021. The estimated FY 2021 spending is a 28.2 

percent increase from the reported FY 2018 level. 

Figure 17. Department Total IT Spending FY 

2017–2020 (Dollars in Millions)

(Dollars in Billions)

Through the Office of the Chief Information Officer 

(OCIO), the Department monitors and evaluates the 

contractor-provided IT services through a service-level 

agreement framework and develops and maintains 

common business solutions required by multiple 

program offices. OCIO is responsible for implementing 

the operating principles established by legislation and 

regulation, establishing a management framework to 

improve the planning and control of IT investments, and 

leading change to improve the efficiency and effectiveness 

Source: Department of Education IT Agency Summary, ITDashboard.gov, as 

of September 30, 2020.

of the Department’s operations. In addition to OCIO, 

FSA has its own chief information officer, whose 

primary responsibility is to promote the effective use of 

technology to achieve FSA’s strategic objectives through 

sound technology planning and investments, integrated 

technology architectures and standards, effective systems 

development, and production support.

The Federal Information Security Modernization Act of 2014

(FISMA) requires the OIG to assess the effectiveness of the 

agency’s information security program. FISMA mandates 

that this evaluation includes (1) testing of the effectiveness 

of information security policies, procedures, and practices 

of a representative subset of the agency’s information 

systems and (2) an assessment of the effectiveness of the 

information security policies, procedures, and practices of 

the agency. 

Why This Is a Challenge

In light of increased occurrences of high-profile data 

breaches (public and private sector), the importance 

of safeguarding the Department’s information and 

information systems cannot be understated. Protecting 

this complex IT infrastructure from constantly evolving 

cyber threats is an enormous responsibility and challenge. 

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. 

For the last several years, IT security audits and financial 

statement audits have identified security controls that 

need improvement to adequately protect the Department’s 

systems and data. 

Audits Involving IT Security

Our recent reports on the Department’s compliance with 

FISMA, performed by the OIG with contractor assistance, 

noted that the Department and FSA made progress 

in strengthening their information security programs. 

However, as shown in Table 13, our recent FISMA 

audits included audit findings across all five cybersecurity 

framework security functions developed by the Council of 

the Inspectors General on Integrity and Efficiency, OMB, 

and the Department of Homeland Security and within 

each of security function’s related metric domains. Our FY 

2017 through FY 2019 FISMA audits concluded that the 

Department and FSA were not effective in any of the five 

security functions—Identify, Protect, Detect, Respond, 

and Recover. 
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FY Identify: Risk 

Management

Protect:

Configuration 

Management

Protect:

Identity 

and Access 

Management

Protect:

Data 

Protection 

and Privacy

Protect:

Security 

Training

Detect: 

Information 

Security 

Continuous 

Monitoring

Respond: 

Incident 

Response

Recover: 

Contingency 

Planning

2019 Audit Finding Audit Finding Audit Finding Audit Finding Audit Finding Audit Finding Audit Finding Audit Finding

2018 Audit Finding Audit Finding Audit Finding Audit Finding Audit Finding Audit Finding Audit Finding Audit Finding

2017 Audit Finding Audit Finding Audit Finding N/A3 Audit Finding Audit Finding Audit Finding Audit Finding

3

 Data protection and privacy was not a metric domain for the FY 2017 FISMA audit.

Each of our recent FISMA reports recommended ways the Department and FSA could increase the effectiveness of their 

information security program so that they fully comply with all applicable requirements. Our FY 2019 FISMA audit 

specifically noted that the Department and FSA could strengthen their controls in areas such as (1) corrective action 

plan remediation (risk management); (2) reliance on unsupported operating systems, databases, and applications in its 

production environments (configuration management); (3) fully implementing two-factor authentication (identity and 

access management); (4) performance of timely reviews of system Privacy Impact Assessments (data protection and privacy); 

(5) fully implementing its Continuous Diagnostics and Mitigation program (information security continuous monitoring); 

and (6) ensuring functionality of data loss prevention tools (incident response). We made recommendations to help the 

Department and FSA fully comply with all applicable requirements.

Recent audits of the Department’s financial statements, performed by an independent public accountant with OIG 

oversight, have repeatedly identified IT controls as a significant deficiency. In its most recent report, the independent public 

accountant noted that the Department and FSA management demonstrated progress implementing corrective actions to 

remediate some prior year deficiencies in addressing some of the deficiencies. However, they reported that management 

had not fully remediated prior-year deficiencies in several areas and identified IT control deficiencies in areas such as 

access controls, segregation of duties, and application change controls. The independent public accountant concluded 

that ineffective IT controls increase 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. 

Our investigative work in this area identified a cyber-crime scheme targeting Federal student financial assistance funds. This 

involved the use of phishing to obtain a student’s login credentials and then using this information to access the school’s 

systems to change the student’s direct deposit information. We issued a memorandum that informed the Department that 

the lack of two-factor authentication contributed to this incident and recommended the Department take steps to advise 

schools of this threat. The Department subsequently issued a public advisory regarding the scheme.

Planned projects in this area will determine whether the Department’s and FSA’s overall IT security programs and practices 

were generally effective as they relate to Federal information security requirements.

Progress in Meeting the Challenge

The Department stated that it has made significant progress in addressing this ongoing challenge. This included 

improvements in a wide range of areas such as metric scoring, management of Plans of Actions and Milestones, 

communication and capacity building, data loss prevention, and access management.

The Department noted that it established an improved methodology for quarterly cybersecurity performance improvement 

metric scoring and dashboarding capabilities to gauge specific progress in this area. The Department added that the new 

methodology encompasses the composite scoring from several sources to determine the overall percentage of achievement 

towards the Department’s cybersecurity objectives.

Table 13. Results of OIG FISMA Audits—Cybersecurity Framework Security Functions and Metric 

Domains with Audit Findings
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The Department also stated that significant progress 

had been in its management of Plans of Actions and 

Milestones. The Department reported that the average 

time to close a Plan of Actions and Milestones was reduced 

from 167 days in FY 2019 to 47 days in FY 2020 and that 

it achieved a 68 percent net reduction in past due Plans 

of Actions and Milestones since starting the reporting 

period on October 1, 2019. The Department believed that 

those positive metrics are direct indicators of the progress 

achieved in maturing risk management capabilities and 

reduction capabilities. 

The Department stated that it provided targeted briefings 

on subjects including Cybersecurity Framework Risk 

Scorecard results, phishing exercises, and current cyber 

threats to increase communication and build capacity 

for its stakeholders. The Department also noted that it 

significantly improved its phishing readiness through 

the deployment of the ‘Report Phishing’ button to all 

its Outlook email clients that resulted in the highest 

reporting rates since the launch of the phishing program 

in FY 2014. 

The Department stated that it deployed Data Loss 

Prevention desktop agents to enhance the identification 

of personally identifiable information such as Social 

Security and credit card numbers. Following the passive 

monitoring phase of the deployment, the Department 

expects that additional Data Loss Prevention policies 

will become operational and enhance overall Data Loss 

Prevention capabilities. 

According to the Department, notable progress has 

been demonstrated in the development of an enterprise 

Identity Credential and Access Management solution. The 

Department expects this solution to provide the ability 

to manage enterprise identity, user accounts, and user 

roles centrally and securely within and across Department 

systems and applications. The Department stated that 

it began working to identify system candidates to begin 

building out identities in FY 2020 and plans to deploy the 

Single Sign-On integration in FY 2021.

What the Department Needs to Do

The Department relies on IT to manage its core business 

operations and deliver products and services to its many 

stakeholders. The OIG has consistently reported concerns 

regarding the overall effectiveness of the Department’s 

IT security program through our annual FISMA audits, 

financial statement audits, and management challenges 

reports. While the Department reported significant 

progress towards addressing longstanding concerns, 

managing IT security programs and practices to effectively 

reduce risk to the Department’s operations is a clear and 

ongoing management challenge. Specifically, we continue 

to identify significant weaknesses in our annual FISMA 

audits—despite the Department’s reported corrective 

actions to address our prior recommendations.

