fy 2019

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 15, 2019

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 2019 Agency 

Financial Report, Washington, D.C., 2019. 

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

NOTICE OF AVAILABILITY 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 2019, in addition to the Agency Financial Report (AFR), the Department will post to its website the Annual 

Performance Report (APR). The APR and the Congressional Budget Justification will be posted on the Department’s website 

at http://www.ed.gov/about/reports/annual/index.html with the FY 2021 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 2019 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION i

ABOUT THIS REPORT

The purpose of the United States Department of 

Education’s (the Department) Fiscal Year (FY) 2019 

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

President, other external stakeholders, and the American 

people on how the Department used the federal resources 

entrusted to it to promote student achievement and 

preparation for global competitiveness by fostering 

educational excellence and ensuring equal access. The 

Department accomplishes its mission and the related 

strategic goals and objectives by administering programs 

that range from preschool education through postdoctoral 

research; enforcing civil rights laws to provide equal access 

and treatment; and supporting research that examines 

ways that states, schools, districts, and postsecondary 

institutions can improve America’s education system. As 

evidenced by the information contained in this AFR, the 

Department has demonstrated that it is a good steward 

of financial resources and has put in place well-controlled 

and well-managed business and financial management 

systems and processes. 

The AFR also provides high-level financial and 

performance highlights, assessments of controls, a 

summary of challenges, and a demonstration of the 

Department’s stewardship. This report is required by 

legislation and complies with the requirements of the 

Office of Management and Budget’s (OMB) Circulars 

A-11, Preparation, Submission, and Execution of the Budget; 

A-123, Management’s Responsibility for Enterprise Risk 

Management and Internal Control; and A-136, Financial 

Reporting Requirements. The report satisfies the reporting 

requirements contained in the following legislation: 

 Improper Payments Elimination and 

Recovery Improvement Act of 2012 (IPERIA) 

 Improper Payments Elimination and 

Recovery Act of 2010 (IPERA)

 Government Performance and Results Act (GPRA) 

Modernization Act of 2010

 Federal Information Security Management 

Act of 2002

 Reports Consolidation Act of 2000

 Federal Financial Management Improvement 

Act of 1996 

 Government Management Reform Act of 1994 

 Chief Financial Officers Act of 1990 

 Federal Managers’ Financial Integrity Act of 1982 

 General Education Provisions Act

 Department of Education Organization 

Act of 1979

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

Department and a designated Performance-Based 

Organization, also produces a separate Annual Report that 

details their financial and program performance. Summary 

level information about FSA activities can be found in 

the applicable sections of this report. For more detail on 

FSA’s performance and financial information, refer to 

StudentAid.gov.

CERTIFICATE OF EXCELLENCE

The Department won its 15th prestigious 

Certificate of Excellence in Accountability 

Reporting award from the Association of 

Government Accountants for its FY 2018 

AFR. Additionally, the Department was 

awarded with a Best-in-Class award in 

recognition of its articulation of 

future challenges.

 
ii FY 2019 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.

MANAGEMENT’S DISCUSSION 

AND ANALYSIS

FINANCIAL SECTION

OTHER INFORMATION

APPENDICES

This section provides information about the Department’s mission and organizational structure as 

well as its high-level performance results, financial highlights, 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 supplementary stewardship information, and the 

report from the independent auditors.

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

Challenges for FY 2020, a summary of financial statement audit and management assurances, 

payment integrity reporting details, a fraud reduction report, a summary of the Department’s 

efforts to implement the reduce the footprint policy, and the civil monetary penalty adjustment 

for inflation.

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 2019 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION iii

KEY ACCOMPLISHMENTS

MANAGEMENT’S 

DISCUSSION AND ANALYSIS

MANAGEMENT’S 

DISCUSSION AND ANALYSIS

FINANCIAL SECTION

FINANCIAL SECTION

OTHER INFORMATION

OTHER INFORMATION

APPENDICES

APPENDICES

In January 2019, the Department went through a 

reorganization as a part of an Administration-wide 

commitment to making government more efficient, 

effective, and accountable. To view the new

 organization chart, see page 4.

In February 2019, FSA awarded the first major element 

in the multistage procurement process for Next Gen 

FSA, the Digital and Customer Care contract. 

To read more, see page 26.

A new acronym has been added to the Glossary

 this year: OFO, which stands for the newly

 created Office of Finance and Operations.

The Projection of Education Statistics link has been 

updated to reflect 2027 projections.

Effective January 2019, Denise Carter was delegated 

the authority to perform the functions and duties of the 

position of Chief Financial Officer (CFO). Find her

 CFO letter, which highlights the Department’s

financial progress, on page 31.

There are two new notes to the financial statements for 

FY 2019, see pages 67 and 69.

The Department performed improper payment

 risk assessments for 266 grant activities (formula

 grants and discretionary grant competitions) under 

approximately 120 program authorities and did not 

identify any grant programs that are susceptible

 to significant improper payments.

In FY 2019, FSA implemented a statistically valid 

methodology to estimate improper payment rates for the 

Pell Grant (Pell) and Direct Loan (DL) programs. The 

updated approach is compliant with OMB requirements 

and produced more accurate improper payment rate 

estimates of 2.23% and 0.52% for the Pell and DL 

programs, respectively.
iv FY 2019 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION

MESSAGE FROM THE SECRETARY

November 15, 2019

As this Administration continues to focus on improving 

student achievement, I would like to note the Department’s 

accomplishments this past fiscal year and plans for the next 

year. We continue our focus on putting students’ needs first. 

All students are unique and deserve access to personalized 

education opportunities which help them achieve their full 

potential. By keeping students at the center of all we do, 

we are able to better execute the Department of Education’s 

mission to promote student achievement and preparation for 

global competitiveness by fostering educational excellence. 

I’d like to highlight a few ways in which we’ve empowered 

students and their families as well as state and local leaders 

and invite you to learn more about the Department’s annual 

operations in this report. This year, the Department unveiled 

our Education Freedom Scholarships (EFS) proposal. This 

historic investment in America’s students would establish a 

$5 billion federal tax credit to encourage voluntary donations 

to state law-based scholarship granting organizations for 

elementary and secondary students. Students receiving 

scholarships would be empowered to choose the learning 

environment and style that best meets their unique needs. 

The policy would not rely on any funds currently allocated to 

public education, nor would it create a new federal education 

program. Participation would be voluntary for students, 

schools, and states. Education Freedom Scholarships will 

finally give students the opportunity to learn in places and 

grow in ways that have too often been denied to them. 

Students and their unique needs are also at the heart of the 

Department’s implementation of the Every Student Succeeds 

Act (ESSA). ESSA is an acknowledgment that the federal 

government doesn’t know best when it comes to educating 

our nation’s students. Our focus is on returning power 

where it belongs, to those closest to students: parents, states, 

and local leaders. The flexibilities included in ESSA are 

wide-ranging, and we continue to encourage state and local 

leaders to embrace them to better serve students. 

We believe teachers need flexibility and autonomy as well. 

That’s why in the President’s proposed budget for fiscal year 

2020 we included an innovative approach to empowering 

teachers with greater freedom to chart professional 

development journeys of their own choosing. These “teacher 

vouchers” would free teachers to improve and innovate for 

their students on their own terms, funded by a proposed 

$300 million investment in Education Innovation and 

Research Grants. Additionally, our proposed $200 million 

investment in Teacher and School Leaders Incentive Grants 

would help ensure teachers have access to high-quality 

mentoring and residency programs.

As a part of our effort to rethink higher education and 

encourage students of all ages to find the right education 

fit for them, we proposed reforms related to accreditation, 

distance education and innovation, Teacher Education 

Assistance for College and Higher Education (TEACH) 

Grants, and faith-based institutions. Our proposed 

accreditation reform modernizes the Department’s standards 

and eliminates the artificial divide between regional and 

national accreditors—a divide which harms students, limits 

opportunities, and misleads students about academic quality. 

The distance education regulation clarifies requirements for 

technologies that enable personalized learning and ensures 

that college credits mean the same thing from one institution 

to the next. It does so while allowing space for nontraditional 

technologies to measure learning in ways not strictly tied to 

time spent behind a desk.

We’ve also proposed changes to the TEACH Grant Program. 

These changes would simplify program requirements and 

minimize the number of grants that are inadvertently 

converted to loans, helping to ensure that TEACH Grant 

recipients who go on to teach in high-need fields at lowincome schools get the credit they deserve for their service. 
MESSAGE FROM THE SECRETARY

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

to carry out one of the key recommendations of the final 

report, the Departments of Education, Homeland Security, 

Health and Human Services, and Justice, will launch a 

much-anticipated school safety clearinghouse website—a 

useful resource to state and local school officials, law 

enforcement authorities, mental health professionals, and 

others to help keep students safe. 

Sound stewardship of taxpayer funds is a priority for our 

Department, and 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 2019 financial statements. Last 

year, the internal control report identified one material 

weakness, “Controls over the Reliability of Information 

Used in the Modeling Activities Need Improvement,” for 

which the Department has developed corrective action plans 

that have been implemented over the past year. Nonetheless, 

a material weakness for this area was again included in this 

year’s audit report. The Department remains committed to 

addressing this material weakness.

None of these during the past year would be possible 

without the hard work and dedication of Department staff. 

Together, we have made significant strides in promoting 

student achievement and preparing students for success.

Betsy DeVos

In addition, our rulemaking effort for faith-based institutions 

will help ensure institutions are not forced to abandon the 

tenets of their faith to receive federal support. 

Over the past year, our Office of Federal Student Aid has 

worked diligently to transform the delivery of financial aid 

to millions of students and their families through our Next 

Generation (Next Gen) Financial Services Environment. 

Upon completion, this major transformation will 

modernize technology and operational components that 

support federal student aid programs—from application 

to repayment. We launched the myStudentAid app, which 

allows students and parents to easily complete the Free 

Application for Federal Student Aid (FAFSA®). We also 

improved the College Scorecard to include information on 

2,100 certificate-granting institutions in addition to 3,700 

degree-granting institutions. The Scorecard now contains 

preliminary information on student loan debt by field 

of study. And, in support of our veterans, the President 

signed a memorandum to automatically forgive federal 

student loan debt for those veterans who are totally and 

permanently disabled.

In rethinking career, technical, and adult education, we 

focused on expanding the Second Chance Pell experiment 

by allowing new higher education institutions to 

participate. This important experiment has already provided 

many students with new opportunities that prepare them 

for success upon reentry, and adding additional students 

and institutions to the experiment will help to improve the 

Department’s ability to evaluate the program’s effectiveness. 

We’ve also made a concerted effort to engage more 

closely with state and local leaders by launching a State 

Education Leadership Conference series. This initiative gave 

Department leaders the opportunity to engage firsthand 

with state and local officials who are on the front lines 

of education decision making in their respective states. 

We held productive sessions with officials from Georgia, 

Kentucky, Tennessee, and North Carolina. 

Finally, we launched the Federal Commission on School 

Safety website, which features the final report of the 

Commission along with recommendations for keeping 

students, teachers, and faculty safe at school. The website 

also includes a Frequently Asked Questions page that 

consolidates previously issued guidance and technical 

assistance into a single resource to help raise schools’ and 

districts’ awareness of supports available to them. Further, 
This page intentionally left blank.
FY 2019 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION vii

CONTENTS

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

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

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

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

MANAGEMENT’S DISCUSSION AND 

ANALYSIS (UNAUDITED)

About the Management’s 

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

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

The Department’s Approach 

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

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

Analysis of Systems, 

Controls, and Legal Compliance ............... 17

Secretary’s Statement of Assurance ...........17

Forward-Looking Information ............... .23

FINANCIAL SECTION

Message from the Chief Financial Officer ....... 31

About the Financial Section .................32

Financial Statements ..................... 34

Notes to the Financial Statements ........... 38

Required Supplementary Information

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

Required Supplementary Stewardship 

Information (Unaudited) ................... 76

Report of the Independent Auditors .......... 80

OTHER INFORMATION (UNAUDITED)

About the Other Information Section ............ 97

Memorandum from the 

Office of Inspector General .................. 98

Office of Inspector General’s (OIG) 

Management and Performance 

Challenges for Fiscal Year 2020 ................ 99

Summary of Financial Statement 

Audit and Management Assurances .......... 113

Payment Integrity ......................... 114

Fraud Reduction Report ...................... 129

Reduce the Footprint ....................... 130

Civil Monetary Penalty 

Adjustment for Inflation ....................... .131

APPENDICES

Appendix A: Selected Department 

Web Links and Education Resources ......... 134

Appendix B: Glossary of 

Acronyms and Abbreviations .................137
This page intentionally left blank.
MANAGEMENT’S

DISCUSSION

and ANALYSIS
2 FY 2019 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 (the 

Department) continued to enhance the content 

quality, report layout, and public accessibility 

of the Fiscal Year (FY) 2019 Agency Financial Report

(AFR) by refining graphics and providing more useful, 

balanced, and easily understood information 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 AND ORGANIZATIONAL STRUCTURE

This section provides information about the Department’s 

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

active links include the organization chart and principal 

offices and a link to the full list of Department offices

with a description of selected offices by function.

THE DEPARTMENT’S APPROACH 

TO PERFORMANCE

This section provides a brief summary of the 

Department’s performance goals and results for FY 

2019. Since the Department has chosen to produce 

separate financial and performance reports, a detailed 

discussion of performance information for FY 2019 will 

be provided in the Department’s Annual Performance 

Report to be released online at the same time as the 

President’s FY 2021 Budget in February 2020. 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 included more high-level details about 

sources and uses of the federal funds received and net costs 

by program.

ANALYSIS OF SYSTEMS, CONTROLS, AND 

LEGAL COMPLIANCE

The Department’s internal control framework and 

its assessment of controls, in accordance with Office 

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

Management’s Responsibility for Enterprise Risk 

Management and Internal Control, provide assurance 

to Department leadership and external stakeholders that 

financial data produced by the Department’s business 

and financial processes and systems are complete, 

accurate, and reliable.

FORWARD-LOOKING INFORMATION

The Forward-Looking Information section describes the 

challenges that the Department aims to address to achieve 

progress on Enterprise Risk Management (ERM), Direct 

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

Data as a Strategic Asset, and Technology Business 

Management Solutions (TBMS).
FY 2019 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION 3

MANAGEMENT’S DISCUSSION AND ANALYSIS

ABOUT THE DEPARTMENT

OUR MISSION

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

preparation for global competitiveness by fostering educational excellence and 

ensuring equal access.

Who We Are. In 1867, the federal government recognized 

that furthering education was a national priority and 

created a federal education agency to collect and report 

statistical data. The Department was established as a 

cabinet-level agency in 1980. Today, the Department 

supports programs in every area and level of education 

from preschool through postdoctoral research.

The Department makes funds and information 

available to individuals pursuing education, colleges and 

universities, state education agencies, and school districts 

by engaging in four major types of activities:

 Establishing policies related to federal education 

funding, including distributing funds, collecting on 

student loans, and using data to monitor the 

use of funds;

 Supporting data collection and research on 

America’s schools;

 Identifying major issues in education and focusing 

national attention on them; and

 Enforcing federal laws promoting equal access and 

prohibiting discrimination in programs that receive 

federal funds.

Our Public Benefit. The Department executes the 

laws passed by Congress to promote student academic 

achievement and preparation for global competitiveness. 

The Department works with students, parents, educational 

institutions, school districts, and states to foster 

educational excellence and to ensure equal access to a high 

quality education for all students. While recognizing the 

primary role of states and school districts in providing 

high quality education, the Department is committed to 

helping ensure students throughout the nation develop 

skills to succeed in school, pursue postsecondary options, 

and transition to the workforce. The Department’s vision 

is to improve educational outcomes for all students.

Many of the Department’s programs involve awarding 

grants to state and local educational agencies and 

providing grants and loans to postsecondary students. The 

Department’s largest outlays are for its portfolio of student 

loans (see the Financial Highlights and Notes sections). 

Grant programs constitute the second-largest driver of 

outlays. The grant programs include: student aid to help 

pay for college through Pell Grants, Work Study, and 

other campus-based programs; grants awarded based on 

statutory formulas mostly for elementary and secondary 

education; and competitive grant programs to promote 

innovation. The Department also supports research, 

collects education statistics, and enforces civil rights 

statutes. We manage and spend financial resources on 

programs designed to support parents, teachers, principals, 

school leadership, institutions, and states in the pursuit of 

instilling knowledge and transferring skills to students.
4 FY 2019 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION

MANAGEMENT’S DISCUSSION AND ANALYSIS

OUR ORGANIZATION IN FISCAL YEAR 2019

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

version of the FY 2019 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 2019 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION 5

MANAGEMENT’S DISCUSSION AND ANALYSIS

FY 2018–22 Strategic Goals and Strategic Objectives1

1

 The FY 2019 Statement of Net Cost and related notes align with the FY 2018–22 Strategic Plan.

PERFORMANCE MANAGEMENT FRAMEWORK

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

starts with the four-year Strategic Plan, 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 four FY 2018-19 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 internal 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.

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

MANAGEMENT’S DISCUSSION AND ANALYSIS

THE DEPARTMENT’S AGENCY PRIORITY GOALS (APGs)

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

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

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

protections of student privacy, and reduce red tape. The Department will identify APGs for FY 2020–21 in the FY 2021 

Annual Performance Plan. 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 Annual Performance Plan and 

quarterly updates for the APGs are available on www.Performance.gov/education/education.html.

