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

disbursements administered by FSA. Grant-based activity 

under discretionary, formula, and need-based formats 

primarily accounted for the remainder of the outlays. 

Discretionary grants, such as the Federal TRIO 

Programs and the Teacher Incentive Fund, are awarded 

on a competitive basis. When funds for these grants are 

exhausted, they cease to be funded. The Department 

reviews discretionary grant applications using:

 A formal review process for selection,

 Both legislative and regulatory requirements, and

 Published selection criteria established for 

individual programs.

Formula grants, such as Title I and Title III of the 

Elementary and Secondary Education Act, are not 

competitive. The majority go to school districts, as 

often as annually, on a formula basis, and they:

 Provide funds as dictated by a law, and

 Allocate funds to districts on a per-student basis. 

Need-based grants, including the Pell Grant, Federal 

Work Study, and the Federal Supplemental Educational 

Opportunity Grant, are based on family income and 

economic eligibility. While there are many state, 

institutionally (college or school), and privately sourced 

need-based grants, most need-based grants are funded by 

the federal government where the financial aid formula is 

determined by a combination of factors, including:

 Family income and discretionary assets,

 Expected family contribution, and

 Dependency status of the student and other members 

of their family.

Further details on financial figures and program-level goals 

can be viewed in the Department’s 2019 Budget Summary.

FINANCIAL SECTION | REQUIRED SUPPLEMENTARY STEWARDSHIP INFORMATION (UNAUDITED)

REQUIRED SUPPLEMENTARY STEWARDSHIP 

INFORMATION (UNAUDITED)

OMB requires each federal agency to report on its 

stewardship over various resources entrusted to 

it and certain responsibilities assumed by it that 

cannot be measured and conveyed through traditional 

financial reports. These elements do not meet the criteria 

for assets and liabilities required in the preparation of the 

Department’s financial statements and accompanying 

footnotes, but are nonetheless important to understanding 

the agency’s financial condition, strategic goals, and related 

program outcomes.

STEWARDSHIP EXPENSES

Stewardship expenses are substantial investments made by 

the federal government for the long-term benefit of the 

nation. Because costs of stewardship resources are treated 

as expenses in the financial statements in the year the costs 

are incurred, they are reported as Required Supplementary 

Stewardship Information to highlight their benefit and to 

demonstrate accountability for their use.

In the United States, the structure of education finance is 

such that state and local governments play a much greater 

overall role than the federal government. Of the estimated 

more than $1 trillion spent nationally on all levels of 

education, the majority of funding comes from state, 

local, and private sources. In the area of elementary and 

secondary education, nearly 90 percent of resources come 

from nonfederal sources. These funds serve over 50 million 

students enrolled in public, public charter, and private 

schools in the United States and its territories, according 

to the National Center for Education Statistics. 

With its relatively small role in total education funding, 

the Department strives to create the greatest number of 

favorable program outcomes with a limited amount of 

taxpayer-provided resources. This is accomplished by 

targeting areas in which funds will go the furthest in doing 

the most good. Accordingly, federal funding is used to 

provide grant, loan, loan-forgiveness, work-study, and other 

assistance to more than 20 million postsecondary students. 

The majority of the Department’s $307.5 billion in gross 

outlays during FY 2019 was attributable to Direct Loan 
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FY 2019 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION 77

budget authority allows it to continue to operate with 

state and private nonprofit guaranty agencies to honor 

loan guarantees and for the Department to pay interest 

supplements on outstanding loans by private lenders 

to eligible students. The FFEL Loan program expenses 

include the Loan Participation Purchase, Loan Purchase 

Commitment, and ABCP Conduit expenses.

Perkins Loans, Pell and Other Grants. Perkins Loan 

and Grant programs include the Pell Grant program that 

awards direct grants through participating institutions to 

undergraduate students with financial need. Participating 

institutions either credit the appropriated funds to the 

student’s school account or pay the student directly once 

per term.

The Teacher Education Assistance for College and 

Higher Education (TEACH) Grant Program. The 

TEACH Grant program awards annual grants to students 

who agree to teach in a high-need subject area in a public 

or private elementary or secondary school that serves 

low-income students. If the students do not satisfy their 

agreement to serve, the grants are converted to Direct 

Unsubsidized Loans.

Office of Elementary and Secondary Education 

(OESE). OESE promotes academic excellence, enhances 

educational opportunities and equity for all of America’s 

children and families, and improves quality of teaching 

and learning by providing leadership, technical assistance, 

and financial support. 

Office of Special Education and Rehabilitative Services 

(OSERS). OSERS is committed to the broad values of 

Inclusion, Equity and Opportunity for infants, toddlers, 

children, youth, and adults with disabilities to actively 

participate in all aspects of life. OSERS promotes 

inclusion, ensures equity and creates opportunity as it 

strives to improve results and outcomes for children and 

adults with disabilities. By providing funding to programs 

that serve infants, toddlers, children, and adults with 

disabilities, OSERS works to ensure that these individuals 

are fully included in school, in employment, and in 

life. OSERS also provides funds to programs that offer 

information and technical assistance to parents of infants, 

toddlers and children with disabilities, as well as members 

of the learning community who serve these individuals.

The following table illustrates the Department’s expenses 

paid for bolstering the nation’s human capital, broken out 

by the nature of the expense, for the last five years.

INVESTMENT IN HUMAN CAPITAL

Human capital investments are defined similarly by 

OMB, in Circular A-136, and the Statement of Federal 

Financial Accounting Standards No. 8, Supplementary 

Stewardship Reporting. These investments are expenses 

included in net cost for education and training programs 

intended to increase or maintain national economic 

productive capacity and produce outputs and outcomes 

that provide evidence of maintaining or increasing 

national productive capacity.