We commend the Department for its efforts to address 

these weaknesses and continuing to place a priority on 

improving its IT security program. Our FISMA report 

for FY 2019 noted that the Department and FSA had 

made improvements in developing and strengthening 

their security programs, but also identified continued 

weaknesses. Overall, the Department needs to continue its 

efforts to develop and implement an effective system of IT 

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 IT security deficiencies, continue 

to provide mitigating controls for vulnerabilities, and 

implement planned actions to correct system weaknesses.
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DEPARTMENT COMMENTS
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CH A L L ENGE 1: IMPL E M ENT I NG T H E 

CORONAV IRUS A ID, R E LIEF, A ND 

ECONOMIC SECU R IT Y AC T 

(CARES ACT)

New Grant Programs and Additional Federal 

Education Funds; Data Quality

When the CARES Act was passed in March 2020, 

the Department took comprehensive steps to ensure 

appropriate interpretation of the legislation’s requirements 

and subsequent policy and operational implications. 

To successfully administer the new grant programs and 

additional federal education funds provided by the Act, 

the Department immediately established two formal 

committees comprised of Senior Leaders with the expertise 

needed to make decisions and execute against the plans 

with accuracy and urgency, as required by the crisis.

The Steering Committee was responsible for the 

overarching policy decisions and oversight for 

implementation at the highest level. The Operations 

Committee was charged with programmatic 

implementation of the decisions made by the Steering 

Committee, which included confirming appropriate 

systems, processes, and procedures were in place to make 

awards and ensure necessary funds control and reporting 

transparency. With representation from Senior Leaders 

across the Department—the Office of the Secretary (OS), 

the Office of the Under Secretary (OUS), the Office of 

Finance and Operations (OFO), the Office of the General 

Counsel (OGC), the Office of Planning, Evaluation, and 

Policy Development (OPEPD), the Office of Elementary 

and Secondary Education (OESE), and the Office of 

Postsecondary Education (OPE)—the Committees 

considered recommendations for policy options, as well as 

business process modifications from additional experts in 

supporting working groups.

Specifically, OFO took comprehensive steps to ensure 

preventative funds control at the onset by establishing the 

necessary account structures and funds control measures 

to maintain segregation from other grant funding to 

ensure ease of tracking and reporting of status of CARES 

Act funds in real time from the General Ledger. Experts 

from grantmaking offices worked with program attorneys 

and Budget Service to ensure statutory requirements 

were appropriately met. The Office of Legislation and 

Congressional Affairs, Budget Service, and OPEPD met 

weekly with Congressional Appropriations Committee 

staff to provide status updates on program implementation 

and execution and to collaboratively troubleshoot any 

issues relating to timelines or other policy questions. 

The OFO/Office of Financial Management (OFM) 

provided regular reports to the Office of Management and 

Budget (OMB) on status of grant awards, and OPEPD 

worked with OMB on decisions related to program 

implementation and the Department’s approach to data 

collection and reporting requirements.

This collaborative process facilitated appropriate allocation 

methodologies, preventative funds control measures, and 

development of criteria for non-formula awards; as a 

result, the Department allocated and awarded CARES Act

formula grant funds with unprecedented speed, making 

nearly all funds available within one month of enactment, 

roughly twice as fast as the first awards under the American 

Recovery and Reinvestment Act of 2009. The Committees 

met regularly until funds were dispersed and continue to 

meet on an ad hoc basis, as needed.

The Department recognized from the beginning 

that oversight and monitoring of grants would be a 

management challenge, and this has been a continued 

focus of senior leadership, as well as line managers; 

the overall progress the Department has made in this 

area can be found detailed in the Challenge 2 section 

below. However, since the CARES Act awards represent a 

significant portion of the grants portfolio, several efforts 

will be called out specifically in this Challenge area.

Despite the extraordinary number and size of CARES 

Act awards and expedited grantmaking timeline, which 

was undertaken on top of the ongoing administration of 

the Department’s $70 billion annual portfolio of existing 

programs, Department staff collaborated effectively to 

provide effective and timely support to eligible applicants, 

grantees, and stakeholders. This support included written 

guidance, blog posts, webinars with stakeholders, direct 

technical assistance to new grantees, post-award calls, 

“office hours” on reporting requirements, and a dedicated 

shared mailbox: COVID-19@ed.gov to handle inquiries. 

The Department also approved the addition of 25 

temporary Full Time Equivalent staff for OPE and OESE 

to support the additional administrative, monitoring, and 

oversight workload required by the CARES Act.

The Steering Committee charged OPEPD’s Office of the 

Chief Data Officer (OCDO) with the development of 

a centralized public-facing portal that will disseminate 

relevant data and information to the public regarding 

the Education Stabilization Funds and their use, as well 

as a tool for grantees to submit data to address annual 

reporting requirements. The portal and data collection 

capability solution will provide comprehensive reporting 
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features and will be bundled with end user help desk 

support and data quality services. The portal and platform 

are intended to leverage data from existing Department 

systems and will be developed using an Agile approach 

to software development—ensuring, where possible, that 

tools are integrated with existing systems.

Student Financial Assistance Program 

Requirements; Data Quality

In addition to the almost $31 billion provided by the 

CARES Act, the Act contained provisions that provided 

substantial relief for student loan borrowers. Following 

the passage of the CARES Act in March, the Department 

began reducing the interest rate for all federally held 

student loan borrowers to 0.0 percent. The Office of 

Federal Student Aid (FSA) worked with its loan servicers 

to ensure that more than 99.98 percent of federally held 

student loans were placed on a 0.0 percent interest rate 

within a matter of weeks. The remaining loans are newly 

disbursed loans that enter the systems at the statutorily 

required rates and are immediately adjusted down to 0.0 

percent for the duration of the CARES Act suspension 

period. Servicers are updating new loans to 0.0 percent 

interest status on a daily or weekly basis, retroactively 

back to the date the borrower entered repayment status. 

On August 8, 2020, President Trump signed an executive 

action that extended Student Loan Relief, continuing 

the temporary cessation of payments and setting interest 

rates to 0.0 percent through December 31, 2020. The 

current student loan relief programs were set to expire on 

September 30, 2020.

The Department automatically placed all borrowers in 

administrative forbearance status, which allowed them to 

temporarily stop making monthly loan payments. Once 

the payment suspension period ends on December 31, 

2020, all non-defaulted borrowers in the federal student 

loan portfolio will be in a current repayment status. 

FSA closely tracks data related to repayments to identify 

the impact of borrowers’ decisions regarding repayment 

to understand current revenue and cost to the federal 

government. FSA has refunded more than 99 percent of 

involuntary payments made by borrowers with defaulted 

loans who were subject to having certain Treasury 

payments offset or wages garnished. FSA notified those 

employers that continued to garnish wages against FSA 

directions. Additionally, FSA worked with its loan servicers 

to ensure all eligible borrowers received personalized 

communications informing them of the benefits afforded 

to them under the CARES Act, e.g., suspension of interest 

and payments, and payment credits. As new borrowers 

have received student loans and entered repayment, 

servicers notify them of these same benefits.

The $40 million provided for Student Aid Administration 

supports extensive communications and notifications 

to borrowers explaining changes in loan terms and 

flexibility provisions as well as FSA system changes to 

implement the CARES Act provisions. Student loan 

model assumptions, cost estimates, and related execution 

transactions for these provisions were performed 

by OFO/Budget Service and officially approved by 

Department Senior Leaders and OMB.