APG Related Strategic Objective

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

options for kindergarten - grade 12 students. By September 30, 2019, the Charter 

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

schools nationally. The CSP will also support the enrollment of 50,000 students in new 

charter schools. Additionally, by September 30, 2019, the Department will disseminate 

eight resources, at least one per quarter, on evidence-based and promising practices 

related to school choice.

Strategic Objective 1.1: Increase high-quality educational 

options and empower students and parents to choose an 

education that meets their needs.

Improve borrowers’ access to quality customer service. By September 30, 

2019, the Office of Federal Student Aid (FSA) will advance the adoption of the Next 

Generation Financial Services Environment, enabling over 1.8 million customers to 

submit their Free Application for Federal Student Aid through the FSA mobile platform 

and 30,000 customers to use the mobile platform to check on their loan balances. 

Strategic Objective 2.4: Improve quality of service for 

customers across the entire student aid life cycle.

Improve student privacy and data security at Institutions of Higher Education 

(IHEs) through outreach and compliance efforts. By September 30, 2019, the 

Department will increase information security program outreach activities to IHEs by 

40% in order to help protect IT systems and data privacy and commence audits of 

IHEs subject to the Single Audit and Gramm-Leach-Bliley Act (GLBA), resulting in 

36 IHEs (from a baseline of zero) completing an audit of GLBA-related information 

security safeguards with no significant findings.

Strategic Objective 3.2: Improve privacy protections 

for, and transparency of, education data both at the 

Department and in the education community.

Provide regulatory relief to education stakeholders. By September 30, 2019, the 

Department will reduce the regulatory burden on education stakeholders by submitting 

to OMB no less than 25 deregulatory actions (against a baseline of zero (0) for FYs 

2015 and 2016).

Strategic Objective 4.1: Provide regulatory relief to 

educational institutions and reduce burden by identifying 

time-consuming regulations, processes and policies and 

working to improve or eliminate them, while continuing to 

protect taxpayers from waste and abuse.

Goal 1. Support state and local efforts to 

improve learning outcomes for all 

P–12 students in every community.

Strategic Goal 1 focuses on outcomes related to 

the transition from the No Child Left Behind Act to 

implementation of the Every Student Succeeds Act (ESSA), 

which reauthorized the Elementary and Secondary 

Education Act in December 2015. The hallmark of the 

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

best for children while preserving important protections 

for economically disadvantaged students, children 

with disabilities, English learners, and other vulnerable 

students. The law requires that states take steps to ensure 

all students have access to excellent teachers and positive, 

safe learning environments that equip them for college 

and career success.

The FY 2018–19 APG associated with Strategic Goal 

1 focused on expanding educational choice options for 

parents and students. Specifically, the APG aims to improve 

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

choice options for kindergarten–grade 12 students.

APG for FY 2018–2019: Improve the access to, 

and the quality and transparency of, school 

choice options for K–12 students.

By September 30, 2019, the Charter School Program 

(CSP) will support the creation and expansion of 

300 new charter schools nationally. The CSP will 

also support the enrollment of 50,000 students in new 

charter schools. Additionally, by September 30, 2019, 

the Department will disseminate eight resources, 

at least one per quarter, on evidence-based and 

promising practices related to school choice.
FY 2019 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION 7

MANAGEMENT’S DISCUSSION AND ANALYSIS

security, usability, and experience of myStudentAid app 

for customers based on customer feedback to enhance 

the student and parent experience. Through FY 2019, 

nearly 66,000 customers used the myStudentAid app to 

check loan balances, resulting in goal achievement for this 

fiscal year. In addition, the fafsa.gov site was redesigned 

to accommodate the screen size and shape of any device, 

including desktop or laptop computers and mobile devices 

such as smartphones or tablets.

Goal 3. Strengthen the quality, accessibility 

and use of education data through better 

management, increased privacy protections 

and transparency.

Strategic Goal 3 focuses on strengthening data-driven 

decision-making in education by focusing on the ways 

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. 

The FY 2018–19 APG associated with Strategic Goal 3 

focused on improving student privacy and data security at 

Institutions of Higher Education (IHEs) through outreach 

and compliance efforts.

In FY 2019, the Department focused on this APG 

through collaborative efforts involving training, outreach, 

monitoring, and reporting. New audit standards for 

GLBA-related information security safeguards were 

published in the June 2019 2 C.F.R. Part 200 Appendix 

IX Compliance Supplement and impact the requirement 

of IHEs to conduct and submit an audited assessment of 

In FY 2019, the Department focused on the 

implementation of the CSP, including conducting new 

competitions and providing technical assistance to current 

grantees. Through CSP, the Department supported seven 

charter school grant programs through monitoring calls 

and site visits. In FY 2019, the Department released three 

evidence-based and promising practices resources related 

to educational choice. The Department met the target of 

disseminating eight resources during the FY 2018–19 APG 

reporting period. 

Goal 2. Expand postsecondary educational 

opportunities, improve outcomes to foster 

economic opportunity and promote an informed, 

thoughtful and productive citizenry.

Strategic Goal 2 focuses on expanding the Department’s 

efforts to support innovative and accessible paths to 

postsecondary credentials and job-ready skills training. 

In addition to supporting expanded postsecondary 

opportunities, the Department has a number of initiatives 

focused on affordability. These initiatives ensure borrowers 

have the best information available to make postsecondary 

program selection and associated borrowing decisions. The 

Department also continues to help students understand their 

financial aid options and repayment obligations. The FY 

2018–19 APG associated with Strategic Goal 2 focused on 

improving borrowers’ access to quality customer service.

In FY 2019, the Department focused on this APG to 

improve customers’ experience throughout the entire 

student aid life cycle by first modernizing capabilities 

related to the FAFSA and the servicing and repayment of 

customer loans. With the Department’s transition in FY 

2018 to a new paradigm of student loan processing, Next 

Generation Financial Services Environment (Next Gen 

FSA), FSA is providing a new experience for borrowers, 

and FSA customers in general, as they seek to make 

informed decisions about applying for aid, attending 

school, and repaying their student loans. From October 

2018 – February 2019, FSA made changes to improve the 

APG for FY 2018–2019: Improve borrowers’ 

access to quality customer service.

By September 30, 2019, the Office of Federal Student 

Aid (FSA) will advance the adoption of the Next 

Generation Financial Services Environment, enabling 

over 1.8 million customers to submit their Free 

Application for Federal Student Aid (FAFSA) through 

the FSA mobile platform and 30,000 customers to use 

the mobile platform to check on their loan balances.

APG for FY 2018–2019: Improve student 

privacy and data security at Institutions of 

Higher Education (IHEs) through outreach and 

compliance efforts.

By September 30, 2019, the Department will increase 

information security program outreach activities to 

IHEs by 40% in order to help protect IT systems and 

data privacy and commence audits of IHEs subject 

to the Single Audit and the Gramm-Leach-Bliley Act

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

completing an audit of GLBA-related information 

security safeguards with no significant findings.
8 FY 2019 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION

MANAGEMENT’S DISCUSSION AND ANALYSIS

The Department intends to reduce the regulatory 

burden on stakeholders through review, rescission, and 

modification of outdated, burdensome regulations and 

guidance. The Regulatory Reform Task Force (RRTF), 

which includes a wide cross section of the Department’s 

senior leaders, was established under Executive Order 

13777 to review and reduce regulatory inefficiencies. The 

2018 RRTF Report highlights the Department’s efforts 

to reduce regulatory burden through December 2018. In 

response to RRTF recommendations, several cross-office 

workgroups were established to focus on the Education 

Department General Administrative Regulations; a web 

portal for Departmental guidance documents; and an 

information collections workgroup to reduce paperwork 

burden. In 2019, the Department issued final regulations 

on issues such as Programs and Activities Authorized 

by the Adult Education and Family Literacy Act (Title 

II of the Workforce Innovation and Opportunity Act of 

2010) and Program Integrity: Gainful Employment. The 

latter rule eliminates significant paperwork burden and 

administrative costs for applicable entities and is estimated 

to yield $160 million in annualized cost savings.

data security programs. IHEs subject to the Single Audit 

have nine months from their fiscal year end to submit the 

audits to the Department; IHEs will not include the newly 

required standards in time to meet the Department’s FY 

2019 APG target. In Quarter 3 through Quarter 4, FSA 

engaged with 708 IHEs for technical assistance related 

to cybersecurity. FSA’s contact with these institutions 

consisted of discussing industry best practices, mitigation 

strategies, guidance for improving processes, and 

documentation to improve their security postures. FSA 

and the Department’s Privacy and Technical Assistance 

Center (PTAC) surpassed the FY 2018-19 APG target and 

collaborated to conduct 103 outreach activities targeting 

data privacy and IT security requirements of IHEs.

Goal 4. Reform the effectiveness, efficiency and 

accountability of the Department.

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. The FY 2018-19 APG associated 

with Strategic Goal 4 aimed to provide regulatory relief to 

education stakeholders. 

APG for FY 2018–2019: Provide regulatory 

relief to education stakeholders.

By September 30, 2019, the Department will reduce 

the regulatory burden on education stakeholders by 

submitting to OMB no less than 25 deregulatory 

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

and 2016).
FY 2019 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 18 

consecutive years, the Department has earned an unmodified 

(or “clean”) audit opinion. The financial statements and 

notes for FY 2019 are on pages 32–72 and the Independent 

Auditors’ Report begins on page 82.

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 $1,310.7 billion as of 

September 30, 2019. The vast majority of the assets 

relate to credit program receivables, $1,203.5 billion, 

which comprised 91.8 percent of all assets. Direct Loans 

comprise the largest share of these receivables. All other 

assets totaled $107.2 billion, most of which was Fund 

Balance with Treasury.

The Department’s liabilities totaled $1,314.2 billion as 

of September 30, 2019. As with assets, the vast majority 

of the Department’s liabilities are associated with credit 

programs, primarily amounts borrowed from the U.S. 

Department of the Treasury (Treasury) to fund student 

loans. Debt associated with Direct Loans totaled $1,192.1 

billion as of September 30, 2019.
10 FY 2019 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION

MANAGEMENT’S DISCUSSION AND ANALYSIS

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.

Prior years’ positive allowance for subsidy balances 

represented estimates of funds expected to be recovered 

Figure 3 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 originated all new federal loans since 

July 2010, when originations of new Federal Family 

Education Loan (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 2015 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 now have more 

options to stretch out their repayment terms and reduce 

their monthly payments. 

In accordance with the Federal Credit Reform Act of 1990

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

Direct Loan 

Component

(Dollars

 in Billions)

Fiscal Year

2015 2016 2017 2018 2019

Principal $ 800.8 $ 902.8 $ 998.8 $ 1,083.7 $ 1,164.9

Rate of 

Increase in 

Principal

15.4% 12.7% 10.6% 8.5% 7.5%

Accrued Interest $ 44.3 $ 50.8 $ 59.5 $ 72.0 $ 83.3

Allowance for 

Subsidy $ 35.5 $ 5.3 $ (16.8) $ (40.7) $ (124.4)

Total No. of 

Direct Loan 

Recipients 

(in Millions)

29.9 31.5 33.0 34.2 35.1

Loan Status

Fiscal Year

2015 2016 2017 2018 2019

Total No. of 

Direct Loan 

Recipients 

(in Millions)

29.9 31.5 33.0 34.2 35.1

Total Dollar 

Amount of 

Direct Loans 

Outstanding

$ 845.1 $ 953.6 $ 1,058.4 $ 1,155.7 $ 1,248.1 

Current 

Repayment1 332.0 406.8 467.9 531.4 594.7

% Current

Repayment 39.3% 42.7% 44.2% 46.0% 47.6%

In School, 

Grace Period, 

and Education 

Deferments

284.3 289.6 291.7 291.7 294.8

% In School, 

Grace Period, 

and Education 

Deferments

33.6% 30.4% 27.6% 25.2% 23.6%

Forbearance 

and 

Noneducation 

Deferments

103.0 106.5 122.5 121.9 133.2

% Forbearance 

and 

Noneducation 

Deferments

12.2% 11.2% 11.6% 10.5% 10.7%

Delinquent 

(Past Due

31-360 Days)

65.1 71.8 79.5 92.2 90.8

% Delinquent 

(Past Due

31-360 Days)

7.7% 7.5% 7.5% 8.0% 7.3%

Default/

Bankruptcy/

Other

60.7 78.9 96.8 118.5 134.6

% Default/

Bankruptcy/

Other

7.2% 8.2% 9.1% 10.3% 10.8%

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

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

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

Table 1. Payment Status of Direct Loan Principal 

and Interest Balances

(Dollars in Billions)
FY 2019 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION 11

MANAGEMENT’S DISCUSSION AND ANALYSIS

delinquent, default is defined as 361 days delinquent for 

reporting purposes. The percentage of loans in default 

continues to grow, even as delinquencies and new defaults 

have declined, because defaulted loans can be difficult 

to collect or rehabilitate. The percentage of the portfolio 

in current repayment, which rose from 39 percent in FY 

2015 to 48 percent in FY 2019, has eclipsed payments 

temporarily postponed and has grown far faster than loans 

in default. 

The Department borrows funds to disburse new loans 

and pay credit program outlays and related costs. The 

Department repays Treasury after consideration of cash 

position and the liability for future cash outflows. Figure 

4 shows the Direct Loan program cumulative borrowing 

and repayment activity that resulted in the debt amount 

on the balance sheet. A diagram depicting the Direct Loan 

program financing process is displayed with related trend 

data as Figure 6 on page 12 of this report.

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 5 shows the Department’s gross costs and 

earned revenue over the past five years. 

in excess of principal loaned less anticipated defaults, 

loan cancellations, and other adjustments. These positive 

allowance for subsidy balances resulted primarily from 

the difference between the interest rates charged by the 

Department to borrowers and the interest rates charged to 

the Department on amounts borrowed from Treasury to 

make the loans. The reduction in the positive allowance 

since FY 2015 is due primarily to higher subsidy costs, 

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. 

Table 1 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. 

Loans in the Delinquent category are past due anywhere 

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

loans that are over 360 days delinquent (default status); 

loans in a nondefaulted bankruptcy status; and loans 

in disability status. While technical default is 271 days 
12 FY 2019 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 2015 2016 2017 2018 2019 

Net Borrowing 90.9 84.4 67.3 89.1 41.5 

 Borrowing from Treasury 159.7 147.0 160.5 155.3 137.6 

 Debt Repayments to Treasury (68.7) (62.6) (93.2) (66.2) (96.1)

Interest Expense to Treasury (27.6) (30.5) (31.3) (32.3) (33.8)

Interest Earned from Treasury 4.2 3.9 4.3 3.9 4.1 

Cumulative Taxpayer Cost / (Savings) (35.5) (5.3) 16.8 40.7 124.4 

Current Subsidy Expense (Revenue) (0.9) 16.1 5.3 4.4 61.5 

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

Fiscal Year 2015 2016 2017 2018 2019 

Loan Disbursements 142.2 140.5 142.5 134.1 130.7 

 Stafford Subsidized 24.0 23.8 23.4 20.3 20.0 

 Stafford Unsubsidized 52.7 52.3 51.4 49.0 48.1 

 PLUS 19.2 19.0 18.7 23.1 22.7 

 Consolidation1 46.4 45.5 49.0 41.6 39.8 

Loan Collections2 65.1 73.2 82.0 84.9 91.3 

 Principal 50.0 55.9 62.6 63.5 67.0 

 Interest 13.4 15.5 17.6 19.5 22.4 

 Fees 1.8 1.8 1.9 1.9 1.9 

* Numbers may not add up due to rounding.

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

2 Loan collections include prepayments, including prepayments in full due to consolidation of underlying Direct Loans.
FY 2019 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION 13

MANAGEMENT’S DISCUSSION AND ANALYSIS

ANALYSIS OF DIRECT LOAN PROGRAM 

SUBSIDY EXPENSE 

One of the components significantly impacting the 

Department’s gross costs pertains to the estimated subsidy 

expense of the Direct Loan program. The Department’s 

gross costs can fluctuate significantly each year as a result 

of changes in the estimated subsidy expense. The increase 

in the subsidy expense for Direct Loans in FY 2019 

accounts for 75.4 percent of the total increase in the 

Department’s gross costs from FY 2018. Subsidy expense 

is an estimate of the present value cost of providing direct 

loans, but excludes the administrative costs of issuing and 

servicing the loans. The Department estimates subsidy 

expense using a set of econometric and financial models, as 

well as cash flow models.

The Department estimates subsidy costs annually for new 

loans disbursed in the current year; updates the previous 

cost estimates for outstanding loans disbursed in prior 

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

estimates based on changes to terms of existing loans 

(subsidy modifications). Figure 8 shows these three 

components of the Direct Loan program subsidy expense 

for the past five years.

GROSS COSTS AND EXCHANGE REVENUE BY TYPE 

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

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

amortization; 

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

 Grant expenses (see Figure 9). 

2015 2016 2017 2018 2019

Subsidy Expense for 

New Loans Disbursed 

in the Current Year

$ (6.2) $ (5.7) $ (2.6) $ (3.1) $ (3.0)

Subsidy 

Re-estimates (4.6) 21.8 7.9 7.4 64.5 

Loan Modification 9.9 - - 0.1 - 

Total Subsidy Expense $ (0.9) $ 16.1 $ 5.3 $ 4.4 $ 61.5 
14 FY 2019 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION

MANAGEMENT’S DISCUSSION AND ANALYSIS

 Maturity, Prepayment, and Loan Payoff. The 

Department further enhanced the forecasting 

of amount of debt distributions and aligned all 

three sub-components of this assumption to enter 

repayment cohorts. The loan payoff component was 

improved as well by using a more precise method 

to estimate payoff for loans enrolled in graduated 

repayment plans. As mentioned above, the impact 

on repayment of delinquency was moved to the 

payoff maturity assumption to better reflect interest 

accrual and the extension of the payment period. 