Supplementing state and local government funding, the 

Department utilizes its annual appropriations and outlay 

authority to foster human capital improvements across 

the nation by supporting programs along the entire 

spectrum of education. Direct loans, guaranteed loans, 

grants, and technical program assistance are administered 

and monitored by FSA and numerous other programaimed components of the Department. The Institute 

of Education Sciences is the independent nonpartisan 

research arm of the Department that aims to present 

scientific evidence to ground education practice and policy 

while providing useful information to all stakeholders 

in the arena of American education. Further details of 

the major offices/programs applicable to this section are 

described below:

Federal Student Aid. Federal Student Aid is the part 

of the Department that administers financial assistance 

programs for students pursuing postsecondary education 

and makes federal grants, direct loans, guaranteed 

loans, and work-study funding available to eligible 

undergraduate and graduate students. 

Federal Student Aid’s programs link the overall 

initiatives of the Department in enhancing education—a 

fundamental stepping-stone to higher living standards for 

American citizens. While education is vital to national 

economic growth, education’s contribution is more than 

increased productivity and incomes. Education improves 

health, promotes social change, and opens doors to a 

better future for children and adults.

Direct Loan Subsidy. The William D. Ford Federal Direct 

Loan (Direct Loan) program is a direct-lending program 

in which loan capital is provided to students by the federal 

government through borrowings from the United States 

(U.S.) Department of Treasury.

Federal Family Education Loan (FFEL) Program 

Subsidy. The FFEL Loan program has originated no 

new loans since June 30, 2010; however, its permanent 
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78 FY 2019 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION

graduates entering the labor force. Attaining a degree 

has proven to increase an individual’s job opportunity 

outlook for life, making them less susceptible to general 

economic downturns and allowing them to afford living 

expenses more comfortably; make debt payments, 

including student loans; and avoid delinquency and credit 

problems. Increased employability makes Americans more 

competitive in the global labor market, yielding lower 

unemployment, higher economic well-being, and greater 

national security.

PROGRAM OUTCOMES 

Favorable results in the various programs administered 

by the Department can be interpreted in many ways. 

Accordingly, the effectiveness of the Department’s 

investments in human capital can be gauged by changes 

in the number of students who fully complete the 

requirements for earning a bachelor’s or associate’s degree. 

This often final stepping stone in one’s educational career 

correlates strongly with wage and/or salary increases 

due to the high-level skills expected by employers of 

2019 2018 2017 2016 2015

FEDERAL STUDENT AID EXPENSE

 Direct Loan Subsidy $ 61,510 $ 4,369 $ 5,329 $ 16,119 $ (892)

 Federal Family Education Loan Program Subsidy 12,654 1,228 3,411 10,234 (3,856)

 Perkins Loans, Pell and Other Grants 32,204 28,512 28,770 30,671 31,400

 Program Operational Costs 262 246 224 308 242

 Subtotal 106,630 34,355 37,734 57,332 26,894

DEPARTMENTAL PROGRAMS

 Elementary and Secondary Education 23,474 20,625 22,420 22,155 22,146

 Special Education and Rehabilitative Services 16,189 16,548 16,294 15,944 15,751

 Other Departmental Programs 5,881 6,367 6,565 6,349 6,494

 Program Operational Costs 446 459 419 625 511

 Subtotal 45,990 43,999 45,698 45,073 44,902

Grand Total $ 152,620 $ 78,354 $ 83,432 $ 102,405 $ 71,796

Table 2. Summary of Human Capital Expenses

(Dollars in Millions)
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FY 2019 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION 79

Default statistics for the FY 2016 cohort of borrowers 

entering repayment were released at the end of FY 2019. 

Of the 4.3 million borrowers entering repayment from 

October 1, 2015, to September 30, 2016, 459,000 

borrowers defaulted on their loans before September 

30, 2018. A cohort default rate of 10.1 percent across 

all educational institutions portrayed a decrease from 

the previous cohort default rate of 10.8 percent for the 

2015 cohort. This metric is unadjusted for loan program 

operational aspects, such as loan consolidations and 

forbearance, income-driven repayment plans, and other 

opportunities given to students to mitigate defaults.

Trends in cohort default rates, among other metrics 

monitored at the Department, continue to indicate 

favorable repayment trends as the Department continues 

to experiment with borrower-friendly loan payment 

options. For more information on program outcomes 

see the Annual Performance Plan available on 

www.Performance.gov/education/education.html.

One important method used in the area of analyzing 

student loan programs, borrower activity, and institution 

participation is the monitoring of default statistics. 

Each year, substantial stewardship expenses incurred 

by the Department are aimed at lowering the number 

of defaulted loans, defaulted borrowers, and disbursed 

dollars going into default. This is done because every 

default—when a loan payment is missed for multiple 

months—results in loan funds that are not replenished, 

missed opportunities to invest in other degree-seeking 

human capital and additional resources used by the 

government in attempting to collect its money. Each 

aspect of a default cost affects the federal budget, 

decreases economic well-being, and harms borrowers’ 

credit scores.

Stewardship expenses for this postsecondary goal 

include those incurred to increase borrower awareness of 

repayment options, encouraging third-party loan servicers 

to work more effectively in helping students avoid default 

by devising viable repayment plans, and by working with 

financial aid offices around the country to help them 

improve the loan counseling provided to students who 

have yet to graduate or enter repayment.