CH A L L ENGE 2: OV ER SIGHT A ND 

MONITORING

Student Financial Assistance Programs

To improve oversight and monitoring of institutions 

of higher education (IHEs) participating in Title IV 

programs, FSA stated that it has worked to address 

weaknesses in the single audit process in order to improve 

its use as an oversight and monitoring tool for IHEs’ 

disbursements of Pell Grants and Direct Loans. In FY 

2020, FSA deployed an analytical model to continually 

monitor partner data and performance. This will improve 

the ability to identify IHEs most at-risk and allow more 

effective use of oversight resources by informing and 

prioritizing support for IHEs.

Over the next several years, the Department will 

implement additional risk-based procedures to evaluate 

an accrediting agency’s ability to effectively determine and 

measure IHE compliance with accreditation standards 

and to identify accrediting agencies at higher risk of 

failing to meet statutory and regulatory requirements 

and additional procedures to prioritize oversight of those 

higher-risk agencies.

FSA implemented an improved model for verification 

selection and evaluation of data elements from the Free 

Application for Federal Student Aid (FAFSA) that allows 

the Department to better identify applicants for whom 

errors will result in a change in their federal aid award, 

potentially reducing improper payments.

The President signed the Fostering Undergraduate Talent 

by Unlocking Resources for Education (FUTURE) 

Act in December 2019, which will help ensure the 

accuracy of income information used for determining 

Pell Grant eligibility. One of the primary causes of 

improper payments in the Pell Grant program is failure 

to accurately verify financial data. The FUTURE Act
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provides an exception to the Department of Education 

from restrictions of Section 6103 of the Internal Revenue 

Code to allow the Department to more easily receive 

income tax data from the Internal Revenue Service (IRS), 

thereby simplifying and improving the accuracy of FAFSA 

filing by prepopulating certain fields. This exception will 

also allow borrowers to more easily recertify their income 

to stay enrolled in Income Driven Repayment plans. At 

this time, Congress has not provided funding to support 

implementation of the FUTURE Act.

Grantees

The Department has prioritized building capacity of grants 

administration staff to provide appropriate oversight and 

monitoring practices to be effective stewards of taxpayer 

funded investments. To that end, the Department has 

considered monitoring approaches across the agency with 

particular attention to the balance between compliance 

and performance. In FY 2020, OFO/Office of Human 

Resources (OHR) partnered with OFO/Office of 

Acquisition and Grants Administration (OAGA) to create 

a competency model, career map, and training plans for 

the grants management job series/category. This initiative 

aims to identify core and technical competencies and 

the respective training opportunities needed to achieve 

competency gap closure. OFO/OHR is in the process of 

identifying a tool to assess and track proficiency levels.

The Department recently revised the Handbook for 

the Discretionary Grants Process, an Administrative 

Communications System Directive, to provide a more 

robust, comprehensive guide for administering grants 

in a standardized manner across program offices. To 

support consistent interpretation and implementation 

of the revised policies and procedures, OFO/OAGA 

has developed and provided comprehensive training 

resources and continuing education workshops (e.g., 

monitoring for outcomes and success, risk assessment and 

mitigation, financial management, and use of a consistent 

grant slate memorandum) for program office staff and 

technical assistance resources related to internal controls 

requirements for grant recipients.

In addition, the Department reviewed the continuation 

award process to promote cross-office alignment and 

provided early training on competition planning to 

support making earlier awards, which will promote a 

stronger continuation funding process (i.e., if grantees 

receive awards well in advance of the start of a school 

year, their annual progress reports will better align with 

continuations decisions).

Given the transition to telework for most Department 

staff and many grantees due to the COVID-19 pandemic, 

the Department continues to leverage virtual monitoring 

approaches to provide necessary oversight and support 

to grant recipients. OFO/OAGA updated a resource 

related to virtual monitoring and is developing additional 

resources to support increased use of virtual monitoring 

resources. The Department examined monitoring practices 

and needs with all program offices and identified best 

practices for sharing monitoring tools and strategies 

(e.g., conducting “Table Talks” discussions for grant staff 

to communicate schedules, and consider establishing 

optional generic monitoring protocols).

The most recent efforts to build grant staff capacity 

allowed the Department to respond swiftly to the 

COVID-19 pandemic and provisions and requirements 

of the CARES Act. The Department has already shifted 

focus to support grant staff to conduct all monitoring 

activities in a virtual environment. In this light, the 

Department has procured a contract solution to develop 

a standard virtual grantee monitoring program for 

ED’s discretionary and formula grant programs. The 

contractor will perform a comprehensive assessment 

of the Department’s “Current State” that includes 

documentation, interviews, and a comparative/gap 

analysis; provide draft recommendations; and work with 

a stakeholder group to define final recommendations 

to achieve the “Target State”, i.e., a Department-wide, 

standard, virtual grantee monitoring program to include 

practices, processes, and virtual collaboration tools; and 

develop and deliver a training course that is based on the 

actual practices, processes, and tools to be used by staff 

when implementing the entire virtual grantee monitoring 

program.

The Department also established a grants management 

acquisition program to resolve non-inherently 

governmental grant award and administrative service gaps 

experienced by program offices. The program is anchored 

by the Education Grants Management Support ServicesBlanket Purchase Agreement (EDGMSS-BPA), which 

sourced a cadre of grant services contractors with capacity 

and know-how to support a range of functions related to 

program offices’ monitoring and oversight responsibilities.

In addition to the steps taken to enhance monitoring and 

oversight capabilities of staff responsible for managing 

grants, the Department has implemented a number of 

initiatives aimed at ensuring grants management data 

systems can similarly provide the support necessary to 

collect grantee data, analyze performance, and detect risk.
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To effectively address the needs of all users—and to 

maximize the return on the Department’s existing 

investment in G5, the Department’s grants management 

system—OFO conducted a business process reengineering (BPR) analysis to inform next steps in the 

G5 Modernization Initiative. The Department envisions a 

modern, modular, secure, and user-friendly G5 that meets 

the grants management needs of all internal and external 

users. The BPR analysis ensured appropriate stakeholder 

involvement in the identification of comprehensive system 

requirements. Ultimately, a final deliverable detailed a 

comprehensive list of core requirements for a modernized 

G5 system.

The Department prioritized the reduction of grantee 

reporting burden by standardizing data collection across 

various information requests. The data elements across a 

collection of 24 unique discretionary annual performance 

reports (APR) were streamlined and standardized into 

a single APR. The implementation of the single APR 

furthers the Department’s priority, while providing 1) staff 

with common and accessible data sets to monitor grantees’ 

progress in meeting program objectives and 2) standard 

data requirements for an enterprise APR tool, as part of 

the G5 Modernization Initiative.

Additionally, the Department has continued to enhance 

its Entity Risk Review (ERR) capabilities to conduct risk 

assessments for grant applicants recommended for initial 

or continuation funding, in accordance with 2 CFR 

200.205. The ERR application supports Department staff 

in assessing applicant and/or grantee risks by providing 

administrative, financial, and internal controls information 

by linking disparate data sets and applying business logic 

to the data. The data are used to inform the Department’s 

grant administration, oversight, and monitoring through 

the use of a standardized set of risk indicators; facilitate 

program offices’ efforts to analyze grantee risk prior to 

making awards and during the life of a grant project; 

make Single Audit findings and other information about 

organizations’ fiscal health available and accessible to 

program staff; and facilitate data sharing across grant 

programs and among Department offices.

The data logic and capabilities of the ERR have been well 

documented and have been referenced during functional 

requirements gathering processes for the data collection 

and reporting portal being developed to address the 

CARES Act data collection requirements (as mentioned 

in Challenge 1) and to inform the Department’s 

comprehensive and cohesive efforts to modernize the G5 

Grants Management system to address the significant 

data needs related to collecting, analyzing, and reporting 

on grantee performance data—much needed oversight 

capabilities that are similarly referenced in Challenge 3.

The Department continues to assess technology solutions 

and other best practices for improving monitoring 

capabilities across the grants lifecycle. The OMB 

Memorandum M-19-16, Centralized Mission Support 

Capabilities for the Federal Government, created the 

Quality Service Management Offices (QSMOs) for select 

mission-support function, tasking QSMOs with offering 

and managing a marketplace of effective and efficient 

solutions to be implemented across the government. 