These adjustments resulted in longer assumed terms, 

resulting in a longer stream of payments, more 

interest accrual and less subsidy. The combined effect 

of these changes led to a net downward re-estimate of 

$26.1 billion.

 Financing Account Interest Adjustment. Beginning 

in FY 2019, the Department implemented a process 

to calculate and execute a financing account interest 

adjustment to address differences between net 

financing account interest executed for cohorts each 

year and amounts earned based on final Treasury 

interest rates for those cohorts. This resulted in a net 

upward re-estimate of $6.3 billion.

 Default. The Department updated the data and made 

a change in methodology to a weighted fractional 

logit in order to more appropriately reflect the 

different sizes of the grouped data. The combined 

effect of these changes led to a net downward reestimate of $1.0 billion. 

 Collections. As a result of analyzing updated Debt 

Management and Collection System (DMCS) data, 

collection rate estimates were revised which resulted 

in a net upward re-estimate of $4.2 billion.

 2018 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 re-estimate includes a net 

upward adjustment of $5.8 billion for these prior year 

changes attributable to the FY 2018 cohort. 

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.

The Direct Loan program subsidy re-estimate increased 

subsidy expense in FY 2019 by $64.5 billion. Re-estimated 

costs only include cohorts that are 90 percent disbursed; 

cohort years 1994–2018. The re-estimate reflects the 

assumption updates and other changes described below. 

 IDR Model Changes. During FY 2019, the 

Department enhanced the IDR model by examining 

the most current available IDR application data 

from NSLDS to supplement information previously 

used from the Department of Treasury’s Office of 

Tax Analysis, in order to calibrate projected incomes. 

The Department’s analysis determined a downward 

calibration was warranted, with the Departmental and 

FSA senior management concurrence. The impact of 

this calibration was the most significant factor in the 

IDR component of the re-estimate. The IDR update 

also reflects further refinement in the logic for switching 

borrowers among IDR plans and the appropriate balance 

to be paid off when they do switch. These updates led to 

a net upward re-estimate of $43.6 billion. 

 Deferment and Forbearance. The Department made 

enhancements in the methodology for delinquency, 

to more precisely reflect interest accrual and the 

extension of the payment period than the method 

previously employed. These enhancements resulted 

in a lower rate of forbearance which led to an upward 

re-estimate of subsidy as less interest is accrued, 

capitalized, and collected. Deferment rates increased 

for PLUS loans eligible for in-school deferments. 

The combined effect of these changes, in addition 

to updated data from NSLDS, was a net upward reestimate of $18.3 billion.
FY 2019 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION 15

MANAGEMENT’S DISCUSSION AND ANALYSIS

$16.3

  $26.$16.7

 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 $9.7 billion.

 Interactive Effects. The re-estimate includes a net 

upward re-estimate of $3.2 billion attributed to 

the interactive effects of the assumption changes 

described above.

The Department has more than 100 grant and loan 

programs. The Department’s FY 2019 expenses for grant 

programs totaled $77.8 billion. The three largest 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 Title I grants that provide financial assistance 

through state educational agencies to local educational 

agencies and public schools with high numbers or 

percentages of poor children to help ensure that all 

children meet challenging state academic content 

and student academic achievement standards. Also 

provides fund 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 institutions of 

higher education and other nonprofit organizations to 

support research, demonstrations, technical assistance 

and dissemination, technology, personnel development 

and parent-training and information centers.

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

MANAGEMENT’S DISCUSSION AND ANALYSIS

STATEMENTS OF CHANGES IN NET POSITION

The consolidated statements of changes in net position 

report the beginning net position, the summary effect 

of transactions that affect net position during the fiscal 

year, and the ending net position. Net position consists 

of unexpended appropriations and cumulative results 

of operations. Unexpended appropriations include 

undelivered orders and unobligated balances for grant and 

administrative operations. Cumulative results of operations 

represent the net difference since inception between (1) 

expenses and (2) revenues and financing sources. 

STATEMENTS OF BUDGETARY RESOURCES

The combined statements of budgetary resources present 

information on how budgetary resources were made 

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

Information in the statements is based on budgetary 

transactions as prescribed by OMB and Treasury.

The Department’s budgetary resources totaled $358.2 

billion for the period ended September 30, 2019, decreasing 

from $358.5 billion, or approximately 0.1 percent 

from the prior year. Budgetary resources are comprised 

of appropriated budgetary resources of $137.2 billion 

and non-budgetary credit reform resources of $221.0 

billion. The non-budgetary credit reform resources are 

predominantly borrowing authority for the loan programs. 

The Department’s gross outlays totaled $307.5 billion for 

the period ended September 30, 2019. Gross outlays are 

primarily comprised of credit program loan disbursements 

and claim payments, credit program subsidy interest 

payments to Treasury, and grant payments. Credit program 

gross outlays were offset by $150.8 billion of collections—

primarily principal, interest and subsidy collections.

LIMITATIONS OF THE FINANCIAL STATEMENTS

The principal financial statements are prepared to report 

the financial position and results of operations of the 

reporting entity, pursuant to the requirements of 31 

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

the Department’s books and records in accordance with 

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.

Billions %

CREDIT PROGRAMS $ 226.8 73.8%

DIRECT LOAN PROGRAM 208.0 67.6%

FFEL PROGRAM 18.4 6.1%

OTHER CREDIT PROGRAMS FOR 

HIGHER EDUCATION 0.4 0.1%

GRANTS $ 76.9 25.0%

PELL GRANTS 29.0 9.4%

EDUCATION FOR 

THE DISADVANTAGED 16.2 5.3%

SPECIAL EDUCATION - INDIVIDUALS 

WITH DISABILITIES EDUCATION ACT 

(IDEA) GRANTS

 13.2 4.3%

ALL OTHER GRANTS 18.5 6.0%

CONTRACTUAL SERVICES $ 3.1 1.0%

PERSONNEL COMPENSATION 

AND BENEFITS $ 0.6 0.2%

OTHER $ 0.1 0.0%

TOTAL $ 307.5 100.0%
FY 2019 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION 17

MANAGEMENT’S DISCUSSION AND ANALYSIS

ANALYSIS OF SYSTEMS, CONTROLS, 

AND LEGAL COMPLIANCE

MANAGEMENT ASSURANCES

The Secretary of Education’s 2019 Statement of Assurance provided below is the final report produced by the Department’s 

annual assurance process. Although the Department has not identified any material weaknesses, the independent auditor 

identified a material weakness and significant deficiencies in the auditors’ report, and the Office of Inspector General 

identified management challenges in the Office of Inspector General’s Management and Performance Challenges For Fiscal 

Year 2020 report.

STATEMENT OF ASSURANCE

FISCAL YEAR 2019

November 15, 2019

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

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

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

and financial systems. 

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

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

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

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

laws and regulations.

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

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

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

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

management systems substantially complied with FFMIA requirements. The Department 

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

reporting, including controls designed to prevent, detect, and recover improper payments, in 

accordance with Appendix A of OMB Circular A-123.

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

compliance with applicable laws and regulations. 

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

controls provides Department management with reasonable assurance that the objectives of 

sections 2 and 4 of the FMFIA were achieved as of September 30, 2019.

Betsy DeVos
18 FY 2019 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION

MANAGEMENT’S DISCUSSION AND ANALYSIS

INTRODUCTION

Strong risk management practices and internal controls help an entity run its operations efficiently and effectively, report 

reliable information about its operations and financial position, and comply with applicable laws and regulations. The 

FMFIA requires federal agencies to establish internal controls that provide reasonable assurance that agency objectives 

will be achieved. OMB Circular A-123, Management’s Responsibility for Enterprise Risk Management and Internal 

Control implements FMFIA and defines management’s responsibilities for ERM and internal control. The Circular provides 

guidance to federal managers to improve accountability and effectiveness of federal programs, as well as mission support 

operations through implementation of ERM practices and by establishing, maintaining, and assessing internal control 

effectiveness. The guidance requires federal agencies to provide reasonable assurance that it has met the three objectives 

of internal controls:

 Operations—Effectiveness and efficiency of operations; 

 Reporting—Reliability of reporting for internal and external use; and 

 Compliance—Compliance with applicable laws and regulations. 

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

and assurances provided by the Department’s leadership that internal controls were in place and working as intended during 

FY 2019 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
FY 2019 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION 19

MANAGEMENT’S DISCUSSION AND ANALYSIS

discretionary and formula grants policy, training, audit 

resolution, and indirect cost negotiation.

In accordance with OMB Circular A-123, the 

Department also conducted an additional 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, which includes: 

 Comprehensive process documentation for the 

Department’s significant business processes 

and subprocesses;

 Maintenance of an extensive library of key financial, 

operations, and Information Technology (IT) controls;

 Technical assistance provided to principal offices to 

help them understand and monitor key controls;

 A Data Quality Plan to improve reporting controls and 

data quality;

 A risk-based control testing strategy; and

 A process to develop corrective action plans when 

internal control deficiencies are found and to track 

progress against those plans.

The FY 2019 internal controls assessment detected some 

deficiencies, but none that would rise to the level of 

material weakness. Corrective actions have been initiated 

for the deficiencies identified.

ANALYSIS OF FINANCIAL 

MANAGEMENT SYSTEMS

The FFMIA requires management to ensure that the 

Department’s financial management systems consistently 

provide reliable data that comply with federal financial 

management system requirements, applicable federal 

accounting standards, and the U.S. Standard General 

Ledger at the transaction level. Appendix D to OMB 

Circular A-123, Compliance with the Federal Financial 

Management Improvement Act of 1996, and OMB Circular 

A-130, Managing Federal Information as a Strategic Resource, 

The Department has a renewed 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. 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 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, 

and annual internal control training for all employees, to 

provide reasonable assurance that its internal controls are 

well designed and 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 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 2019, 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. Although no material weaknesses were 

identified, the Department realizes that it has areas of 

control that need further strengthening, such as those 

disclosed in this report, the Independent Auditors’ Report, 

and the major challenges identified by the Department’s 

OIG in its OIG FY 2020 Management Challenges 

report. As an example, the creation of the Office of Grants 

Administration (OGA) in FY 2019 helped strengthen 

internal control in grants management at the Department. 

OGA provides guidance and oversight of the Department’s 
20 FY 2019 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION

MANAGEMENT’S DISCUSSION AND ANALYSIS

EDCAPS is serving approximately 5,300 Departmental 

internal users in Washington, D.C. and 10 regional 

offices throughout the United States. EDCAPS is serving 

approximately 37,900 external users, mostly users of G5. 

In FY 2019, 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 2019: 

 Managing and implementing cross-validation rules 

throughout the fiscal year to prevent invalid accounting 

transactions from being processed;

 Transmitting the Department’s spending data related to 

contracts, grants, loans, and other financial assistance 

awards for the USASpending.gov initiative as part of 

the Federal Funding Accountability and Transparency Act 

of 2006;

 Transmitting the entire Department’s payments 

through the Department of Treasury Secure Payment 

System; and

 Transmitting the Department’s spending data related to 

contracts, grants, loans, and other financial assistance 

awards for the DATA Act implementation.

Budget constraints limit funding for innovation and 

modernization, requiring the Department to direct 

available funding and resources to support the steady 

state of existing investments. However, in November 

2018, the Department completed the upgrade of the 

FMSS Oracle E-Business Suite application to Oracle R12 

to ensure continued vendor support, improved security, 

improved infrastructure, and enhanced functionality. 

The Department’s primary objective is to stabilize Oracle 

R12, which is the Department’s core financial system 

(FMSS), and any implications of the infrastructure upon 

which it is hosted (Portfolio of Integrated, Value Oriented 

Technologies – Hosting), with the goal of achieving a 

future state where core financial systems and related 

business systems, support services, and infrastructure have 

migrated to the maximum extent possible to standard 

applications and shared services. 

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 decisionmaking, promote sound financial management, and to 

enhance financial reporting and compliance activities. 

The Department’s core financial applications have 

been brought together under common management 

control under the umbrella of Education Central 

Automated Processing System (EDCAPS). EDCAPS 

is a suite of financial applications (subsystems), 

including commercial off-the-shelf and 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; and

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

miscellaneous payments).

EDCAPS is composed of five main integrated components: 

 Financial Management Support System (FMSS);

 Contracts and Purchasing Support System (CPSS);

 Grants Management System (G5);

 E2 Travel System; and

 Hyperion Budget Planning.
FY 2019 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION 21

MANAGEMENT’S DISCUSSION AND ANALYSIS

Due to unique program requirements of the Higher 

Education Act of 1965 (HEA), the Department requested 

guidance from Treasury’s Bureau of Fiscal Service, Office 

of General Counsel for the application of this revised 

DCIA requirement to Title IV debt. Treasury provided 

its interpretation of this requirement for Title IV debt 

in July 2015. Per Treasury General Counsel’s July 2015 

legal determination, compliance for Title IV debt requires 

that the Title IV debt be: 1) in technical default (i.e., 271 

days delinquent per Title IV aging) and 2) a receivable of 

the federal government. Therefore, the DCIA Treasury 

Offset Program referral requirement for Title IV debt 

owned by FSA at the time of delinquency is 271 days 

delinquent and for debt acquired via a FFEL guarantee 

default claim or default Perkins Loan assignment is 120 

days delinquent (per DCIA aging which begins upon 

acceptance of a defaulted debt). As of September 30, 2019, 

the Department and FSA were not in compliance with 

the DCIA Treasury Offset Program referral requirement 

for Title IV debt as interpreted by Treasury because FSA 

had not yet revised its loan servicing systems, procedures, 

and internal processes in response to this interpretation. 

During FY 2019, FSA continued to implement changes 

to its default loan servicing system and business process 

for referring eligible debts to the Treasury Offset Program 

sooner. In addition, FSA provided guidance to the 

Guaranty Agencies that will facilitate sending debts to 

Treasury sooner. FSA will build DCIA requirements 

into the NextGen FSA servicing platform. This area of 

noncompliance is noted in the independent auditor’s 

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 

2019 to improve cybersecurity capabilities and functions, 

some of which included:

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 Planning 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;

 FSA-FMS financial data;

 Lockbox;

 Department of the Treasury systems; and

 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, systemlevel 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. 
22 FY 2019 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION

MANAGEMENT’S DISCUSSION AND ANALYSIS

assist the Department points of contact (POCs) with 

finalizing the quarterly and annual FISMA reporting 

requirements. OCIO developed and published both 

an internal OCIO review procedure and external 

guidance document for use by POCs. These documents 

collectively outline a new process for ensuring that the 

POCs are reporting accurately, and that reports are 

reviewed, approved and submitted in accordance with 

established timelines. 

 OCIO identified and documented all FedRAMP 

Cloud Service Providers (CSPs) currently leveraged 

by the Department and established a Cloud Service 

Portfolio of CSPs that have been authorized for use. 

The activities enabled the Department to streamline 

the processes associated with selecting, assessing and 

authorizing CSPs. This prevents the acquisition of 

potentially redundant or duplicative cloud services 

and streamlines the process of obtaining new service 

offerings or migrating existing systems to cloud 

services.

 The Department has begun creating an externally 

hosted provider inventory to facilitate documentation 

of externally hosted providers currently leveraged 

by Department systems, similar to the efforts to 

strengthen security controls for CSPs. This inventory 

enables documentation of the various externally hosted 

providers being leveraged and allows for the imposition 

of security control inheritance for Department systems 

that are hosted externally.

 FSA completed a system Personally Identifiable 

Information (PII) risk assessment process to determine 

and evaluate how PII is identified, minimized, 

categorized, and safeguarded, and how incident 

responses are provided for PII security incidents. 

FSA also implemented a PII dashboard to report PII 

risk and developed mitigation strategies for PII risks 

identified through the initial risk assessment process.

 The Department conducted quarterly Contingency 

Plan Testing (CPT) and Incident Response Plan (IRP) 

tabletop exercises. This service allowed Department 

ISOs and ISSOs to complete the required annual 

contingency and incident response testing through 

a professionally facilitated workshop which exposes 

system stakeholders to new requirements, test 

scenarios and Department resources. As a result of this 

effort, CPT and IRP testing compliance across the 

Department increased from 63 percent to 92 percent.

 OCIO publishes monthly Cyber Security Framework 

(CSF) Risk Scorecards as part of the Department’s 

Information Security Continuous Monitoring (ISCM) 

efforts to identify cybersecurity risks, issues, and 

opportunities for improvements in our cybersecurity 

protections. The CSF Risk Scorecard provides a 

detailed analysis tool for Authorizing Officials, 

Information System Owners (ISOs), and Information 

System Security Officers (ISSOs) to prioritize and 

mitigate risks to the Department’s information systems. 

The CSF Risk Scorecard was enhanced during FY 

2019 to allow for automated risk scoring, improved 

accessibility, more granular and user-friendly data 

filtering capabilities, and enhanced data modeling. The 

continued use of the CSF Risk Scorecards enabled the 

Department to prioritize resources to resolve identified 

vulnerabilities. This prioritization led to the closure of 

all past due Plan of Actions & Milestones (POA&Ms) 

for the Department’s High Value Assets. Overall, the 

Department has reduced total POA&Ms by more than 

83% and delayed POA&Ms by 95%. 

 Annually, all Department users are required to 

complete multiple computer security and privacy 

awareness training courses. The Department strictly 

enforces compliance with the training requirements 

and disables network accounts for users who fail to 

complete required trainings by established deadlines. 