The Department of Health and Human Services (HHS) 

was pre-designated as the Grants Management QSMO 

to transform government-wide grants management 

end-to-end, and the Department has been actively 

involved in these collaborative efforts to share its unique 

perspectives and help identify best practices and process 

improvements. To that end, the Department is partnering 

with HHS on several initiatives designed to identify 

enhanced tools and services to support grants management 

across the government. Because of the ERR’s successful 

implementation across program offices, the Department 

is well- positioned to pilot the HHS Grant-recipient 

Digital Dossier risk management tool during FY 2021 

to assess capabilities and benefits to pre- and post-award 

monitoring processes.

CH A L L ENGE 3: DATA QUA LIT Y 

AND REPORTING

In response to additional authorities granted by the 

President and Congress to manage education data as a 

strategic asset, the Department is developing a coherent 

and coordinated approach to data governance, data 

management, and data quality to ensure that education 

data provide high value for internal decision makers 

and external stakeholders. To specifically improve the 

quality and accuracy of data collected from grantees, the 

Department has taken comprehensive steps to promote 

cohesive data governance initiatives, build staff capacity 

around data, and improve data management practices 

and systems.

An agency-wide Data Governance Board (DGB) was 

established and met for the first time in November 2019. 

The DGB is charged with taking agency-wide action to 

develop an open data culture, improve the Department’s 

capacity to leverage data as a strategic asset for evidence 

building and operational decisions, and develop the 

data skills of staff throughout the agency. In the spring 
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of 2020, the DGB initiated the Department’s first data 

maturity assessment (DMA), conducted both at the 

agency and individual Principal Office (PO) level. These 

assessments allow the Department to evaluate itself against 

documented best practices, determine gaps, and identify 

priority areas for improvement. The DMA assessed 

maturity levels for data quality across three process areas: 

Data Quality Strategy, Data Quality Assessments, and 

Data Cleansing. These process areas describe best practices 

for detecting, assessing, and cleansing data defects to 

ensure fitness for intended uses in business operations, 

decision making, and planning. The results of the DMA 

will provide the baseline for the Department and program 

offices to measure progress and growth in FY 2021 and 

will be used to guide the creation of agency’s inaugural 

data strategy, inform program office investment decisions, 

and provide agency leadership with the ability to track 

year-over-year return on those investments.

The Department also identified a multi-pronged approach 

to address root causes and improve data quality during 

FY 2020. The approach includes ensuring grantees are 

aware of their data responsibilities under the conditions 

of their grants and of the credible consequences for 

noncompliance—ranging from additional informal 

monitoring through termination of the grant. It also 

includes provisions to improve the varying capacity of 

grantees in reporting data and varying capacity among 

Department staff in reviewing grantee-reported data. 

When fully deployed, this effort is largely expected to take 

the form of technical assistance to grantees, additional 

resources for the Department for data quality review, and 

expanded use of technological solutions to automate and 

reduce the need for manual reporting and review.

Exigent circumstances, volume of new grant funds, 

and other challenging environmental factors led the 

Department to immediately deploy a variation of that 

strategy for key data collections associated with the 

Education Stabilization Fund—specifically, the Higher 

Education Emergency Relief, Governor’s Emergency 

Education Relief, Elementary and Secondary School 

Education Relief, and equivalent Outlying Area funds. 

The Department executed a contract to develop a data 

collection portal, implement a data management solution 

to support internal and external reporting, and launch 

a public transparency website. In addition to early 

communications to grantees about expectations for data 

quality, several components of the data collection process 

include explicit data quality components, including 

auto- population of known data values in the collection 

instrument, help desk services for grantees submitting 

performance data, a data management platform that 

imposes business rules to improve data quality, and 

established phases for opening, closing, and reopening the 

tool for grantees to submit data quality corrections.

In the summer of FY 2020, the DGB also initiated a 

process to develop an ED Data Strategy to realize the 

full potential of data to improve education outcomes. 

Finalization and adoption of that formal Data Strategy is 

expected in November 2020. This Department-wide effort 

includes agency-wide discussions about data priorities 

that will help improve data maturity and will focus on the 

Department’s capabilities to leverage data, operationalize 

and optimize data governance, and drive cultural change 

for the benefit of all stakeholders. The DGB identified 

the following four goal areas to guide data modernization, 

improvement efforts, and future investments: 

strengthening agency-wide data governance; building 

human capacity to leverage data; advancing the strategic 

use of data; and improving data access, transparency, 

and privacy. At least one objective within this strategy 

is expected to focus on data quality and development of 

an action plan to deploy the multi-pronged approach 

outlined in paragraph three, above.

These coordinated, cross-agency efforts are in addition 

to a variety of system-specific or office-specified efforts 

accomplished in FY 2020. The OCDO launched a 

partnership with Budget Service, the Grants Policy 

Office, and OAGA to improve the quality and use of 

Government and Performance Results Act measures. As part 

of this initiative, OCDO supported OESE and the Office 

of Special Education and Rehabilitative Services in the 

development of new and updated measures for 

grant programs. Additionally, the Department launched a 

new annual performance reporting tool in FY 2020 for the 

Office of Special Education Programs formula grantees, 

providing an online system to submit responses and review 

data in a user-friendly format. The tool reduces reporting 

burden and improves data quality by using EDFacts to 

pre-populate data and match the format needed for the 

performance indicators. It meets current security standards 

and addresses issues identified with prior tools.

Through its Next Gen initiative, FSA began the 

development and implementation of the Enterprise Data 

Management and Analytics Platform Services (EDMAPS) 

which will provide a central unified data platform for 

FSA aid lifecycle data. In FY 2020, FSA implemented a 

master data management platform (pMDM) and a data 
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lake (Data Lake) for the swift ingestion, presentation, and 

management of structured and unstructured data from 

various internal and external sources. In FY 2021, FSA 

will co-locate pMDM, Data Lake, and the Enterprise 

Data Warehouse and Analytics into the single EDMAPS 

system hosted in the FSA Cloud General Support Services 

in Amazon Web Services. This effort will provide FSA a 

central hub for system data and enable the re-engineering 

of FSA siloed legacy systems such as National Student 

Loan Data System, the Central Processing System, and the 

Debt Management and Collection System, as well as the 

consolidation of the multiple loan servicers into one EDowned servicing system. In collaboration with the IRS, 

FSA also initiated changes to its programs to help ensure 

the accuracy of income information used for determining 

Pell Grant eligibility, which are now possible as a result of 

the FUTURE Act which was signed into law in December 

2019. As indicated previously, implementation of the 

FUTURE Act will allow FSA to receive income tax data 

directly from the IRS which would simplify FAFSA filing 

and improve accuracy.

CHALLENGE 4: IMPROPER PAYMENTS

Most of the assistance that the federal government 

provides to students comes through its student loan 

programs and the Federal Pell Grant Program. A primary 

cause of improper payments is the Pell Grant and Direct 

Loan Programs. The Department is addressing this 

management challenge on several fronts.

OFO/OFM continued to perform Improper Payments 

Elimination and Recovery Act compliance activities in 

FY 2020, including improper payment estimation of 

programs deemed susceptible to significant improper 

payments, as well as qualitative and quantitative improper 

payment risk assessments for programs and activities 

in scope. The Department reviewed and revised its 

methodology for the Emergency Impact Aid program 

and implemented the revised methodology in FY 2020. 

Written procedures are in development and due at the end 

of December 2020. The Department also strengthened its 

risk assessment process to include an improper payment 

threshold analysis of all its programs and activities.

In September 2020, FSA implemented a daily prepayment interface with the Department of the Treasury’s 

Do Not Pay web service that matches intended recipients 

with multiple data sources to identify potential improper 

payments. OFO/OFM is also participating in a pilot 

with the Do Not Pay analytics team to research possible 

payment integrity checks that could be applied to the 

Department’s payment data.

Lastly, FSA continued to refine the statistically valid 

methodology it implemented in FY 2019 to estimate 

improper payments, including random sampling from a 

population of more than 5,700 schools. It used improper 

payment data from Single Audit Act compliance audits 

of the sampled schools. FSA worked with OMB to gain 

increased support of using compliance audit data for 

improper payment estimation and added requirements 

for compliance auditors to provide FSA with population 

and sample information necessary to estimate improper 

payments. FSA also collaborated with OMB to revise 

and clarify the requirements in OMB Circular A-123 

Appendix C for statistically valid and rigorous improper 

payment estimation methodologies. OMB’s draft 

revisions of sections of the Circular removed references 

to randomized sampling from the requirements for 

statistically valid estimation methodologies. The draft 

sections also require IGs, in performing their annual 

audits, to evaluate the adequacy of Sampling and 

Estimation Methodology Plans when determining 

program compliance and whether the improper payment 

estimate is representative of the program’s annual improper 

payments. If the IG determines that a program is noncompliant for this criterion, the final IG report must 

provide concrete recommendations regarding the specific 

actions and steps the program must take to achieve 

compliance with this criterion. FSA also implemented 

enhanced quality control procedures over its improper 

payment estimation process to increase validation of 

compliance audit data and calculations and ensure only 

sustained questioned costs, rather than questioned costs, 

identified in compliance audits are used in improper 

payment estimates.

CH A L L ENGE 5: I NFOR M AT ION 

TECHNOLOGY SECURITY

The Department has made significant progress in addressing 

the ongoing challenge of information technology security. 

To gauge specific progress in this area, the Department 

established an improved methodology for quarterly 

cybersecurity performance improvement metric scoring 

and dashboarding capabilities, leveraging the Federal 

IT Acquisition Reform Act (FITARA) cyber scoring 

methodology (Department Federal Information Security 

Management Act (FISMA) Risk Management Assessment/

IG FISMA maturity score). The new methodology 

encompasses composite scoring from the Quarterly 
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Risk Management Assessment score, the Cybersecurity 

Framework Risk Scorecard results, the previous year’s IG 

FISMA maturity score, and the Department of Homeland 

Security Cyber Hygiene Scorecard, to determine the overall 

percentage of achievement towards the Department’s 

cybersecurity objectives.

Significant progress has been made to maintain an 

accurate system inventory, communicate the impact 

of identified cybersecurity risks, and actively manage 

the Plans of Actions and Milestones (POA&Ms)—i.e., 

the management tools for tracking the mitigation of 

cybersecurity program and system level findings and 

weaknesses. The Department’s Office of the Chief 

Information Officer (OCIO) publishes Cybersecurity 

Framework Risk Scorecards that serve as a tool to prioritize 

and mitigate risks to the Department’s information 

systems. The Scorecard was recently enhanced to include 

privacy scoring and daily reporting, enabling stakeholders 

to manage cybersecurity risks more effectively in nearreal time and in concert with privacy risks to further 

reinforce the relationship between the Department’s 

Information Security and Privacy Programs. To that end, 

OCIO leaders also engaged with the National Institute 

of Standards and Technology’s Security and Privacy 

Implementation Collaboration Tiger Team to promote 

more effective integration of cybersecurity and privacy 

across government.

To increase communication and build capacity for 

Department stakeholders, OCIO has provided targeted 

briefings on a variety of subjects, including Cybersecurity 

Framework Risk Scorecard results, phishing exercises, 

and current cyber threats. Through continued outreach 

and communication with principal office leadership and 

operational stakeholders, the Department saw the average 

time to close a POA&M reduced from 167 days in 2019 

to 47 days in FY 2020. The number of accepted risk 

POA&Ms also dropped from 53 to 29 during the same 

time period. At the closing of FY 2020, the Department 

achieved a 68 percent net reduction in past due POA&Ms 

since starting the reporting period on October 1, 2019. 

These positive metrics are direct indicators of the progress 

achieved in maturing risk management capabilities and 

reduction capabilities. The Department significantly 

improved its phishing readiness through the deployment 

of the ‘Report Phishing’ button to all Department 

Outlook email clients, allowing users to directly report 

suspicious emails with a single click of a button—a simple 

solution that resulted in the highest reporting rates since 

the launch of the phishing program in FY 2014 and 

continues to yield a substantial increase in reports.

The Department deployed Data Loss Prevention (DLP) 

desktop agents on Department endpoint devices to further 

enhance the identification of personally identifiable 

information, such as Social Security and credit card 

numbers. Following the passive monitoring phase of 

the deployment, additional DLP policies will become 

operational and further enhance overall DLP capabilities.

Notable progress has been demonstrated in the 

development of an enterprise Identity Credential and 

Access Management solution. This solution is expected 

to provide the ability to manage enterprise identity, user 

accounts, and user roles centrally and securely within 

and across Department systems and applications. In FY 

2020, the Department began working to identify system 

candidates to begin building out identities, and the 

deployment of Single Sign-On integration is planned for 

FY 2021.

Lastly, to mitigate impacts of the COVID-19 pandemic 

on remote stakeholders, OCIO acted promptly to ensure 

the appropriate infrastructure was in place to support 

the shift to a fully virtual work environment. To that 

end, OCIO identified, analyzed, and recommended 

a cloud-based solution to provide rapid expansion of 

the Department’s virtual private network capacity to 

support extensive teleworking capabilities. Additionally, 

the Department delivered an alternative multi-factor 

authentication solution to provide continuity of critical 

business functions during the pandemic. OCIO provided 

targeted outreach to proactively address threats to 

teleworking employees (e.g., warning them of increased 

phishing attempts and other cybercriminal scams that 

target largely at-home workers).
136 FY 2020 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 92 and the Department’s management 

assurances on page 20.

SUMMARY OF FINANCIAL STATEMENT AUDIT

Audit Opinion: Unmodified

Restatement: No

Material Weaknesses Beginning Balance New Resolved Consolidated Ending Balance

Total Material Weaknesses 1 1 1 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 2020 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION 137

PAYMENT INTEGRITY INFORMATION ACT REPORTING

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 payment 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 internal 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 funds they receive from the Department 

to subordinate organizations and individuals. Due to these 

“third-party” controls being outside of the Department’s 

operational control, they present a higher risk to the 

Department, as evidenced by 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.

To further promote payment integrity, the Department 

continues to develop its Payment Integrity Monitoring 

Application, which detects anomalies in grants payment 

data. Case management files for payment anomalies 

are established within the application for follow-up 

investigation by the Department’s grants program officials 

to validate improper payments and determine root causes. 

Additionally, the Department continues to develop its 

internal control framework to address gaps, strengthen 

internal control processes, and align assessments with 

enterprise risk management. Both efforts reflect the 

Department’s recognition of the critical importance 

that payment integrity plays in demonstrating financial 

stewardship to the American taxpayer.

DE SCR IP T ION OF R ISK-SUSCEP T IBL E 

A ND HIGH-PR IOR IT Y PROGR A MS 

In FY 2020, the Pell Grant and Direct Loan programs 

continued to be susceptible to significant improper 

payments and remained OMB-designated high priority 

programs. Also, in FY 2020, the Department continued 

monitoring outlays of grant programs receiving funding 

for disaster relief. According to OMB Memorandum 

M-18-14, Implementation of Internal Controls and Grant 

Expenditures for the Disaster-Related Appropriations, 

any disaster-related program with $10 million or more 

in outlays in a given fiscal year is deemed susceptible 

to significant improper payments. The Department 

identified three programs that met this criterion: the 

Temporary Emergency Impact Aid for Displaced Students 

(Emergency Impact Aid), Immediate Aid to Restart 

School Operations (RESTART) and Emergency Assistance 

to Institutions of Higher Education (EAI) programs. 