In FY 2019, the Department employed increasingly 

complex phishing scenarios and established 

administrative mechanisms to enhance user education 

and awareness of the risks associated with their 

susceptibility to cyber threats. The Department 

experienced increases in the Department of Education 

Security Operations Center (EDSOC) reporting rates 

for phishing exercises.

 OCIO revised the Department’s cybersecurity policy 

and guidance. 

 The updated policy framework was revised to include 

a new review and approval process for cybersecurity 

policies, standards, and instructions. This process 

includes automated workflows, pre-defined review 

timelines, and delegated approval authorities which 

will improve the Department’s agility in providing 

critical time-sensitive guidance and requirements to 

Department system stakeholders.

 OCIO developed and published Departmental 

Guidance/Standard Operating Procedures (SOPs) to 
FY 2019 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION 23

MANAGEMENT’S DISCUSSION AND ANALYSIS

FORWARD-LOOKING INFORMATION

This section summarizes information pertinent to the 

Department’s future progress and success.

ENTERPRISE RISK MANAGEMENT

The Department is focused on improving enterprise 

risk management (ERM) to maximize the Department’s 

value to students and taxpayers through achievement 

of the Department’s strategic goals and objectives. The 

Department’s implementation of ERM includes three 

critical strategies that are more fully described under 

Strategic Objective 4.2, Identify, assess, monitor and manage 

enterprise risks:

1. Creating a risk-aware culture that includes transparent 

discussions of risks.

2. Implementing an ERM framework and capability 

that leverages existing risk management activities and 

governance bodies.

3. Managing risks in a more coordinated and 

strategic manner.

In FY 2020, the Department envisions a streamlined, 

simplified approach to ERM implementation. Guiding 

principles supporting this vision include securing senior 

leadership buy-in and continued support and involvement 

with the ERM program through an established governance 

structure and routine engagement. The Department will 

revise its Risk Profile and other ERM deliverables and 

resources to capture only necessary and useful information. 

When the ERM framework is fully implemented, the 

Department plans to include risk information as a central 

consideration in all critical day-to-day and strategic 

decision-making activities, including resource allocations.

In FY 2019, the Department took further steps to set up 

a formal ERM program within the Office of Finance and 

Operations (OFO). In doing so, the Department continued 

to leverage expertise of colleagues in the Office of Federal 

Student Aid (FSA), as well as across the Federal Government 

through the ERM Community of Practice led by Treasury. 

Additionally, it ensured internal control activities are more 

efficiently focused on highest priority risks by adding a 

group of internal control experts to the ERM team.

The Department aims to develop a more risk-aware 

culture that facilitates increased focus on the range of 

risks the Department faces and fosters open discussions 

about how those risks might impact the accomplishment 

of the Department’s mission and whether resources are 

aligned accordingly. In addition, the ERM program will 

expand enterprise capacity to achieve optimal performance 

and operational outcomes by leveraging data and 

analytical solutions to successfully identify and manage 

risks, strengthen internal controls through continuous 

process improvement, and inform strategic planning and 

decision-making. Finally, the ERM program will leverage 

partnerships across the agency to identify, measure, and 

assess challenges related to mission delivery in order to 

manage risk to a tolerable level and develop actionable 

response plans and assign owners.

DIRECT LOAN PROGRAM

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

Federal Direct Loan (Direct Loan) program, provides 

students and their families with funds to help pay for 

their postsecondary education costs. The following is a 

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

help make student debt more manageable and (2) the risks 

inherent in estimating the cost of the program.

Managing Student Loan Debt

Each year, federal student loans help millions of Americans 

obtain a college education—an investment that, on 

average, has high returns. While the average return to a 

college degree remains high,1

 some students leave school 

poorly equipped to manage their debt.

Traditionally, federal loans of this type have had flat 10-

year repayment schedules, making it difficult for borrowers 

to pay at the start of their career when their salaries are 

lower. The recent expansion of income-driven repayment 

(IDR) plans grants students the opportunity for greater 

financial flexibility as it pertains to their monthly 

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

to Repay Your Loans Portal.

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

MANAGEMENT’S DISCUSSION AND ANALYSIS

Income-Driven Repayment Plans: IDR plans tend to be 

more costly to the government than non-IDR plans; for 

the 2019 loan cohort, it is estimated that the government 

will recover 37 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 selecting 

plans (and the corresponding dynamics of behavior 

driving selection in plans) also plays a role in driving the 

cost of loans enrolled in specific plans. In general, the 

proliferation of IDR plans has made IDR terms more 

generous (and more costly to the government) and made 

the plans available to a greater number of borrowers. 

Having more plans complicates repayment plan selection, 

since the tradeoffs between available plans vary by 

borrower and may not always be entirely clear. Selected 

comparisons between projected originations and borrower 

repayments under the different 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 do not need 

to apply for the program until after having made the 120 

qualifying monthly payments.

Data on approved PSLF applications first became available 

in FY 2018, since borrowers first became eligible for PSLF 

starting October 1, 2017. As of September 30, 2019, 

the total number of borrowers who received forgiveness 

totaled 1,139. The value of this forgiveness totaled 

$71.90 million. Despite the relatively modest figures of 

approved applications to date, the number of borrowers 

who have certified their employment in a public service 

organization continues to increase. As of September 30, 

2019, the number of borrowers with certified employment 

totaled 1,195,497. The low number of approved PSLF 

applications in relation to employment certifications 

Recent trends in student loan repayment data show that:

 More than 80 percent of Direct Loan recipients with 

loans actively in repayment are current on their loans.

 As of June 2019, nearly 7.7 million Direct Loan 

recipients were enrolled in IDR plans, representing an 

8 percent increase from June 2018 and a 22 percent 

increase from June 2017.

The Department continues to work relentlessly to make 

student debt more manageable. Looking to the future, the 

Department will:

 Continue conducting outreach efforts to inform 

student loan borrowers of their repayment options.

 Work to improve customer service and student aid 

systems and processes by implementing FSA’s Next 

Generation Financial Services Environment (Next Gen 

FSA), see page 26.

 Continue to support additional tools such as the 

College Scorecard and Financial Aid Shopping Sheet 

to increase transparency around higher education costs 

and outcomes, in an effort to help students and families 

make informed decisions before college enrollment.

Managing Risks and Uncertainty Facing the Direct 

Loan Program’s Cost Estimates

Direct Loan program costs are estimated consistent with 

the requirements of the Federal Credit Reform Act of 1990. 

Under the Act, the future costs and revenues associated 

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

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

cohort tends to deviate from the estimated performance 

during that time, which is not unexpected given the 

inherent uncertainty involved in developing estimates. 

There are four types of inherent risk that make estimating 

lifetime program costs a difficult task.

Legislative, Regulatory, and Policy Risk

There are inherent risks from the possibility that the cost 

structure of the Direct Loan program may be altered 

through legislative, regulatory, or administrative action. In 

addition, recent legislative, regulatory, and policy action 

may be difficult to interpret with regard to effects on 

financial modeling and estimation, given the lack of actual 

trend data availability. Some examples of current risks 

include the following:
FY 2019 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION 25

MANAGEMENT’S DISCUSSION AND ANALYSIS

received on the defaulted loan; and, if the loan is in IDR, 

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

and income and family status will be over the next 25 

years. These types of projections are not only extremely 

difficult to make but also are subject to change if future 

student behaviors deviate from past experience. Changes 

in private student loan markets, such as the recent increase 

in refinancing of federal student loans into private student 

loans, also add a layer of uncertainty to student loan 

estimates. Lastly, the Direct student loan portfolio has 

grown from approximately $356 billion in FY 2011 to 

more than $1.2 trillion as of the end of FY 2019. This 

growth naturally results in larger re-estimates, since a reestimate worth 1 percent of the portfolio today would be 

more than three times as large as a similar re-estimate in 

FY 2011 ($11.2 billion vs. $3.6 billion).

Macroeconomic Risk

The ultimate amount, timing and value of future borrower 

repayments under the Direct Loan program are heavily 

affected by certain economic factors, especially since the 

introduction of IDR repayment plans. Some examples 

include the following:

Interest Rates: Direct Loan subsidy estimates are very 

sensitive to changes in interest rates. Under the current 

program terms, the fixed borrower rates for direct loans 

are established in advance of the upcoming school year, 

while the Treasury fixed interest rate on borrowings to 

fund those loans is not set until after those awards are 

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

Unexpected changes in interest rates during this time can 

significantly impact the subsidy cost of these loans.

Unemployment: The financial crisis of 2008 and 

ensuing spike in unemployment rates had a dramatic 

effect on both student loan volume and student loan 

performance. Student loan volume peaked along with 

unemployment, as many displaced workers sought higher 

education opportunities. Student loan performance 

suffered as many borrowers repaying their loans were left 

with much less disposable income with which to make 

their loan payments. For example, the cohort default 

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

entering repayment in 2010, while the most recent rate 

is 10.1 percent for loans entering repayment in FY 2016. 

While recessions and economic downturns are cyclical 

phenomena, their exact timing and impact on the cost 

estimates remain an area of uncertainty.

may be partially due to the complicated nature of 

the program, in particular the determination of what 

constitutes a qualifying payment. Many borrowers who file 

employment certification forms early in their careers may 

also move into private sector employment before reaching 

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

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

public service work. In the Consolidated Appropriations 

Act, FY 2018, Congress provided $350 million in funding 

to forgive up to $500 million in loan balances which 

were ineligible for immediate PSLF solely due to having 

made a payment under a nonqualifying repayment plan. 

Congress provided an additional $350 million in funding 

for up to $500 million in face-value forgiveness in the 

Department of Education Appropriations Act, FY 2019. 

Future congressional action that may affect eligibility 

for PSLF will continue to be an area of uncertainty. 

Lastly, the Department continues to remain informed 

on, and manage the risk that may arise in relation to, the 

uncertainty about the effect of further borrower outreach 

on boosting participation in the PSLF program.

Total and Permanent Disability: On August 21, 2019, 

the President issued a memorandum directing the 

Department of Education to ease the processing of loan 

discharges for borrowers who have been determined by the 

Secretary of Veterans Affairs to be unemployable due to a 

service-connected condition. Previously, borrowers were 

required to sign and return the application to complete the 

process of applying for a total and permanent disability 

(TPD) discharge. The ultimate effect of the new process 

is an area of uncertainty until enough actual data can be 

observed to analyze their impact. 

Estimation Risk

Actual student loan outcomes may deviate from estimated 

student loan outcomes, which is not unexpected given 

the long projection window of up to 40 years. The Direct 

Loan program is subject to a large number of future 

borrower-level events and economic factors that heavily 

impact the ultimate cost of issued loans. For example, 

estimates that need to be made for loans originating in 

FY 2019 include how long students will remain in school; 

what repayment plan will be chosen; whether the loan will 

be consolidated; whether the borrower will die, become 

disabled, bankrupt, or have another claim for discharge 

or forgiveness (closed school, borrower defense, etc.); if 

the loan will go into deferment or forbearance; if the loan 

will go into default and, if so, what collections will be 
26 FY 2019 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION

MANAGEMENT’S DISCUSSION AND ANALYSIS

availability of financial aid, to applying for aid, to 

repaying loans.

Today’s Environment

In the current federal financial aid process, students 

and families must negotiate a complex and fragmented 

landscape, interacting with multiple systems, vendors, 

processes, and interfaces across a multitude of brands 

and user experiences. Too often, this poor customer 

experience creates confusion, resulting in borrowers 

failing to understand their repayment options and the 

financial implications of their student debt, borrower 

indifference, and, ultimately, higher loan delinquency 

and default rates. Additionally, operational complexities 

and inefficiencies result in higher administrative costs 

and hinder effective oversight.

Next Gen FSA Environment

Multiple websites, mobile applications, contact centers, 

and other customer interfaces are being combined into 

a simplified, consistent, and engaging experience, which 

will be enhanced by standardized training and tools 

across vendors and partners. With a focus on mobile 

engagement, Next Gen FSA has already begun to meet 

customers where they are, letting them connect with 

FSA on the device of their choice. Customers will soon 

have additional access to a modernized, online portal 

with personalized information that helps them quickly 

understand their options and make informed decisions 

throughout the financial aid life cycle, including 

borrowing and loan repayment. While Next Gen FSA will 

cut through the information clutter and provide robust 

self-service, it also will seamlessly connect customers with 

additional support when needed. 

In addition to an improved customer experience, Next 

Gen FSA will completely modernize FSA’s back-end 

systems and infrastructure. This transformation will 

pave the way for improved processing and customer 

management at lower costs. Vendor and partner 

performance standards and accountability measures 

will be built into Next Gen FSA to ensure customers 

receive world-class service while protecting taxpayer 

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

cybersecurity protections across every aspect of the 

student aid experience. Enterprise-wide data analytics 

will drive improved customer service, particularly for 

at-risk students and borrowers, while also enhancing 

our oversight of participating postsecondary schools and 

supporting vendors.

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 projected estimated costs. The Department 

continues to manage risks in this area by continuing to 

learn about its borrower base and remain informed on 

such labor market statistics.

Operational Risk

Unforeseen issues in administering and servicing student 

loans may impact the cost estimates. For example, in 

March 2017, a tool used to transfer automatically a 

family’s tax information to both student aid applications 

and IDR plan applications was taken down due to security 

concerns. Incidents like this may happen without warning 

and disrupt not only student loan administration but also 

resulting cash flows. 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 

$120 billion in aid each year to students and their families. 

Through programs authorized under the Higher Education 

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

and work-study funds for college or career school. FSA 

also oversees the approximately 6,000 postsecondary 

institutions that participate in the federal student aid 

programs. In every interaction with students and their 

families, FSA strives to be the most trusted and reliable 

source of student financial aid information and services in 

the nation.

The Vision

FSA has one of the largest consumer loan portfolios in 

the country at $1.5 trillion.2

 It is critical that we provide 

a customer experience that is on par with world-class 

financial services firms and establishes our organization as 

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

The Next Generation Financial Services Environment 

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

modernizing the way we connect with our customers 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 

2 Includes lender-held FFEL loans and school-held Perkins loans.
FY 2019 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION 27

MANAGEMENT’S DISCUSSION AND ANALYSIS

which is responsible for managing and improving the 

Department’s ability to leverage data as a strategic asset. 

In accordance with the Evidence Act, the Secretary 

has named a Department Chief Data Officer (CDO), 

whose responsibilities include, but are not limited to, 

lifecycle data management across the Department and 

developing and enforcing the Department’s data strategy 

and governance policies. The OCDO has oversight over 

the Department’s information collections approval and 

associated Office of Management and Budget (OMB) 

clearance process. It is responsible for developing and 

enforcing the Department’s open data plan, including 

management of a centralized comprehensive data 

inventory accounting for all data assets across the 

Department. The CDO submits annual reports to 

Congress on agency compliance with the Evidence 

Act. The OCDO is also responsible for developing and 

maintaining a technological and analytical infrastructure 

that is responsive to the Department’s strategic data 

needs and exploiting traditional and emerging analytical 

methods to improve decision making, optimize outcomes, 

and create efficiencies.

ED Data Governance Board

In accordance with OMB guidance on the implementation 

of the Evidence Act, the CDO will convene an ED Data 

Governance Board (DGB). The DGB will gather input 

from across the Department to develop and enforce sound 

data governance policy and process decisions. The DGB 

will sponsor agency-wide actions to develop an open data 

culture and work to improve the Department’s capacity 

to leverage data as a strategic asset for evidence building 

and operational decisions, including developing the 

capacity of data professionals in program offices. The DGB 

will help the Department implement a coordinated and 

collaborative approach to oversee strategic data collection 

and acquisition, responsible lifecycle data management, 

open and transparent release of its data assets, and advance 

internal and external uses of data.

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 

Solicitation and Procurement Process

The Next Gen FSA implementation plan was based, in 

part, on extensive market research with more than 60 

industry leaders. This research-based approach enabled 

FSA to identify best-in-industry standards and technical 

benchmarks that continue to inform the procurement 

process. On February 20, 2018, FSA initiated a multistage 

procurement process designed to identify the commercial 

partners most capable of supporting the implementation 

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

to deliver the Next Gen FSA environment. The first major 

element of Next Gen FSA, the Digital and Customer Care 

contract that will deliver our integrated mobile, web, and 

telephonic solution and single customer view, was awarded 

in February 2019. A series of additional awards, for 

enterprise data architecture and standards, was completed 

in August 2019. Contracts to support the remaining Next 

Gen FSA efforts are expected to be awarded in late 2019 

or early 2020.

The current Title IV Additional Servicing (TIVAS) and 

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

contracts are set to expire in December 2019 and March 

2020, respectively. Should FSA require continued 

servicing support beyond these dates, there are multiple 

avenues it can pursue. The appropriate contractual 

actions will be taken to ensure continued servicing 

capabilities until this portion of the Next Gen FSA vision 

is implemented. 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.

LEVERAGING DATA AS A STRATEGIC ASSET

The Department is focusing on further leveraging its data 

as a strategic asset, in part in response to new requirements 

in the Foundations for Evidence-Based Policymaking Act

(Evidence Act; P.L. 115-435). This section highlights 

three initiatives intended to help the Department realize 

the power of data in daily operations and national policy: 

(1) the establishment of the Office of the Chief Data 

Officer; (2) the chartering of an ED Data Governance 

Board; and (3) a new focus for the Evidence Leadership 

Group in advising the Evaluation Officer and developing 

the Department’s learning agenda.