The Department continues to place additional emphasis 

to ensure payment integrity and minimize improper 

payments in these important programs as required by 

OMB guidance. Readers can obtain a detailed breakdown 
138 FY 2020 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION

OTHER INFORMATION | PAYMENT INTEGRITY

of information on improper payment estimates, root 

causes, and corrective actions for the programs at https://

paymentaccuracy.gov.

PE L L GR A NT 

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. 

DIR EC T LOA N 

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.

T E MPOR A RY E M ERGENC Y IMPAC T 

AID FOR DISPLACED STUDENTS

The Temporary Emergency Impact Aid for Displaced 

Students (Emergency Impact Aid) program awards 

emergency impact aid funding to State educational 

agencies (SEAs). SEAs provide subgrants to local 

educational agencies (LEAs) to reimburse the costs of 

educating students enrolled in public schools (both 

traditional and charter) and non-public elementary and 

secondary schools, who were displaced by a covered 

disaster or emergency.

IMM EDI AT E A ID TO R E STA RT 

SCHOOL OPER AT IONS 

The Immediate Aid to Restart School Operations 

(RESTART) program awards grants to eligible SEAs 

to assist eligible LEAs and non-public schools with 

expenses related to the restart of elementary schools 

and secondary schools in areas impacted by a covered 

disaster or emergency. Funds may be used to assist 

school administrators and personnel in restarting school 

operations, re-opening schools, and reenrolling students.

EMERGENCY ASSISTANCE TO 

INSTITUTIONS OF HIGHER EDUCATION

The Emergency Assistance to Institutions of Higher 

Education (EAI) program awards grants for emergency 

assistance to eligible Institutions of Higher Education 

(IHEs) for which a major disaster or emergency has been 

declared. Funds awarded assist activities directly related to 

mitigating the effects of a covered disaster or emergency 

on students and institutions. To the extent possible, EAI 

prioritizes projects that support students who are homeless 

or who are at risk of becoming homeless as a result of 

displacement related to a covered disaster or emergency; 

and IHEs that have sustained extensive damage by a 

covered disaster or emergency. 

In FY 2020, the Department used statistically valid and 

rigorous sampling and estimation methodologies to 

estimate the improper payment rates for the Pell Grant, 

Direct Loan, and EAI programs. Statistically valid and 

rigorous sampling and estimation methodologies were 

designed and implemented for the Emergency Impact 

Aid and RESTART programs in FY 2020. However, these 

methodologies did not yield the intended precision rates 

required for a rigorous estimate of the Emergency Impact 

Aid and RESTART programs. The methodologies used 

for each of these programs are described in detail on the 

Department’s improper payments website.

For detailed information on Pell Grant, Direct Loan, 

Emergency Impact Aid, RESTART and EAI improper 

payment estimates in FY 2020 and prior years, please visit 

https://paymentaccuracy.gov.

I. AC T IONS TA K EN TO 

A DDR E SS AU DITOR R ECOV ERY 

RECOMMENDATIONS

Agencies are required to conduct recovery audits for all 

programs and activities that expend more than $1 million 

in a fiscal year, if conducting such audits would be costeffective. 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 

and 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, 
FY 2020 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION 139

PAYMENT INTEGRITY | OTHER INFORMATION

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 decide not to 

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. 

The Department continues to work to improve its 

methods to identify, collect, and report on improper 

payment collections. For detailed information on 

identified and recovered improper payments in FY 2020, 

readers can visit https://paymentaccuracy.gov.

II. FRAUD REDUCTION REPORT

The Department continues to work with OMB to 

implement the Fraud Reduction and Data Analytics 

Act (FRDAA) of 2015 as incorporated by the Payment 

Integrity Information Act (PIIA) of 2019 and actively 

participates with OMB and other agencies in a 

government-wide workgroup that is collaborating on an 

implementation plan.

The Department has also taken steps to proactively 

identify the risk of fraud occurring across the agency. 

Through establishing an overarching Fraud Risk 

Governance Structure in FY 2020, the Department now 

has a means of promoting consistent organizational 

behavior by providing guidelines and assigning 

responsibility for fraud risk management, including 

the implementation of strong antifraud procedures 

and controls. Sources of guidance in implementing 

effective fraud risk management programs can be found 

in previous regulatory resources such as the PIIA and 

OMB A-123. In creating and adopting this Fraud Risk 

Governance Structure, the Department has identified 

several potential common fraud schemes and indicators. 

In doing so, internal and external fraud is differentiated 

to capture important distinctions in identifying and 

preventing both. Common fraud schemes include 

prospective vendors offering gifts or seemingly routine 

benefits during a competitive process, unbalanced bidding 

caused by employees providing their preferred bidder 

with information not disclosed to other vendors, and a 

vendor attempting to charge more than agreed to in the 

contract. OIG Investigative Services has identified several 

fraud indicators and further broken them down into the 

following categories:

1. K-12 Fraud—No separation of duties, missing school 

funds or property, inventory and financial records 

not reconciled, unreasonable costs, delayed or no 

reporting, unauthorized or related-party transactions, 

suspicious or unverifiable existence of vendors, grant 

award money runs out too quickly.

2. Postsecondary Education Fraud—Unexplained increase 

in wealth or lifestyle, unresolved or repeat audit 

findings and reluctance to provide information to 

auditors, nonexistent “students,” high employee 

turnover rate with low morale, lack of written policies 

and procedures, commonalities on Free Application 

for Federal Student Aid (FAFSA®) such as students 

sharing bank account numbers, home addresses, 

phone numbers or email addresses.

3. Public Corruption—Irregularities in contract awards 

or undue influence by people in decision making 

positions, suspicious bidding trends and patterns, 

conflicts of interest, transactions lacking business 

purpose, use of shell companies, bill and payment 

requests for services that may not have been provided.

4. Computer Crime—People requesting access to 

systems for which they do not need access, people 

accessing systems outside of normal working hours, 

excessive number of complaints about identity theft 

from customers, proprietary data belonging to an 

organization available unsecured on the internet.

This Fraud Risk Governance Structure also outlines the 

current efforts already underway at the Department to 

mitigate the risk of fraud, such as: 

 Required internal trainings covering fraud, waste, 

and abuse. 

 Multiple risk assessments by the OEDARM and FSA.

 Antifraud controls/tools that foster a culture of 

responsibility and awareness to mitigate fraud risk from 

penetrating the Department.

 FSA’s draft Fraud Risk Framework intended to outline 

FSA’s fraud risk management activities designed to 

combat fraud and preserve integrity in operations and 

programs, safeguard taxpayer monies, and minimize 

improper payments.
140 FY 2020 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION

OTHER INFORMATION | PAYMENT INTEGRITY

 OIG Audits.

 Data analytics further consisting of preliminary 

analytics (trend analysis, pattern recognition, 

outlier detection), FSA Analytics using machine 

learning techniques to detect and mitigate potential 

fraud in the student loan portfolio, and OIG 

Information Technology Audits and Computer Crime 

Investigations who proactively monitor ED data 

through sophisticated modeling for criminal activity 

and network intrusions.

 Fraud Awareness Initiatives including (but not 

limited to) fraud communication (such as through 

the EDSOC Cyber Threat and Intelligence Security 

Bulletin), OIG fraud awareness and communication, 

and FSA’s fraud awareness communications during 

International Fraud Awareness Week.

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 act upon fraud. 

To build capacity and expertise for and to dedicate 

resources to fraud risk identification and mitigation, 

especially in the Title IV programs, FSA has created a 

compliance and fraud risk group and designated a fraud 

risk advisor within its Enterprise Risk Management 

Directorate (ERMD). During FY 2020, ERMD’s 

compliance and fraud risk group’s primary work on 

fraud included: 

1. Working to revise the charter and reconstitute the 

Enterprise Fraud Risk Advisory (EFRA) Group. The 

EFRA Group was established in FY 2019 to promote 

the integration of fraud risk management practices 

and processes into the daily operations of FSA to 

assist in achieving organizational strategic goals and 

objectives. Its primary responsibility is to provide 

oversight, planning, and coordination of enterprise 

fraud risk management activities.