Office of the Chief Data Officer

The Department has established an Office of the 

Chief Data Officer (OCDO), effective October 2019, 
28 FY 2019 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION

MANAGEMENT’S DISCUSSION AND ANALYSIS

OCIO to communicate the cost drivers for, and the 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 project started 

with a pilot that incorporated OCIO’s operating budget of 

approximately $120 million into a TBM module designed 

to provide cost transparency and was then broadened to 

the Department’s entire IT budget of approximately $750 

million. One of the ultimate goals is to be able 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; and

 Prepare accurate pricing through a show-back model to 

client offices for the services provided.

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

Commissioner of the National Center for Education 

Evaluation and Regional Assistance is the Department’s EO. 

The Evidence Leadership Group (ELG) serves in 

an advisory capacity to the EO on these statutory 

responsibilities and serves additional functions to inform 

the Department’s programs and policies. In addition, the 

ELG advises the Department’s policy officials on how best 

to build, use, and disseminate evidence throughout the 

policy development and implementation lifecycle. The 

ELG is cochaired by the Evaluation Officer and a designee 

of the Assistant Secretary of the Office of Planning, 

Evaluation and Policy Development. 

The work of the ELG depends upon strong partnerships 

across the Department’s principal offices, with other 

agencies, states and localities, private sector innovators, 

and other stakeholders in the education community. 

It benefits from a shared vision and common language 

around evidence-building, use, and dissemination, and the 

Department’s history of promoting the use of evidence.

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 spend. The TBMS project will allow 
FINANCIAL

SECTION
This page intentionally left blank.
FY 2019 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION 31

Treasury borrowings – effective internal controls over the 

Department’s business processes and financial activities are 

essential to responsibly delivering our mission outcomes.

I would like to highlight several of the Department’s 

management accomplishments during FY 2019:

 We implemented a major upgrade to our core financial 

system. This critical upgrade modernized the technical 

infrastructure of the system and will reduce potential 

cybersecurity risks.

 We also successfully merged the following offices: Office 

of the Chief Financial Officer, Budget Service, and 

Office of Management, to create a new Office of 

Finance and Operations. By bringing our offices 

together, we are making strides to reduce redundancy 

in our work, maximize employee and organizational 

efficiency, and better leverage our staff’s substantial 

knowledge and expertise.

 We completed a Department-wide transition of 

all information technology services; improving the 

performance of the Department’s operations and 

strengthening performance measurement 

and accountability. 

As we move into the new fiscal year, I am confident that 

we will continue to integrate enterprise risk management 

concepts into our internal control framework and develop 

innovative tools and practices to expand support to mission 

offices; building on our accomplishments and providing 

even more effective and efficient financial management of 

the federal resources entrusted to us.

We continuously strive to improve the quality and 

usefulness of the information provided in the AFR and 

encourage feedback or suggestions to be sent to us at 

AFRComments@ed.gov.

Denise L. Carter

Delegated the authority to perform the functions and 

duties of the position of Chief Financial Officer

November 15, 2019

MESSAGE FROM THE CHIEF FINANCIAL OFFICER

MESSAGE FROM THE CHIEF FINANCIAL OFFICER | FINANCIAL SECTION

As a Federal entity, the Department of Education must be 

transparent and accountable to its broad community of 

stakeholders. To that end, I am proud to report that the 

Department received an unmodified or “clean” opinion 

on its financial statements for the 18th consecutive year. 

This year, the internal control report identified a repeat 

of one material weakness, “Controls over the Reliability 

of Information Used in the Modeling Activities Need 

Improvement” for which the Department will continue to 

address and resolve. We also received external validation of 

our sustained efforts to produce user-friendly, transparent 

financial reporting by earning the Department’s 15th award 

of the prestigious Certificate of Excellence in Accountability 

Reporting (CEAR) from the Association of Government 

Accountants, as well as the “CEAR Best-in-Class” award for 

Articulation of Future Challenges.

While states have the greatest role to play in achieving 

and sustaining the provision of an excellent and equitably 

accessible education system for American students, the 

Department supports students by working with parents, 

students, educational institutions, school districts and states 

to foster educational excellence and ensure equal access 

to it in support of the country’s global competitiveness. 

As a critical mission support organization, the Office of 

Finance and Operations has the Department’s primary 

responsibility for maintaining financial integrity over 

the federal resources entrusted to the agency and for 

preparing its Agency Financial Report (AFR), such that 

our stakeholders are empowered with reliable information 

about our financial stewardship and achievements relative 

to the costs of executing our mission. With approximately 

$1.3 trillion in total assets, comprised primarily of credit 

program receivables that were funded by $1.3 trillion in 
32 FY 2019 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. Statements of Budgetary Resources

Note 12. Reconciliation of Net Cost to Net Outlays 

Note 13. Commitments and Contingencies

Note 14. 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 2019, 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 2019 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION 33

Supplementing state and local government funding, the 

Department utilizes its annual appropriations and outlay 

authority to foster human capital improvements across the 

nation by supporting programs along the entire spectrum 

of “cradle to career” education. Increased employability 

makes Americans more competitive in the global labor 

market, yielding lower unemployment, higher economic 

well-being, and greater security for the nation.

REPORT OF THE INDEPENDENT AUDITORS

The results of the audit of the Department’s financial 

statements for FY 2019 and FY 2018 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, 2019, and 2018, and for the years 

then ended. 

REQUIRED SUPPLEMENTARY 

INFORMATION (UNAUDITED)

This section contains the Combining Statements of 

Budgetary Resources for the Years Ended September 30, 

2019, and 2018.

REQUIRED SUPPLEMENTARY STEWARDSHIP 

INFORMATION (UNAUDITED)

Stewardship Expenses summarize spending and 

stakeholder relationships with state and local educational 

agencies. Stewardship resources are substantial investments 

by the federal government for the long-term benefit of the 

nation. Since costs of stewardship resources are treated as 

expenses in the financial statements in the year the costs 

are incurred, they are reported as Required Supplementary 

Stewardship Information to highlight the benefit nature of 

the costs and to demonstrate accountability.
FINANCIAL SECTION | FINANCIAL STATEMENTS

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

United States Department of Education 

Consolidated Balance Sheets 

As of September 30, 2019 and September 30, 2018 

(Dollars in Millions)

 FY 2019 FY 2018

ASSETS

Intragovernmental:

Fund Balance with Treasury (Note 3) $ 104,918 $ 114,605 

Other Intragovernmental Assets (Note 4) 66 151 

Total Intragovernmental 104,984 114,756 

Public:

Credit Program Receivables, Net (Note 5)

Direct Loan Program 1,123,707 1,115,053 

FFEL Program 76,767 92,947 

Other Credit Programs for Higher Education 2,982 2,849 

Other Assets (Note 4) 2,256 2,377 

Total Public 1,205,712 1,213,226 

Total Assets (Note 2) $ 1,310,696 $ 1,327,982 

LIABILITIES

Intragovernmental:

Debt (Note 7)

Direct Loan Program $ 1,192,138 $ 1,150,610 

FFEL Program 94,671 107,261 

Other Credit Programs for Higher Education 2,196 2,094 

Subsidy Due to Treasury General Fund (Note 8) 10,302 7,536 

Other Intragovernmental Liabilities (Note 9) 2,686 2,765 

Total Intragovernmental 1,301,993 1,270,266 

Public:

Other Liabilities (Note 9) 12,213 8,910 

Total Liabilities (Note 6) $ 1,314,206 $ 1,279,176 

Commitments and Contingencies (Note 13)

NET POSITION

Unexpended Appropriations $ 72,757 $ 72,166 

Cumulative Results of Operations (76,267) (23,360)

Total Net Position $ (3,510) $ 48,806 

Total Liabilities and Net Position $ 1,310,696 $ 1,327,982 

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

FY 2019 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION 35

United States Department of Education 

Consolidated Statements of Net Cost 

For the Years Ended September 30, 2019 and September 30, 2018

(Dollars in Millions)

FY 2019 FY 2018

IMPROVE LEARNING OUTCOMES FOR ALL P–12 STUDENTS

Gross Costs $ 38,732 $ 37,277 

Earned Revenue (42) (82)

Net Program Costs $ 38,690 $ 37,195 

EXPAND POSTSECONDARY OPPORTUNITIES, IMPROVE OUTCOMES TO FOSTER 

ECONOMIC OPPORTUNITY, AND PROMOTE PRODUCTIVE CITIZENRY

Direct Loan Program

Gross Costs $ 96,696 $ 37,965 

Earned Revenue (33,817) (32,329)

Net Cost of Direct Loan Program $ 62,879 $ 5,636 

FFEL Program

Gross Costs $ 15,759 $ 4,599 

Earned Revenue (2,870) (3,336)

Net Cost of FFEL Program $ 12,889 $ 1,263 

Other Credit Programs for Higher Education

Gross Costs $ 121 $ 298 

Earned Revenue (171) (621)

Net Cost of Other Credit Programs for Higher Education $ (50) $ (323)

Non-Credit Programs

Gross Costs $ 40,331 $ 35,764 

Earned Revenue (10) (10)

Net Cost for Non-Credit Programs $ 40,321 $ 35,754 

Net Program Costs $ 116,039 $ 42,330 

Total Program Gross Costs $ 191,639 $ 115,903 

Total Program Earned Revenue $ (36,910) $ (36,378)

Net Cost of Operations (Notes 10 & 12) $ 154,729 $ 79,525 

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

36 FY 2019 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, 2019 and September 30, 2018

(Dollars in Millions)

FY 2019 FY 2018

 Unexpended 

Appropriations 

 Cumulative 

Results of 

Operations 

 Unexpended 

Appropriations 

 Cumulative 

Results of 

Operations 

Beginning Balances $ 72,166 $ (23,360) $ 62,399 $ (5,239)

Budgetary Financing Sources

Appropriations Received $ 122,058 $ - $ 100,743 $ - 

Other Adjustments (Rescissions, etc.) (4,007) - (1,824) - 

Appropriations Used (117,460) 117,460 (89,152) 89,152 

Nonexchange Revenue - 15 - (3)

Other Financing Sources

Imputed Financing from Costs Absorbed by Others - 37 - 39 

Negative Subsidy Transfers, Downward Subsidy

Re-estimates, and Other - (15,690) - (27,784)

Total Financing Sources $ 591 $ 101,822 $ 9,767 $ 61,404 

Net Cost of Operations $ - $ (154,729) $ - $ (79,525)

Net Change $ 591 $ (52,907) $ 9,767 $ (18,121)

Net Position $ 72,757 $ (76,267) $ 72,166 $ (23,360)

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

FY 2019 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION 37

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, 2019 and September 30, 2018

(Dollars in Millions)

FY 2019 FY 2018

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 11) $ 18,231 $ 15,027 $ 13,286 $ 15,863 

Appropriations (Discretionary and Mandatory) 118,519 - 99,341 - 

Borrowing Authority (Discretionary and Mandatory) (Note 11) - 148,493 - 167,897 

Spending Authority from Offsetting Collections (Discretionary and Mandatory) 424 57,521 451 61,666 

Total Budgetary Resources $ 137,174 $ 221,041 $ 113,078 $ 245,426 

STATUS OF BUDGETARY RESOURCES

New Obligations and Upward Adjustments (Total) $ 120,400 $ 202,717 $ 95,228 $ 221,698 

Unobligated Balance, End of Year:

Apportioned, Unexpired Accounts 13,581 - 14,495 - 

Unapportioned, Unexpired Accounts 1,883 18,324 2,174 23,728 

Unexpired Unobligated Balance, End of Year $ 15,464 $ 18,324 $ 16,669 $ 23,728 

Expired Unobligated Balance, End of Year 1,310 - 1,181 - 

Unobligated Balance, End of Year (Total) $ 16,774 $ 18,324 $ 17,850 $ 23,728 

Total Status of Budgetary Resources $ 137,174 $ 221,041 $ 113,078 $ 245,426 

OUTLAYS, NET

Outlays, Net (Discretionary and Mandatory) $ 116,636 $ 40,102 $ 91,080 $ 83,100 

Distributed Offsetting Receipts (-) (Note 11) (12,273) - (27,370) - 

Agency Outlays, Net (Discretionary and Mandatory) (Notes 11 & 12) $ 104,363 $ 40,102 $ 63,710 $ 83,100 
38 FY 2019 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION

lenders to eligible students. The Student Aid and Fiscal 

Responsibility Act (SAFRA), which was included in the 

Health Care and Education Reconciliation Act of 2010

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

made effective July 1, 2010. FFEL program receivables 

include defaulted FFEL loans and acquired FFEL 

loans. Acquired FFEL loans include 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 for the building and 

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

Grant Programs. The Department has more than 100 

grant programs. The three largest grant programs are 

Title I of the Elementary and Secondary Education 

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

Individuals with Disabilities Education Act (IDEA) grants. 

In addition, the Department offers other discretionary 

grants under a variety of authorizing legislation awarded 

using a competitive process, and formula grants using 

formulas determined by Congress with no application 

process. (See Note 10)

FINANCIAL SECTION | NOTES TO THE FINANCIAL STATEMENTS

NOTES TO THE FINANCIAL STATEMENTS FOR THE YEARS 

ENDED SEPTEMBER 30, 2019 AND 2018

NOTE 1. Summary of Significant 

Accounting Policies

REPORTING ENTITY AND PROGRAMS

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

a cabinet-level agency of the executive branch of the 

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

Department of Education Organization Act (Public Law 96-

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

of the Department is to promote student achievement 

and preparation for global competitiveness by fostering 

educational excellence and ensuring equal access. 

The Department is primarily responsible for administering 

federal student loan and grant programs and provides 

technical assistance to loan and grant recipients and 

other state and local partners. The largest portions of the 

Department’s financial activities relate to the execution of 

loan and grant programs which are discussed below.

Federal Student Loan Programs. The Department 

administers direct loan, loan guarantee, and other 

student aid programs to help students and their families 

finance the cost of postsecondary education. These 

include the William D. Ford Federal Direct Loan (Direct 

Loan) program and the Federal Family Education Loan 

(FFEL) program.

The Direct Loan program, added to the Higher Education 

Act of 1965 (HEA) in 1993 by the Student Loan Reform 

Act of 1993, authorizes the Department to make loans 

through participating schools to eligible undergraduate 

and graduate students and their parents. The Direct Loan 

program offers four types of loans: Stafford, Unsubsidized 

Stafford, Parent Loan for Undergraduate Students (PLUS), 

and Consolidation. Evidence of financial need is required 

for an undergraduate student to receive a subsidized 

Stafford loan. The other three loan programs are available 

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

to meet qualified educational expenses. 

The FFEL program, authorized by the HEA, operates 

through state and private nonprofit guaranty agencies 

that provided loan guarantees on loans made by private 
NOTES TO THE FINANCIAL STATEMENTS | FINANCIAL SECTION

FY 2019 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION 39

financial statements were prepared from the books and 

records of the Department, in accordance with Generally 

Accepted Accounting Principles (GAAP) accepted 

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

Accounting Standards Advisory Board (FASAB), and 

the Office of Management and Budget (OMB) Circular 

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

financial statements are different from the financial reports 

prepared by the Department pursuant to OMB directives 

that are used to monitor and control the use of budgetary 

resources. FSA also issues audited stand-alone financial 

statements which are included in their annual report.

The Department’s financial statements should be read as 

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

One of the many implications of this is that the liabilities 

cannot be liquidated without legislation providing 

resources and legal authority to do so.

The accounting structure of federal agencies is designed to 

reflect both accrual and budgetary accounting transactions. 

Under the accrual method of accounting, revenues are 

recognized when earned and expenses are recognized when 

a liability is incurred, without regard to receipt or payment 

of cash. Budgetary accounting facilitates compliance with 

legal constraints and controls over the use of federal funds.

Intradepartmental transactions and balances have been 

eliminated from the consolidated financial statements. 

Accounting standards require all reporting entities 

to disclose that accounting standards allow certain 

presentations and disclosures to be modified, if needed, to 

prevent the disclosure of classified information. 

ACCOUNTING FOR FEDERAL CREDIT PROGRAMS 

The Department’s accounting for its loan and loan 

guarantee programs is based on the requirements of the 

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

the FCRA is to record the lifetime subsidy cost 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). 

PROGRAM OFFICES

The Department has three major program offices that 

administer most of its loan and grant programs: 

 Federal Student Aid (FSA) administers financial 

assistance programs for students pursuing 

postsecondary education and makes available federal 

grants, direct loans, and work-study funding to 

eligible undergraduate and graduate students.

 The Office of Elementary and Secondary Education 

(OESE) assists state and local educational agencies to 

improve the achievement of preschool, elementary, 

and secondary school students, helps ensure equal 

access to services leading to such improvement—

particularly children with high needs, and provides 

financial assistance to local educational agencies 

whose local revenues are affected by federal activities.

 The Office of Special Education and Rehabilitative 

Services (OSERS) supports programs that help 

provide early intervention and special education 

services to children and youth with disabilities. 

OSERS also supports programs for the vocational 

rehabilitation of youth and adults with disabilities, 

including preemployment transition services and 

other transition services designed to assist students 

with disabilities to enter postsecondary education and 

achieve employment.

Other offices that administer programs and provide 

leadership, technical assistance, and financial support 

to state and local educational activities and institutions 

of higher education for reform, strategic investment, 

and innovation in education include: the Office of 

Career, Technical, and Adult Education (OCTAE); 

Office of Postsecondary Education (OPE); Institute of 

Education Sciences (IES); 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)

BASIS OF ACCOUNTING AND PRESENTATION

These financial statements were prepared to report the 

financial position, net cost of operations, changes in net 

position, and budgetary resources of the Department, as 

required by the Chief Financial Officers Act of 1990 and 

the Government Management Reform Act of 1994. The 
FINANCIAL SECTION | NOTES TO THE FINANCIAL STATEMENTS

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

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 11 and 12)

The Department records an obligation each year for 

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

estimates of schools’ receipt of aid applications. The 

Department advances funds to schools based on these 

estimates. Promissory notes are signed when schools 

reach individual agreements with borrowers and the 

schools subsequently report each disbursement of 

advanced funds to the Department. A new promissory 

note is usually not required for students in the second 

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

in the fourth quarter of the fiscal year. Loans awarded 

are typically disbursed in multiple installments over an 

academic period. As a result, loans may be disbursed 

over multiple fiscal years. Loan awards may not be fully 

disbursed due to students leaving or transferring to 

other schools. The Department’s obligation estimate 

may also not reflect the actual amount of awards made. 

Based on historical averages, the Department expects 

approximately 7.8 percent of the amount obligated for 

new loan awards will not be disbursed.

When a loan is placed in deferment or forbearance, loan 

repayment is temporarily suspended with the length 

of postponement different for each 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.

Under the FCRA, subsidy cost is estimated using the 

net present value of future cash flows to and from the 

Department. In accordance with the FCRA, credit 

programs either estimate a subsidy cost to the government 

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

or estimate a negative subsidy cost. Negative subsidy 

occurs when the estimated cost of providing loans to 

borrowers from Treasury borrowing, collection costs, and 

loan forgiveness is less than the value of collections from 

borrowers for interest and fees, in present value terms.

The subsidy costs of direct loan and loan guarantee 

programs are budgeted and tracked by the fiscal year in 

which the loan award is made or the funds committed. 

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

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

or loan guarantees committed by a program in the same 

year even if disbursements occur in subsequent years.

In order to account for the change in the net present 

value of the loan portfolio over time, the subsidy cost 

is “amortized” each year. Amortization accounts for the 

differences in interest rates, accruals, and cash flows 

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

in subsidy estimates and re-estimates. Amortization of 

subsidy is calculated as the difference between interest 

received from borrowers and Treasury (on uninvested 

funds) and interest paid to Treasury on borrowings. 

The FCRA establishes the use of financing, program, 

and Treasury General Fund receipt accounts for loan 

guarantees committed and direct loans obligated after 

September 30, 1991. 

 Financing accounts borrow funds from Treasury, 

make direct loan disbursements, collect fees from 

lenders and borrowers, pay claims on guaranteed 

loans, collect principal and interest from borrowers, 

earn interest from Treasury on any uninvested funds, 

and transfer excess subsidy to Treasury General Fund 

receipt accounts. Financing accounts are presented 

separately in the combined statements of budgetary 

resources (SBR) as non-budgetary credit reform 

accounts to allow for a clear distinction from all other 

budgetary accounts. This facilitates reconciliation of 

the SBR to the Budget of the United States Government

(President’s Budget).

 Program accounts receive and obligate appropriations 

to cover the positive subsidy cost of a direct loan 

or loan guarantee when the loan is approved and 

disburses the subsidy cost to the financing account 
NOTES TO THE FINANCIAL STATEMENTS | FINANCIAL SECTION

FY 2019 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION 41

Funds are appropriated on an annual, multiyear, or 

no-year basis. Appropriated funds expire on the last 

day of availability and are no longer available for new 

obligations. Amounts in expired funds are unavailable 

for new obligations, but may be used to adjust previously 

established obligations.

Permanent Indefinite Budget Authority. The Direct 

Loan, FFEL, and other loan programs have permanent 

indefinite budget authority through legislation to fund 

subsequent increases to the estimated future costs of the 

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

existence, purpose, and availability of permanent indefinite 

budget authority for these programs.

Reauthorization of Legislation. Funds for most 

Department programs are authorized, by statute, to be 

appropriated for a specified number of years, with an 

automatic one-year extension available under Section 422 

of the General Education Provisions Act. Congress may 

continue to appropriate funds after the expiration of the 

statutory authorization period, effectively reauthorizing 

the program through the appropriations process. The 

current Budget of the United States Government presumes 

all programs continue in accordance with congressional 

budgeting rules. (See Note 11)

ENTITY AND NON-ENTITY ASSETS

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

Entity assets are those that the Department has authority 

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

held by the Department but not available for use in its 

operations. Non-entity assets are offset by liabilities to 

third parties and have no impact on net position. The 

Department combines its entity and non-entity assets on 

the balance 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)

BUDGETARY RESOURCES

Budgetary resources are amounts available to enter into 

new obligations and to liquidate them. The Department’s 

budgetary resources include unobligated balances of 

resources from prior years and new resources, which 

include appropriations, authority to borrow from Treasury, 

and spending authority from collections.

Borrowing authority is an indefinite budgetary resource 

authorized under the FCRA. This resource, when realized, 

finances the unsubsidized portion of the Direct Loan, 

FFEL, and other loan programs. In addition, borrowing 

authority is requested to cover the cost of the initial loan 

disbursement as well as any related negative subsidy to be 

transferred to Treasury General Fund receipt accounts. 

Treasury prescribes the terms and conditions of borrowing 

authority and lends to the financing account amounts as 

appropriate. Amounts borrowed, but not yet disbursed, are 

included in uninvested funds and earn interest. Treasury 

uses the same weighted average interest rates for both 

the interest charged on borrowed funds and the interest 

earned on uninvested funds. Treasury sets a different fixed 

interest rate to be used for each loan cohort once the 

loans are substantially disbursed. The Department may 

carry forward borrowing authority to future fiscal years 

provided that cohorts are disbursing loans. All borrowings 

from Treasury are effective on October 1st of the current 

fiscal year, regardless of when the Department borrowed 

the funds, except for amounts borrowed to make annual 

interest payments.

Authority to borrow from Treasury provides most of 

the funding for disbursements made under the Direct 

Loan, FFEL, and other loan programs. Subsidy and 

administrative costs of the programs are funded by 

appropriations. Borrowings are repaid using collections 

from borrowers, fees, and interest on uninvested funds.

Unobligated balances represent the cumulative amount 

of budgetary resources that are not obligated and that 

remain available for obligation under law, unless otherwise 

restricted. Resources expiring at the end of the fiscal 

year remain available for five years, but only for upward 

adjustments of prior year obligations, after which they 

are cancelled and may not be used. Resources that have 

not expired at year-end are available for new obligations, 

as well as upward adjustments of prior year obligations. 
FINANCIAL SECTION | NOTES TO THE FINANCIAL STATEMENTS

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

CREDIT PROGRAM RECEIVABLES, NET AND 

LIABILITIES FOR LOAN GUARANTEES 

The financial statements reflect the Department’s estimate 

of the long-term subsidy cost of direct and guaranteed 

loans in accordance with the FCRA. Loans and interest 

receivable are valued at their gross amounts less an 

allowance for the present value of amounts not expected 

to be recovered and thus having to be subsidized—called 

an “allowance for subsidy.” The difference between the 

gross amount and the allowance for subsidy is the present 

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

are expected from receivables over their projected lives. 

Similarly, liabilities for loan guarantees are valued at the 

present value of the cash outflows from the Department 

less the present value of related inflows. The estimated 

present value of net long-term cash outflows of the 

Department for subsidized costs is net of recoveries, 

interest supplements, and offsetting fees.

The liability for loan guarantees presents the net present 

value of all future cash flows from currently insured FFEL 

loans, including claim payments, interest assistance, 

allowance payments, and recoveries from assigned loans. 

Guaranteed loans that default are initially turned over to 

guaranty agencies for collection. Defaulted FFEL loans are 

accounted for as assets and reported at their net present 

value, similar to direct loans, although they are legally 

not direct student loans. Credit program receivables, net 

includes defaulted FFEL loans owned by the Department 

and held by the Department or guaranty agencies. In most 

cases, after approximately four years, defaulted guaranteed 

loans not in repayment are turned over by the guaranty 

agencies to the Department for collection.

FFEL program receivables include purchased loans and 

other interests acquired under an expired program. The 

cash flows related to these receivables include collections 

on purchased loans and other activities, including transfers 

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

also include inflows and outflows associated with the 

underlying or purchased loans and other related activities, 

including any positive or negative subsidy transfers. 

Capitalization of interest occurs as a result of various 

initiatives, such as loan consolidations. As a result, interest 

receivable is reduced and loan principal is increased. (See 

Note 5)

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)

GUARANTY AGENCIES’ FEDERAL FUNDS

Guaranty Agencies’ Federal Funds are primarily comprised 

of the federal government’s interest in the program assets 

held by state and nonprofit FFEL program guaranty 

agencies. Section 422A of the HEA required FFEL 

guaranty agencies to establish federal student loan reserve 

funds (federal funds). Federal funds include initial federal 

start-up funds, receipts of federal reinsurance payments, 

insurance premiums, guaranty agency share of collections 

on defaulted loans, investment income, administrative cost 

allowances, and other assets.

The balance in the Federal Fund represents consolidated 

reserve balances of the 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)
NOTES TO THE FINANCIAL STATEMENTS | FINANCIAL SECTION

FY 2019 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION 43

DEBT 

The Department borrows from Treasury to provide 

funding for the Direct Loan, FFEL, and other credit 

programs for higher education. The liability to Treasury 

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

available fund balances. Interest rates are based on the 

corresponding rate for 10-year Treasury securities and are 

set for those borrowings supporting each cohort of loans 

once the loans for that cohort are substantially disbursed. 

Interest is paid to Treasury on September 30th. In 

addition, the Federal Financing Bank (FFB) holds bonds 

issued by a designated bonding authority, on behalf of the 

Department, for the HBCU Capital Financing program. 

The debt for other credit programs for higher education 

includes the liability for full payment of principal and 

accrued interest for the FFB-financed HBCU Capital 

Financing program. (See Note 7) 

SUBSIDY DUE TO TREASURY GENERAL FUND

The Department must transfer to the Treasury General 

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

requirements. This excess funding is included in the 

liability for subsidy due to Treasury and will be transferred 

to Treasury in the succeeding fiscal year upon receipt 

of authority from OMB. Subsidy due to Treasury also 

includes future liquidating account collections (estimated 

collections in excess of estimated outlays) for the 

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

collected, will also be transferred to the Treasury General 

Fund. (See Note 8)

ACCOUNTS PAYABLE

Accounts payable include amounts owed by the 

Department for goods and services received from other 

entities, as well as payments not yet processed. Accounts 

payable to the public primarily consists of in-process grant 

and loan disbursements, including an accrued liability 

for schools that have disbursed loans prior to requesting 

funds. (See Note 9)

PROPERTY AND EQUIPMENT, NET AND LEASES

The Department has very limited acquisition costs 

associated with buildings, furniture, and equipment as 

all Department and contractor staff are housed in leased 

buildings. The Department does not own real property 

for the use of its staff. The Department leases office space 

from the General Services Administration (GSA). The 

lease contracts with GSA for privately and publicly owned 

buildings are operating leases.

The Department also leases information technology and 

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

payments associated with this equipment have been 

determined to be operating leases and, as such, are 

expensed as incurred. The noncancellable lease term is one 

year, with the Department holding the right to extend the 

lease term by exercising additional one-year options. (See 

Notes 4 and 13)

LIABILITIES

Liabilities represent actual and estimated amounts to 

be paid as a result of transactions or events that have 

already occurred.

 Liabilities are classified as covered by budgetary 

resources if budgetary resources are available to pay 

them. Credit program liabilities funded by permanent 

indefinite appropriations are also considered covered by 

budgetary resources. 

 Liabilities are classified as not covered by budgetary 

resources when congressional action is needed before 

they can be paid. Although future appropriations to 

fund these liabilities are likely, it is not certain that 

appropriations will be enacted to fund these liabilities. 

 Liabilities not requiring appropriated budgetary 

resources include those related to deposit funds, 

Subsidy Due to Treasury General Fund for Future 

Liquidating Account Collections (pre-1992 loan 

guarantee programs), and Federal Perkins Loan 

Program balances due to be repaid to the Treasury 

General Fund. (See Note 6)
FINANCIAL SECTION | NOTES TO THE FINANCIAL STATEMENTS

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

The FECA liability consists of two elements. The first 

element, accrued FECA liability, is based on claims paid 

by DOL but not yet reimbursed by the Department. 

The Department reimburses DOL for claims as funds 

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

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

reimbursement to DOL by the Department. As a result, 

the Department recognizes an intragovernmental liability, 

not covered by budgetary resources, for the claims paid by 

DOL that will be reimbursed by the Department.

The second element, actuarial FECA liability, is the 

estimated liability for future benefit payments and is 

recorded as a liability with the public, not covered by 

budgetary resources. The actuarial FECA liability includes 

the expected liability for death, disability, medical, and 

miscellaneous costs for approved compensation cases. 

DOL determines the actuarial FECA liability annually, as 

of September 30, using an actuarial method that considers 

historical benefit payment patterns, wage inflation 

factors, medical inflation factors, and other variables. 

The projected annual benefit payments are discounted to 

present value. (See Notes 6 and 9)

INTER-ENTITY 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 

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)

ACCRUED GRANT LIABILITY

Some grant recipients incur allowable expenditures as 

of the end of an accounting period but have not been 

reimbursed by the Department. The Department accrues 

a liability for these allowable expenditures. The amount 

is estimated using statistical sampling of unliquidated 

balances. (See Note 9)

PERSONNEL COMPENSATION AND OTHER 

EMPLOYEE BENEFITS

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

leave, compensatory time off, and other vested leave is 

accrued when earned and reduced when taken. Each year, 

the accrued annual leave account balance is adjusted to 

reflect current pay rates. Sick leave and other types of 

nonvested leave are expensed as taken. Annual leave earned 

but not taken, within established limits, is funded from 

future financing sources. (See Notes 6 and 9)

Retirement Plans and Other Retirement Benefits.

Employees participate in either the Civil Service 

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

Federal Employees Retirement System (FERS), a defined 

benefit and contribution plan. For CSRS employees, the 

Department contributes a fixed percentage of pay.

FERS consists of Social Security, a basic annuity plan, 

and the Thrift Savings Plan. The Department and the 

employee contribute to Social Security and the basic 

annuity plan at rates prescribed by law. In addition, the 

Department is required to contribute to the Thrift Savings 

Plan a minimum of 1 percent per year of the basic pay 

of employees covered by this system, match voluntary 

employee contributions up to 3 percent of the employee’s 

basic pay, and match one-half of contributions between 

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

FERS employees, the Department also contributes the 

employer’s share of Medicare.

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.
NOTES TO THE FINANCIAL STATEMENTS | FINANCIAL SECTION

FY 2019 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION 45

unobligated balances, except for amounts in financing 

accounts, liquidating accounts, and trust funds. 

Cumulative results of operations represent the net 

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

revenues and financing sources.

ALLOCATION TRANSFERS

The Department is a party to allocation transfers as a 

receiving (child) entity with the Department of Health 

and Human Services (HHS). Allocation transfers are 

legal delegations by one entity of its authority to obligate 

budget authority and outlay funds to another entity. A 

separate fund account (allocation account) is created in the 

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

tracking and reporting purposes. All allocation transfers 

of balances are credited to this account, and subsequent 

obligations and outlays incurred by the child entity are 

charged to this allocation account as they execute the 

delegated activity on behalf of the parent entity. All 

financial activity related to this allocation transfer (e.g., 

budget authority, obligations, outlays) is reported in the 

financial statements of the parent entity (HHS) from 

which the underlying legislative authority, appropriations, 

and budget apportionments are derived. 

TAXES

The Department is a Federal entity and is not subject to 

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

income taxes is recorded.

USE OF ESTIMATES

Department management is required to make certain 

estimates while preparing consolidated financial statements 

in conformity with GAAP. These estimates are reflected 

in the assets, liabilities, net cost, and net position of the 

financial statements and may differ from actual results. 

The Department’s estimates are based on management’s 

best knowledge of current events, historical experiences, 

and other assumptions that are believed to be reasonable 

under the circumstances. Significant estimates reported on 

the financial statements include: allocation of Department 

administrative overhead costs; allowance for subsidy and 

subsidy expense for direct, defaulted guaranteed, and 

acquired loans; the liability for loan guarantees; and grant 

liability and advance accruals. (See Notes 4, 5, 9, and 10)

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 

Credit Program Subsidy Expense. Subsidy expense is an 

estimate of the present value cost of providing loans, but 

excludes the administrative costs of issuing and servicing 

the loans. In order to estimate subsidy expense, the 

Department must project lifetime cash flows associated 

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

cohort). The Department projects these lifetime cash flows 

using a set of econometric and financial models, as well 

as cash flow models. The Department estimates subsidy 

expenses annually for new loans disbursed in the current 

year; updates the previous cost estimates for outstanding 

loans disbursed in prior years (subsidy 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.