2. Continuing to receive and process distance education 

fraud ring referrals from the Department’s OIG. 

3. Establishing a third-party debt relief (TPDR) fraud 

unit in FY 2020. The TPDR unit is working to 

centralize TPDR complaints within FSA, collaborate 

with the OIG and other consumer and law 

enforcement agencies to investigate complaints against 

potential TPDR companies, and identify mitigation 

strategies to address fraud risk related to 

TPDR companies. 

The Department, in its efforts to combat fraud, takes into 

account the Government Accountability Office (GAO) 

Framework for Managing Fraud Risks in Federal Programs 

(GAO Fraud Risk Management Framework). The 

Department commits to oversee fraud risk management 

activities as highlighted in the above-mentioned Fraud 

Risk Governance Structure. Additionally, the Department 

continues to assess the risks associated with fraud across 

the Department as incorporated by the multitude of 

risk assessments performed by program offices. Internal 

controls related to fraud are implemented according to the 

Internal Control Framework and are evaluated accordingly 

to ensure that specific control activities exist to mitigate 

assessed risks. The Department has catalogued internal 

controls related to fraud prevention and detection, which 

includes detective and preventive controls related to its 

grant and administrative payments.

The Department continues to evaluate the current fraud 

landscape and will adopt activities to improve fraud risk 

management. For example, to combat improper use of 

federal funding under the Every Student Succeeds Act

(ESSA), the Department requires that each recipient and 

subrecipient publicly display the contact information of 

the Department’s OIG hotline to facilitate the reporting 

of suspected improper use of ESSA funding. Furthermore, 

in accordance with 2 CFR 200 (Uniform Guidance), 

each recipient and subrecipient provides assurances 

of truthfulness and accuracy of the information they 

provide in applications and in response to monitoring and 

compliance reviews.
FY 2020 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION 141

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/2020/01/14/2020-00413/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) 2-01-19 1-14-20 $39,229

Failure to provide information regarding teacherpreparation programs20 USC 

1022d(a)(3) 2-01-19 1-14-20 $32,676

Violation of Title IV of the HEA 20 USC 1082(g) 2-01-19 1-14-20 $58,328

Violation of Title IV of the HEA 20 USC 

1094(c)(3)(B) 2-01-19 1-14-20 $58,328

Failure to disclose information to minor children and parents 20 USC 

1228c(c)(2)(E) 2-01-19 1-14-20 $1,722

Improper lobbying for government grants and contracts 31 USC 

1352(c)(1) 2-01-19 1-14-20 $20,489 to $204,892

False claims and statements 31 USC 3802(a)(1) 2-01-19 1-14-20 $11,665

Table 14
142 FY 2020 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION

THE GRANTS OVERSIGHT AND NEW EFFICIENCY (GONE) ACT 

OF 2016 AND EDUCATION’S GRANT CLOSEOUT PROCESS 

The goal of the Grants Oversight and New Efficiency (GONE) Act of 2016 (Pub. L. No. 114-117) was 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 Department succeeded in closing out 100 percent of the required grants 

and cooperative agreements during FY 2018. As of September 30, 2020, the Department had 384 grants and cooperative 

agreements totaling approximately $62.8 million in various statuses of the closeout process. See Table 15 below.

In FY 2020, the Department’s Office of Inspector General (OIG) performed a risk assessment of the Department’s grant 

closeout process and issued their results via memorandum. They identified risks with the reliability of grant data and related 

GONE Act reporting, as well as the Department’s grant closeout policies and procedures, including a policy allowing older 

grants to be closed in compliance without required reports being provided by the grantee. In addition, the OIG found that 

both the volume of expired grants and amount of undisbursed grant funds significantly increased between the date of initial 

GONE Act reporting (September 30, 2017) and January 30, 2020, indicating that grant closeout is less of a focus now that 

GONE Act reporting is over. The memorandum is available at https://www2.ed.gov/about/offices/list/oig/auditreports/

fy2020/s19u0002.pdf.

Overall, the Office of Finance and Operations (OFO) agreed with the OIG assessment and noted its intention to move 

forward with grant policy deliberation consistent with the results of the assessment. Approved in July 2020, the Handbook 

for the Discretionary Grants Process (Handbook) includes policy requiring program officials to provide to the Deputy 

Assistant Secretary of the Office of Acquisition and Grants Administration (OAGA) a report on the status of Federal grants 

or cooperative agreements in the Department’s grant management system, G5, that have been in manual closeout status for 

two years or more. The report will include a narrative of the challenges leading to delays in grant and cooperative agreement 

award closeout and the planned corrective action to address these challenges. OAGA is now receiving reports from the 

program officials and will monitor progress on the proposed corrective actions.

During the summer of 2020, OAGA offered a financial monitoring curriculum for formula and discretionary grants aligned 

with the Standards for Financial Management in 2 CFR 200 Uniform Administrative Requirements, Cost Principles, and Audit 

Requirements for Federal Awards, addressing cash management and drawdown activity of grantees’ utilization of funds consistent 

with an approved scope of work aimed at reducing issues associated with grant closeouts. The content of the sessions include 

the Handbook policy referencing grants and cooperative agreements in manual closeout status for two years or more and the 

submission of reporting with corrective actions to the Deputy Assistant Secretary of OAGA.

Category 2–3 Years 3–5 Years > 5 Years

Number of Grants/Cooperative 

Agreements with Zero Dollar 

Balances

48 - -

Number of Grants/Cooperative 

Agreements with Undisbursed 

Dollar Balances

336 - -

Total Amount of Undisbursed 

Balances $62,838,768 - -

Source: G5, grants management system linked to the Department’s general ledger system. Data is based on the performance end date of September 30, 2018.

Table 15
APPENDICES
144 FY 2020 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. https://www.ed.gov/

college-completion/completion-toolkit

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/

COLLEGE NAV IGATOR

College Navigator consists of the latest data from the 

Integrated Postsecondary Education Data System, and 

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 PREPAR ATION 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/grants-scholarships/

finding-scholarships

COLLEGE SCORECARD

The Department’s College Scorecard 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 post college 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/

CONDIT ION OF EDUC AT ION A ND 

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/

COLLEGE FINANCING PLAN

The College Financing Plan 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
FY 2020 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION 145

SELECTED DEPARTMENT WEB LINKS AND EDUCATION RESOURCES | APPENDICES

ONE-STOP SHOPPI NG 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

W H AT WOR K S CL E A R I NGHOUSE 

PRACTICE GUIDES FOR EDUCATORS

The Department offers practice guides and other resources 

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://whatworks.ed.gov

EDUC AT ION R E SOU RCE S 

I NFOR M AT ION CENT ER (ER IC) 

The Department offers ERIC—the world’s largest free, 

digital library of education research. It is composed of 

1.8 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

GOV ER NM ENT ACCOU NTA BILIT Y 

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

GR A NTS I NFOR M AT ION 

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.

NAT IONA L A SSE SSM ENT 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 comparable scale 

scores and achievement levels—NAEP Basic, NAEP 

Proficient, and NAEP Advanced. https://nces.ed.gov/

nationsreportcard/

OFFICE OF I NSPEC TOR 

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.
146 FY 2020 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION

APPENDICES | SELECTED DEPARTMENT WEB LINKS AND EDUCATION RESOURCES

R E SOU RC E S FOR A DU LT, C A R E E R , 

A ND T ECH NIC A L EDUC AT ION 

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’s) 

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/

R EGIONA L EDUC AT IONA L 

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-leverage” problems 

of practice and build the research capacity of local 

stakeholders. Each REL develops partnerships with stateand local-level education agencies to gather and analyze 

data, conduct evaluations, and provide technical assistance 

that addresses these “high-leverage” problems. https://ies.

ed.gov/rels

PROGRAM INVENTORY

The GPRA Modernization Act of 2010, P.L. 111-352, 

requires that the 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.

PROJEC T IONS OF EDUC AT ION 

S TAT IS T IC S TO 2028 

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 2028. The report 

includes a methodology section that describes the models 

and assumptions used to develop national and state-level 

projections. https://nces.ed.gov/pubs2020/2020024.pdf
FY 2020 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION 147

EDCAPS Education Central Automated 

Processing System

EDGMSS-BPA Education Grants Management 

Support Services-Blanket 

Purchase Agreement

EDMAPS Enterprise Data Management and 

Analytics Platform Services

EDSOC The Department of Education 

Security Operations Center 

ERR Entity Risk Review

EFRA Group Enterprise Fraud Risk 

Advisory Group

EIA Emergency Impact Aid

ELG Evidence Leadership Group 

EO Evaluation	Officer	

ERIC Education Resources 

Information Center

ERR Entity Risk Review

ERMD Enterprise Risk 

Management Directorate

ERMWG Enterprise Risk Management 

Working Group

ESSA Every Student Succeeds Act

ESSER Elementary and Secondary School 

Emergency Relief

FAFSA® Free Application for Federal 

Student Aid

FASAB Federal Accounting Standards 

Advisory Board

FCRA Federal Credit Reform Act of 1990

FECA Federal Employees’ 

Compensation Act

FERS Federal Employees 

Retirement System

FFB Federal Financing Bank

APPENDIX B: GLOSSARY OF ACRONYMS 

AND ABBREVIATIONS

ABCP Asset-Backed Commercial Paper

AFR Agency Financial Report

APG Agency Priority Goals

APR Annual Performance Reports

BOD Binding Operational Directive

BPR Business Processing Re-engineering

CARES Coronavirus Aid, Relief, and 

Economic Security Act of 2020

CBO	 Congressional	Budget	Office	

CEAR	 	Certificate	of	Excellence	in	

Accountability Reporting 

CPI-U	 Consumer	Price	Index

CPSS Contracts and Purchasing 

Support System

CSF Cyber Security Framework

CSRS Civil Service Retirement System

CTE Career and Technical Education

CyberSIG Cybersecurity Standards 

Innovation Group

DATA Act Digital Accountability and 

Transparency Act of 2014

DCIA Debt Collection Improvement Act 

of 1996

DGB ED Data Governance Board

Direct Loan William D. Ford Federal Direct Loan

DHS U.S. Department of 

Homeland Security

DL Direct Loan 

DMA Data Maturity Assessment 

DOL U.S. Department of Labor

EAI Emergency Assistance to Institutions 

of Higher Education

ECASLA Ensuring Continued Access to 

Student Loans Act of 2008 
148 FY 2020 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION

APPENDICES | GLOSSARY OF ACRONYMS AND ABBREVIATIONS

IET Integrated Education and Training

IHEs Institutions of Higher Education

IPERA Improper Payments Elimination and 

Recovery Act of 2010

IPERIA Improper Payments Elimination and 

Recovery Improvement Act of 2012

IRS Internal Revenue Service

ISS Interim Servicing Solution

IT Information Technology

LEAs Local Educational Agency

LINCS Literacy Information and 

Communication System

MSR Mid-Session Review

NAEP National Assessment of 

Educational Progress

Next Gen FSA	 	Next	Generation	Financial	

Student Aid

NIST National Institute of Standards 

and Technology

NSLDS® National Student Loan Data System

OAGA Office	of	Acquisition	and	

Grants Administration

OCDO	 Office	of	the	Chief	Data	Officer	

OCIO	 Office	of	the	Chief	Information	Officer

OCR	 Office	for	Civil	Rights

OCTAE	 	Office	of	Career,	Technical,	and	Adult	

Education

OEDARM Office	of	Enterprise	Data	Analytics	

and Risk Management

OELA	 	Office	of	English	Language	

Acquisition

OESE	 	Office	of	Elementary	and	

Secondary Education

OFM	 Office	of	Financial	Management	

OFO	 Office	of	Finance	and	Operations

OGC	 Office	of	the	General	Council

OHR	 Office	of	Human	Resources

OIG Office	of	Inspector	General

FFEL Federal Family Education Loan

FFMIA Federal Financial Management 

Improvement Act of 1996

FISMA Federal Information Security 

Modernization Act of 2014

FMFIA Federal Managers’ Financial Integrity 

Act of 1982

FMSS Financial Management 

Support System

FR Financial Report of the 

U.S. Government 

FSA Federal Student Aid

FUTURE ACT Fostering Undergraduate Talent 

by Unlocking Resources for 

Education Act

FY Fiscal Year

G5 Grants Management System 

GAAP Generally Accepted 

Accounting Principles

GAO	 Government	Accountability	Office

GEER Governor’s Emergency Education 

Relief

GPRA Government Performance and 

Results Act of 1993

GSA General Services Administration

GTAS Governmentwide Treasury Account 

Symbol Adjusted Trial 

Balance System

HBCUs Historically Black Colleges 

and Universities

HEA Higher Education Act of 1965

HEAL Health Education Assistance Loans

HEER Higher Education Emergency Relief

HHS U.S. Department of Health and 

Human Services

IDEA Individuals with Disabilities 

Education Act 

IDR Income-Driven Repayment

IES Institute of Education Sciences
FY 2020 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION 149

GLOSSARY OF ACRONYMS AND ABBREVIATIONS | APPENDICES

REL Regional Educational Laboratory

Report and Annual Performance Report and 

Plan Annual Performance Plan

RESTART Immediate Aid to Restart

School Operations 

SBR Statement of Budgetary Resources

SEA State Education Agency

SFS Scholarship for Services

STEM	 	Science,	technology,	engineering,	

and mathematics

TBMS Technology Business Management 

Solutions

TCCUs Tribally Controlled Colleges 

and Universities

TEACH Teacher Education Assistance for 

College and Higher Education Grant

TEPSLF Temporary	Expanded	Public	Service	

Loan Forgiveness

TPDR Third-party Debt Relief

TIVAS Title IV Additional Servicers

TPD Total and permanent disability 

Treasury U.S. Department of Treasury

WIOA Workforce Innovation and 

Opportunity Act

OMB	 Office	of	Management	and	Budget

OPD Open Data Platform

OPE	 Office	of	Postsecondary	Education

OPEPD	 	Office	of	Planning,	Evaluation,	and	

Policy Development

OPM	 Office	of	Personnel	Management

OS Office	of	the	Secretary

OSERS	 	Office	of	Special	Education	and	

Rehabilitative Services

P–12 Prekindergarten through 12th grade 

PAYE Pay as You Earn

Pell Federal Pell Grant

Pell Program Pell Grant Program 

PII Personally	Identifiable	Information	

PIIA Payment Integrity Information Act 

of 2019

PIV Personal	Identity	Verification

PLUS Parent Loan for

Undergraduate Students 

PO Principal	Office

POA&Ms Plan of Actions & Milestones 

PSLF Public Service Loan Forgiveness

QSMOs	 Quality	Service	Management	Offices
150 FY 2020 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 2020 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 2020 Agency Financial Report 

U.S. Department of Education

Office of Finance and Operations

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 2020

This AFR was produced with the energies and talents of 

our employees and contract partners.

Within the Office of Finance and Operations (OFO), 

the Office of Financial Management 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.

Also, within OFO, the Office of Budget Service has lead 

responsibility for multiple functions, including developing 

and implementing the Department’s Budget. The Office of 

Acquisition and Grants Administration (OAGA) leads the 

Department toward effective, efficient, and accountable 

acquisition management, as well as develops, manages, 

and provides policy guidance and oversight of the 

Department’s grant management activities and operations.

The Contracts and Acquisitions Management Division, 

within OAGA, 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 Secretary

Federal Student Aid

Office of the Inspector General

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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