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 
FINANCIAL SECTION | NOTES TO THE FINANCIAL STATEMENTS

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

Student Loan Data System (NSLDS®) data, data from the Debt Management and Collection System (DMCS), 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 Department’s modeling methodology 

is essential to the budget process, so that the Department can forecast the costs of various program options when making 

policy decisions. (See Note 5)

NOTE 2. Non-Entity Assets

2019 2018

Intragovernmental With the Public Intragovernmental With the Public

Non-Entity Assets

Fund Balance with Treasury $ 294 $ - $ 310 $ - 

Credit Program Receivables, Net - 607 - 551 

Other Assets

 Guaranty Agencies’ Federal Funds - 1,956 - 2,176 

 Accounts Receivable, Net - 84 - 65 

Total Non-Entity Assets 294 2,647 310 2,792 

Entity Assets 104,690 1,203,065 114,446 1,210,434 

Total Assets $ 104,984 $ 1,205,712 $ 114,756 $ 1,213,226 

(Dollars in Millions)

The Department’s FY 2019 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 (73.9 percent), reported as 

Guaranty Agencies’ Federal Funds, and Federal Perkins Loan program loan receivables (22.9 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)
NOTES TO THE FINANCIAL STATEMENTS | FINANCIAL SECTION

FY 2019 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION 47

NOTE 3. Fund Balance with Treasury 

(Dollars in Millions)

2019 2018

Unobligated Balance

 Available $ 13,578 $ 14,495 

 Unavailable 19,564 24,907 

Obligated Balance, Not Disbursed 127,291 137,680 

Authority Temporarily Precluded from Obligation 1 1 

Borrowing Authority Not Yet Converted to Fund Balance with Treasury (Note 11) (55,845) (62,752)

Other 329 274 

Total Fund Balance with Treasury $ 104,918 $ 114,605 

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 ($19.5 

billion) differs from unapportioned and expired amounts on the SBR ($21.5 billion) due to the Guaranty Agencies’ 

Federal Funds ($2.0 billion).

NOTE 4. Other Assets 

(Dollars in Millions)

2019 2018

Intragovernmental With the Public Intragovernmental With the Public

Guaranty Agencies’ Federal Funds $ - $ 1,956 $ - $ 2,176 

Accounts Receivable, Net 2 251 1 154 

Advances 64 35 150 15 

Property and Equipment, Net - 8 - 29 

Other - 6 - 3 

Total Other Assets $ 66 $ 2,256 $ 151 $ 2,377 

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, 2019, related to criminal restitutions totaled $106.3 million and ($95.2) million, respectively.
FINANCIAL SECTION | NOTES TO THE FINANCIAL STATEMENTS

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

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

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

2018 

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

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

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

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

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

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

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

DIRECT LOAN PROGRAM. 

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

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

Direct Loan program loan receivables include defaulted and nondefaulted loans owned by the Department. Of the $1,248.1 

billion in gross loan receivables, as of September 30, 2019, $99.7 billion (8.0 percent) in loan principal was in default and 

had been transferred to the Department’s defaulted loan servicer, compared to $84.9 billion (7.3 percent) as of September 

30, 2018.
NOTES TO THE FINANCIAL STATEMENTS | FINANCIAL SECTION

FY 2019 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION 49

Direct Loan Program Reconciliation of Allowance for Subsidy 

(Dollars in Millions)

2019 2018

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

Activity

 Fee Collections 1,693 1,696 

 Loan Cancellations (9,096) (7,521)

 Subsidy Allowance Amortization 30,290 25,918 

 Other Activities (622) (604)

Total Activity 22,265 19,489 

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

 Interest Rate Differential 11,440 1,614 

 Defaults, Net of Recoveries 1,862 1,106 

 Fees (1,720) (1,747)

 Other Components (14,563) (4,103)

Total of the Above Subsidy Expense Components (2,981) (3,130)

Components of Loan Modifications

Loan Modification Costs - 144 

Modification Adjustment Transfers Gain - (8)

Loan Modifications - 136 

Ending Balance of the Subsidy Cost Allowance Before Re-estimates $ 59,947 $ 33,300 

Components of Subsidy Re-estimates

 Interest Rate Re-estimates (981) (4,573)

 Technical and Default Re-estimates 65,472 11,936 

Net Upward Subsidy Re-estimates 64,491 7,363 

Ending Balance, Allowance for Subsidy $ 124,438 $ 40,663 

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 IDR plans has made 

projection of borrower incomes a key input for the estimation process. This uncertainty is directly tied to the macroeconomic 

climate and is another inherent program element that displays the interrelated risks facing the Direct Loan program.

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

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

the disbursed portion of the loan awards obligated.

The two major components of the subsidy expense for direct loans disbursed in the current period (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. In FY 2019, the Department began including the prepayment effect on principal and 

interest repayments in the interest rate differential component rather the other component as in previous years.
FINANCIAL SECTION | NOTES TO THE FINANCIAL STATEMENTS

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

Direct Loan Program Subsidy Expense 

(Dollars in Millions)

2019 2018

Subsidy Expense for Direct Loans Disbursed in the Current Year

 Interest Rate Differential $ 11,440 $ 1,614 

 Defaults, Net of Recoveries 1,862 1,106 

 Fees (1,720) (1,747)

 Other (14,563) (4,103)

Total Subsidy Expense for Direct Loans Disbursed in the Current Year (2,981) (3,130)

Loan Modifications - 136 

Net Upward Subsidy Re-estimates 64,491 7,363 

Direct Loan Subsidy Expense $ 61,510 $ 4,369 

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

(Dollars in Millions)

2019 2018

Interest Expense on Treasury Borrowing $ 33,817 $ 32,329 

Total Interest Expense $ 33,817 $ 32,329 

Interest Revenue from the Public $ 59,815 $ 54,157 

Interest Revenue on Uninvested Funds 4,082 3,890 

Administrative Fees 210 200 

Amortization of Subsidy (30,290) (25,918)

Total Revenues $ 33,817 $ 32,329 

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

increased subsidy expense in FY 2019 by $64.5 billion. Re-estimated costs only include cohorts that are 90 percent 

disbursed; cohort years 1994–2018. The re-estimate reflects the assumption updates and other changes described below.

 IDR Model Changes. During FY 2019, the Department enhanced the IDR model by examining the most current 

available IDR application data from NSLDS to supplement information previously used from the Department of 

Treasury’s Office of Tax Analysis, in order to calibrate projected incomes. The Department’s analysis determined a 

downward calibration was warranted, with the Departmental and FSA senior management concurrence. The impact of 

this calibration was the most significant factor in the IDR component of the re-estimate. The IDR update also reflects 

further refinement in the logic for switching borrowers among IDR plans and the appropriate balance to be paid off 

when they do switch. These updates led to a net upward re-estimate of $43.6 billion. 

 Deferment and Forbearance. The Department made enhancements in the methodology for delinquency, to more precisely 

reflect interest accrual and the extension of the payment period than the method previously employed. These enhancements 

resulted in a lower rate of forbearance which led to an upward re-estimate of subsidy as less interest is accrued, capitalized, 

and collected. Deferment rates increased for PLUS loans eligible for in-school deferments. The combined effect of these 

changes, in addition to updated data from NSLDS, was a net upward re-estimate of $18.3 billion.

 Maturity, Prepayment, and Loan Payoff. The Department further enhanced the forecasting of amount of debt 

distributions and aligned all three sub-components of this assumption to enter repayment cohorts. The loan payoff 
NOTES TO THE FINANCIAL STATEMENTS | FINANCIAL SECTION

FY 2019 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION 51

Direct Loan Subsidy Rates—Cohort 2019

 Interest Differential Defaults Fees Other Total

Stafford 20.50% 1.63% -1.06% -12.42% 8.65%

Unsubsidized Stafford 13.85% 1.05% -1.06% -17.06% -3.22%

PLUS 2.73% 0.75% -4.25% -18.27% -19.04%

Consolidation 6.88% 1.40% 0.00% 3.76% 12.04%

Weighted Average Total -11.62% 1.25% -1.16% 11.78% 0.25%

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

fiscal year and are weighted on gross volume. The subsidy rates shown above, which reflect aggregate positive subsidy in the FY 

2019 cohort, cannot be applied to direct loans disbursed during the current reporting year to yield the subsidy expense, nor 

are these rates applicable to the portfolio as a whole. The Department does not re-estimate student loan cohorts until they are 

at least 90 percent disbursed. As a result, the financial statement re-estimate does not include a re-estimate of the current year 

cohort. The first re-estimate of this cohort will take place upon execution of the FY 2021 President’s Budget.

component was improved as well by using a more precise method to estimate payoff for loans enrolled in graduated 

repayment plans. As mentioned above, the impact on repayment of delinquency was moved to the payoff maturity 

assumption to better reflect interest accrual and the extension of the payment period. These adjustments resulted in longer 

assumed terms, resulting in a longer stream of payments, more interest accrual and less subsidy. The combined effect of 

these changes led to a net downward re-estimate of $26.1 billion.

 Financing Account Interest Adjustment. Beginning in FY 2019, the Department implemented a process to calculate 

and execute a financing account interest adjustment to address differences between net financing account interest 

executed for cohorts each year and amounts earned based on final Treasury interest rates for those cohorts. This resulted 

in a net upward re-estimate of $6.3 billion

 Default. The Department updated the data and made a change in methodology to a weighted fractional logit in order 

to more appropriately reflect the different sizes of the grouped data. The combined effect of these changes led to a net 

downward re-estimate of $1.0 billion. 

 Collections. As a result of analyzing updated DMCS data, collection rate estimates were revised which resulted in a net 

upward re-estimate of $4.2 billion.

 2018 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 re-estimate 

includes a net upward adjustment of $5.8 billion for these prior year changes attributable to the FY 2018 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 $9.7 billion.

 Interactive Effects. The re-estimate includes a net upward re-estimate of $3.2 billion attributed to the interactive effects 

of the assumption changes described above.

*

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

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

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 reestimates 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 $39.8 billion during FY 2019 and $41.6 billion during FY 2018. Under the FCRA, the 

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

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

associated with that cohort. 

FEDERAL FAMILY EDUCATION LOAN PROGRAM.

FFEL was established in FY 1965, and is a guaranteed loan program. As a result of the SAFRA Act, no new FFEL loans 

have been made since July 1, 2010. Federal guarantees on FFEL program loans and commitments remain in effect for loans 

made before July 1, 2010, unless they were sold to the Department through an ECASLA authority (acquired FFEL loans), 

consolidated into a direct loan, or otherwise satisfied, discharged, or cancelled. 

FFEL Guaranteed Loans Outstanding

(Dollars in Billions)

2019

Outstanding Principal of Guaranteed Loans, Face Value $ 141.6 

Amount of Outstanding Principal Guaranteed $ 141.6 

As of September 30, 2019, the total principal value of guaranteed loans outstanding and the amount of that principal which 

is guaranteed is approximately $141.6 billion. 

Additionally, the FFEL program guarantees outstanding interest balances. As of September 30, 2019, the interest balances 

outstanding for guaranteed loans held by lenders was approximately $4.0 billion. 

Direct Loan Program Loan Disbursements by Loan Type

(Dollars in Millions)

2019 2018

Stafford $ 19,984 $ 20,343 

Unsubsidized Stafford 48,142 49,009 

PLUS 22,709 23,117 

Consolidation 39,830 41,625 

Total Disbursements $ 130,664 $ 134,094 

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.
NOTES TO THE FINANCIAL STATEMENTS | FINANCIAL SECTION

FY 2019 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION 53

The Department’s total FFEL program guarantees (principal and interest) are approximately $145.6 billion as of September 

30, 2019. Of the total guaranteed amount, the Department would expect to pay a smaller amount to the guaranty agencies. 

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

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

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

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

FFEL Program Loan Receivables 

(Dollars in Millions)

Principal Accrued Interest

Allowance for 

Subsidy

(Present Value)

Net

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 

2018

DEFAULTED FFEL GUARANTEED LOANS

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

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

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

ACQUIRED FFEL LOANS

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

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

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

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

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

FFEL Program Reconciliation of Liabilities for Loan Guarantees 

(Dollars in Millions)

2019 2018

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

Activity 

 Interest Supplement Payments (1,332) (1,052)

 Claim Payments (5,583) (5,716)

 Fee Collections 1,385 1,550 

 Interest on Subsidy Amortization (1,096) (1,099)

 Other 2,374 6,476 

Total Activity (4,252) 159 

Upward/(Downward) Subsidy Re-estimates 6,866 (1,204)

Ending Balance, FFEL Financing Account Liability for Loan Guarantees 5,205 2,591 

FFEL Liquidating Account Liability for Loan Guarantees 1 1 

FFEL Liabilities for Loan Guarantees $ 5,206 $ 2,592 
FINANCIAL SECTION | NOTES TO THE FINANCIAL STATEMENTS

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

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

2019 

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

Activity

 Subsidy Allowance Amortization 571 1,027 52 1,650 

 Loan Cancellations (165) (308) (18) (491)

 Direct Asset Activities (40) (62) (5) (107)

Total Activity 366 657 29 1,052 

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

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

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

2018 

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

Activity

 Subsidy Allowance Amortization 550 903 48 1,501 

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

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

Total Activity 338 521 26 885 

Ending Balance of the Subsidy Cost Allowance Before Re-estimates $ (1,318) $ (1,551) $ 426 $ (2,443)

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

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

FFEL Program Subsidy Expense 

(Dollars in Millions)

2019 2018

Upward/(Downward) Subsidy Re-estimates

FFEL Loan Guarantee Program $ 6,866 $ (1,204)

Loan Purchase Commitment 2,144 1,339

Loan Participation Purchase 3,644 1,093

FFEL Program Subsidy Expense $ 12,654 $ 1,228

The FFEL subsidy re-estimate increased subsidy expense in FY 2019 by $12.7 billion. The net upward re-estimates in these 

programs were due primarily to interest rates provided by OMB and updated collection and prepayment rates.
NOTES TO THE FINANCIAL STATEMENTS | FINANCIAL SECTION

FY 2019 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION 55

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

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 

2018 

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

TEACH Program Loans 746 91 (253) 584 

HEAL Program Loans 397 32 (69) 360 

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

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

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

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

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

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

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

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

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

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

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

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

TEACH Subsidy Rates—Cohort 2019

Interest Differential Defaults Fees Other Total

Subsidy Rates 71.18% 0.25% 0.00% -43.06% 28.37%

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.

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

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

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 $360 

million obligated to support near term lending as of September 30, 2019.

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

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

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

other educational facilities.

NOTE 6. Liabilities Not Covered by Budgetary Resources 

(Dollars in Millions)

2019 2018

Intragovernmental With the Public Intragovernmental With the Public

Liabilities Not Covered by Budgetary Resources

 Other Liabilities

 Accrued Unfunded Annual Leave $ - $ 35 $ - $ 37 

 FECA Liabilities 3 11 3 15 

Total Liabilities Not Covered by Budgetary Resources 3 46 3 52 

Liabilities Not Requiring Budgetary Resources

 Subsidy Due to Treasury General Fund 1,239 - 2,037 - 

 Federal Perkins Loan Program 593 - 538 - 

 Miscellaneous Receipt, Deposit Funds and Clearing Accounts 123 303 34 317 

Total Liabilities Not Requiring Budgetary Resources 1,955 303 2,609 317 

Total Liabilities Covered by Budgetary Resources 1,300,035 11,864 1,267,654 8,541 

Total Liabilities $ 1,301,993 $ 12,213 $ 1,270,266 $ 8,910 
NOTES TO THE FINANCIAL STATEMENTS | FINANCIAL SECTION

FY 2019 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION 57

NOTE 7. Debt

(Dollars in Millions)

Beginning Balance Borrowing Repayments Ending Balance

2019

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 2,094 197 (95) 2,196 

Total $ 1,259,965 $ 137,780 $ (108,740) $ 1,289,005 

2018

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

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

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

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

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

and related costs. During FY 2019, debt increased 2.3 percent from $1,260.0 billion in the prior year to $1,289.0 billion. 

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

each cohort of loans, as mandated by the FCRA.

Approximately 92.5 percent of the Department’s debt, as of September 30, 2019, is attributable to the Direct Loan 

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

new Direct Loan disbursements.

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

2019, TEACH net borrowing of $63.3 million was used for the advance of new grants and repayments of principal made to 

Treasury. In FY 2019, debt in HBCU increased by $40.2 million, or 2.8 percent. This total represents the aggregate of new 

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

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

NOTE 9. Other Liabilities

(Dollars in Millions)

2019 2018

Intragovernmental With the Public Intragovernmental With the Public

Accounts Payable $ - $ 3,765 $ 1 $ 3,792 

Accrued Grant Liability - 2,637 - 1,914 

Guaranty Agencies’ Funds Due to Treasury 1,956 - 2,176 - 

Loan Guarantee Liability - 5,436 - 2,814 

Federal Perkins Loan Program 593 - 538 - 

Miscellaneous Receipt, Deposit Funds and Clearing Accounts 123 303 34 317 

Advances from Others and Deferred Credits 3 8 7 4 

Accrued Unfunded Annual Leave - 35 - 37 

FECA Liabilities 3 11 3 15 

Accrued Payroll and Benefits - 17 - 16 

Employer Contributions and Payroll Taxes 7 1 5 1 

Custodial Liabilities 1 - 1 - 

Total Other Liabilities $ 2,686 $ 12,213 $ 2,765 $ 8,910 

NOTE 8. Subsidy Due to Treasury General Fund 

(Dollars in Millions)

2019 2018

Credit Program Downward Subsidy Re-estimates

 Direct Loan Program $ 2,718 $ 2,484 

 FFEL Program 6,345 3,015 

Total Credit Program Downward Subsidy Re-estimates 9,063 5,499 

Future Liquidating Account Collections

 FFEL Program 1,239 1,856 

 Other Credit Programs for Higher Education - 181 

Total Future Liquidating Account Collections 1,239 2,037 

Total Subsidy Due to Treasury General Fund $ 10,302 $ 7,536 
NOTES TO THE FINANCIAL STATEMENTS | FINANCIAL SECTION

FY 2019 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION 59

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.

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: Strengthen the quality, accessibility, and use of education data through better 

management, increased privacy protections, and transparency.

Crosscutting Goal

All Offices Goal 4: Reform the effectiveness, efficiency, and accountability of the Department. Crosscutting Goal
FINANCIAL SECTION | NOTES TO THE FINANCIAL STATEMENTS

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

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

 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

 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

 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 Program Gross Costs 144,865 22,971 16,194 7,609 191,639 

Total Program Earned Revenues (36,820) (5) (1) (84) (36,910)

Net Cost of Operations $ 108,045 $ 22,966 $ 16,193 $ 7,525 $ 154,729 
NOTES TO THE FINANCIAL STATEMENTS | FINANCIAL SECTION

FY 2019 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION 61

Gross Costs and Earned Revenue by Program 

(Dollars in Millions)

2018

FSA OESE OSERS Other Total

IMPROVE LEARNING OUTCOMES FOR ALL P–12 STUDENTS

Gross Cost

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

 Other - 58 1 763 822 

Earned Revenue - - - (82) (82)

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

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

PRODUCTIVE CITIZENRY

Direct Loan Program

 Gross Cost

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

 Subsidy Expense 4,369 - - - 4,369 

 Administrative Expenses 1,267 - - - 1,267 

 Earned Revenue

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

 Subsidy Amortization 25,918 - - - 25,918 

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

FFEL Program

 Gross Cost

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

 Subsidy Expense 1,228 - - - 1,228 

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

 Guaranty Agencies 96 - - - 96 

 Administrative Expenses 141 - - - 141 

 Earned Revenue

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

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

 Guaranty Agencies (202) - - - (202)

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

Other Credit Programs for Higher Education

 Gross Cost

 Credit Program Interest Expense 19 - - 54 73 

 Subsidy Expense 56 - - 168 224 

 Administrative Expenses 1 - - - 1 

 Earned Revenue

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

 Subsidy Amortization 29 - - 6 35 

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

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

Non-Credit Programs

 Gross Cost

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

 Other 136 - 2 255 393 

Earned Revenue - - - (10) (10)

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

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

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

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

Net Cost of Operations $ 35,008 $ 20,915 $ 16,552 $ 7,050 $ 79,525 
FINANCIAL SECTION | NOTES TO THE FINANCIAL STATEMENTS

62 FY 2019 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

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 

2018

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

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

Other Credit Programs for 

Higher Education 73 - 73 23 85 (35) 73 

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

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 2019 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION 63

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.

2019 2018

IMPROVE LEARNING OUTCOMES FOR ALL P–12 STUDENTS

Education for the Disadvantaged $ 16,318 $ 15,243 

Special Education—Individuals With Disabilities Education Act (IDEA) Grants 12,630 13,073 

School Improvement Programs 4,477 3,614 

Impact Aid 1,420 1,466 

Innovation and Improvement 945 1,201 

English Language Acquisition 749 693 

Career, Technical, and Adult Education 480 445 

Hurricane Education Recovery 345 232 

Institute of Education Sciences 195 187 

Other 313 301 

 Subtotal 37,872 36,455 

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

PRODUCTIVE CITIZENRY

 Student Financial Assistance

 Pell Grants 30,530 26,672 

 Federal Work-Study Program 1,030 1,015 

 Federal Supplemental Educational Opportunity Grants 648 769 

 Rehabilitation Services 3,210 3,130 

 Higher Education 2,528 2,027 

 Career, Technical, and Adult Education 1,282 1,135 

 Special Education—Individuals With Disabilities Education Act (IDEA) Grants 124 120 

 Hurricane Education Recovery 24 1 

 Institute of Education Sciences 45 43 

 Other 462 459 

 Subtotal 39,883 35,371 

Total Grant Costs $ 77,755 $ 71,826 

Grant Expenses by Appropriation

(Dollars in Millions)

The Department has more than 100 grant programs. Descriptions of the 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 
FINANCIAL SECTION | NOTES TO THE FINANCIAL STATEMENTS

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

development for educators, and curriculum development at 

the K-12, graduate, and postsecondary levels.

Career, Technical, and Adult Education—includes 

programs that are related to adult education and literacy, 

career and technical education, community colleges and 

correctional education.

Impact Aid—provides funds to local educational agencies 

to replace the lost local revenue that would otherwise 

be available to educate federal connected children. (The 

property on which the children live and their parents work 

is exempt from local property taxes, limiting a central source 

of revenue used by most communities to finance education.)

Innovation and Improvement—includes programs that 

support nontraditional programs that improve student 

achievement and attainment; supports the development 

of educational television and digital media programs 

targeted at preschool and early elementary school children 

and their families to promote early learning and school 

readiness, with a particular interest in reaching low-income 

children; and supports local educational agencies and their 

partners in implementing, evaluating, and refining tools 

and approaches for developing the non-cognitive skills of 

middle-grades students in order to increase student success. 

English Language Acquisition—provides funds primarily 

by formula to states to improve services for English 

learners. Also provides funds to support national activities, 

including professional development to increase the supply 

of high-quality teachers of English learners and a national 

clearinghouse on English language acquisition. 

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 NCES; 

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 Title I grants that provide financial assistance through 

state educational agencies to local educational agencies and 

public schools with high numbers or percentages of poor 

children to help ensure that all children meet challenging 

state academic content and student academic achievement 

standards. Also provides funds to states to support 

educational services to children of migratory farmworkers 

and fishers, and to neglected or delinquent children and 

youth in State-run institutions, attending community day 

programs, and correctional facilities.

Special Education—consists primarily of IDEA Grants 

that provide funds by formula to states to assist them in 

providing a free appropriate public education in the least 

restrictive environment for children with disabilities ages 3 

through 21 and assists states in providing early intervention 

services for infants and toddlers birth through age two 

and their families. Also provides discretionary grants 

to institutions of higher education and other nonprofit 

organizations to support research, demonstrations, technical 

assistance and dissemination, technology, personnel 

development and parent-training, and information centers. 

School Improvement Programs—provides funds to state 

educational agencies to make competitive subgrants to local 

educational agencies that demonstrate the greatest need for 

the funds and the strongest commitment to use the funds to 

provide adequate resources in order to substantially raise the 

achievement of students in their lowest-performing schools.

Rehabilitation Services—provides funds to states and 

other agencies to support vocational rehabilitation and 

other services to individuals with disabilities to maximize 

their employment, independence, and integration into the 

community and the competitive labor market.

Higher Education—includes Institutional Service 

grants designed to improve academic quality, institutional 

management and fiscal stability, and strengthen physical 

plants and endowments of institutions of higher education, 

with an emphasis on institutions that enroll large proportions 

of minority and financially disadvantaged students. Also 

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

disabilities as they progress through the academic pipeline 

from middle school to graduate school, in addition to 

programs focused on college readiness, campus-based child 

care, and graduate fellowships. Also includes International 

and Foreign Language Education grant and fellowship 

programs that strengthen foreign language instruction, area/

international studies teaching and research, professional 
NOTES TO THE FINANCIAL STATEMENTS | FINANCIAL SECTION

FY 2019 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION 65

NOTE 11. Statements of Budgetary Resources

The SBR compares budgetary resources with the status of those resources. As of September 30, 2019, budgetary resources were 

$358.2 billion and net agency outlays were $144.5 billion. As of September 30, 2018, budgetary resources were $358.5 billion 

and net agency outlays were $146.8 billion.

Unused Borrowing Authority 

(Dollars in Millions)

2019 2018

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

Current Year Borrowing Authority 148,493 167,897 

Funds Drawn from Treasury (137,880) (155,820)

Borrowing Authority Withdrawn (17,520) (8,026)

Ending Balance, Unused Borrowing Authority $ 55,845 $ 62,752 

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)

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.

2019 2018

Intragovernmental With the Public Intragovernmental With the Public

Unpaid $ 215 $ 121,561 $ 159 $ 132,716 

Paid 64 563 238 120 

Undelivered Orders $ 279 $ 122,124 $ 397 $ 132,836 

Net Adjustments to Unobligated Balances Brought Forward

(Dollars in Millions)

2019

Budgetary

Non-Budgetary Credit 

Reform Financing 

Accounts

Prior Year Unobligated Balance, End of Year (Total) $ 17,850 $ 23,728 

Recoveries of Prior Year Unpaid Obligations 1,158 24,841 

Borrowing Authority Withdrawn - (17,520)

Actual Repayments of Debt, Prior Year Balances - (16,261)

Actual Capital Transfers to the Treasury General Fund (328) - 

Canceled Authority (405) - 

Downward Adjustments of Prior Year Paid Delivered Orders 6 342 

Other Differences (50) (103)

Unobligated Balance from Prior Year Budget Authority (Net) $ 18,231 $ 15,027 
FINANCIAL SECTION | NOTES TO THE FINANCIAL STATEMENTS

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

Distributed Offsetting Receipts

(Dollars in Millions)

2019 2018

Negative Subsidies and Downward Re-estimates of Subsidies:

 Direct Loan Program $ 9,906 $ 26,539 

 FFEL Program 2,099 236 

 Facilities Loan Programs 5 9 

 TEACH Program 1 - 

 HEAL Program 34 8 

 Total Negative Subsidies and Downward Re-estimates 12,045 26,792 

Other 228 578 

Distributed Offsetting Receipts $ 12,273 $ 27,370 

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 $ 358,504 $ 316,926 $ 27,370 $ 146,810 

 Expired Funds (2,016) (835) - - 

 FFEL Guaranty Agency Amounts Included in the 

President’s Budget 7,257 7,257 - - 

 Distributed Offsetting Receipts - - - 27,370 

 Other (155) (3) - - 

Budget of the United States Government1 $ 363,590 $ 323,345 $ 27,370 $ 174,180 

1

 Amounts obtained from the Appendix, Budget of the United States Government, FY 2020.

The FY 2021 Budget of the United States Government (President’s Budget), which presents the actual amounts for the 

year ended September 30, 2019, has not been published as of the issue date of these financial statements. The FY 2021 

President’s Budget is scheduled for release in February 2020 and will be made available on OMB’s website. The table above 

reconciles the FY 2018 SBR to the FY 2020 President’s Budget (FY 2018 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.
NOTES TO THE FINANCIAL STATEMENTS | FINANCIAL SECTION

FY 2019 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION 67

NOTE 12. Reconciliation of Net Cost to Net Outlays

(Dollars in Millions)

2019

IntragovernmentalWith the

Public Total

Net Cost of Operations $ 33,374 $ 121,355 $ 154,729 

Components of Net Operating Cost Not Part of the Budgetary Outlays

Subsidy Expense - (74,208) (74,208)

Increase/(Decrease) in Assets (87) 10 (77)

(Increase)/Decrease in Liabilities (81) (611) (692)

Federal Employee Retirement Benefit Costs Paid by OPM and Imputed to Agency (37) - (37)

Total Components of Net Operating Cost Not Part of the Budgetary Outlays (205) (74,809) (75,014)

Components of the Budgetary Outlays Not Part of Net Operating Costs

Loan Disbursement/(Collection) Activities, Net - 52,734 52,734 

Loan Subsidy Transfers 12,045 - 12,045 

Receipts To Be Returned to Treasury - (4) (4)

Increase/(Decrease) in Deposit Funds - (25) (25)

Total Components of the Net Budgetary Outlays Not Part of Net Operating Costs 12,045 52,705 64,750 

Net Outlays (Calculated Total) $ 45,214 $ 99,251 $ 144,465 

Related Amounts on the Statement of Budgetary Resources

Outlays, Net (Discretionary and Mandatory) $ 156,738 

Distributed Offsetting Receipts (12,273)

Agency Outlays, Net (Discretionary and Mandatory) $ 144,465 

The Department implemented SFFAS 53, Budget and Accrual Reconciliation, in FY 2019 requiring this reconciliation to explain 

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. Comparison with the prior year is not required in the initial year of implementation.

Subsidy expense included in net cost of operations primarily represents subsidy re-estimates that are recognized without 

a concurrent cash disbursement. For credit programs, most loan disbursement and collection activities, other than those 

related to loan administrative costs, increase or decrease loan asset and liability balances and therefore do not affect net 

cost of operations. Loan subsidy transfers are amounts paid from the Department’s financing accounts to Treasury receipt 

accounts when there are negative subsidies for new loan disbursements or downward re-estimates of the subsidy cost of 

existing loans
FINANCIAL SECTION | NOTES TO THE FINANCIAL STATEMENTS

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

approximately 256 thousand loans were made totaling 

$630.5 million at 1,079 institutions, making an average of 

$2,461 per loan. The Department’s equity interest, as of 

the end of Academic Year 2016-2017 (June 30, 2017), was 

approximately $5.8 billion.

Federal Perkins Loan program borrowers who meet 

statutory eligibility requirements—such as those who 

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

Corps or AmeriCorps VISTA volunteers, as well as those 

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

family services—may receive partial loan forgiveness for 

each year of qualifying service.

The Federal Perkins Loan program was scheduled to 

officially end on September 30, 2015. However, the 

program was extended through September 30, 2017 by 

the Federal Perkins Loan Program Extension Act of 2015

(Extension Act). The Extension Act eliminated the Perkins 

Loan grandfathering provisions that the Department had 

put in place, and establishes new eligibility requirements 

for undergraduate and graduate students to receive Perkins 

Loans. As of September 30, 2017, schools are no longer 

authorized to make new Perkins Loans.

LITIGATION AND OTHER CLAIMS 

The Department is involved in various lawsuits incidental 

to its operations. In the opinion of management, the 

ultimate resolution of pending litigation will not have a 

material impact on the Department’s financial position. 

The cost of loan forgiveness related to borrower defense 

claims reflected in the accompanying financial statements is 

limited to loans originated through September 30, 2019. The 

final disposition of claims filed and those yet to be filed from 

loans originated before September 30, 2019, is not expected 

to have a material impact on these financial statements. 

OTHER MATTERS 

Some portion of the current-year financial assistance 

expenses (grants) may include funded recipient 

expenditures that are subsequently disallowed through 

program review or audit processes. In the opinion of 

management, the ultimate disposition of these matters 

will not have a material effect on the Department’s 

financial position.

The Department leases from the General Services 

Administration all or a portion of 15 privately owned and 

12 publicly owned buildings in 20 cities. The table above 

presents the estimated future minimum lease payments for 

these privately and publicly owned buildings.

GUARANTY AGENCIES

The Department may assist guaranty agencies experiencing 

financial difficulties. The Department has not done so 

in fiscal years 2019 or 2018 and does not expect to in 

future years. No provision has been made in the financial 

statements for potential liabilities.

FEDERAL PERKINS LOAN PROGRAM

The Federal Perkins Loan program provided financial 

assistance to eligible postsecondary school students. In 

FY 2019, the Department reported for Academic Year 

2017-2018 that it provided funding of 83.0 percent 

of the capital used to make loans to eligible students 

through participating schools at 5 percent interest. The 

schools provided the remaining 17.0 percent of program 

funding. For the academic year that ended June 30, 2018, 

NOTE 13. Commitments and Contingencies

The Department discloses contingencies where any of 

the conditions for liability recognition are not met and 

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

additional loss may have been incurred in accordance 

with FASAB Standard No. 5, Accounting for Liabilities of 

the Federal Government. The following commitments are 

amounts for contractual arrangements that may require 

future financial obligations.

Future Minimum Lease Payments

(Dollars in Millions)

2019 2018

2020 $ 73 2019 $ 73

2021 78 2020 73

2022 81 2021 77

2023 83 2022 81

2024 86 2023 82

After 2024 87 After 2023 83

Total $ 488 Total $ 469
NOTES TO THE FINANCIAL STATEMENTS | FINANCIAL SECTION

FY 2019 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION 69

NOTE 14. 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 (GTAS) 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 2018 FR can be found on Treasury’s website and a copy of the 2019 FR will be posted to this site as soon as it 

is released.
FINANCIAL SECTION | NOTES TO THE FINANCIAL STATEMENTS

70 FY 2019 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, 2019

(Dollars in Millions)

 FY 2019 Department Balance Sheet Line Items Used to Prepare FY 2019 Government-wide

 Balance Sheet

Financial Statement Line Amounts Amounts Reclassified Financial Statement Line

ASSETS ASSETS

Intragovernmental: Federal:

 Fund Balance with Treasury $ 104,918 $ 104,918 Fund Balance with Treasury

 Other Intragovernmental Assets 66 64 Advances to Others and Prepayments

 2 Accounts Receivable

Total Intragovernmental 104,984 104,984 Total Federal Assets

Public: Non-Federal:

 Credit Program Receivables, Net

 Direct Loan Program 1,123,707 1,123,707 Loans Receivable, Net

 FFEL Program 76,767 76,767 Loans Receivable, Net

 Other Credit Programs for Higher Education 2,982 2,982 Loans Receivable, Net

 Other Assets 2,256 41 Other Assets

 1,956 Cash and Other Monetary Assets

 8 Property, Plant, and Equipment, Net

 251 Accounts and Taxes Receivable, Net

Total Public 1,205,712 1,205,712 Total Non-Federal Assets

Total Assets $ 1,310,696 $ 1,310,696 Total Assets

LIABILITIES LIABILITIES

Intragovernmental: Federal:

 Debt

 Direct Loan Program $ 1,192,138 $ 1,192,138 Loans Payable

 FFEL Program 94,671 94,671 Loans Payable

 Other Credit Programs for Higher Education 2,196 2,183 Loans Payable

 13 Interest Payable - Loans and Not Otherwise Classified

Subsidy Due to Treasury General Fund 10,302 10,302 Liability to the General Fund of the U.S. Government

Other Intragovernmental Liabilities 2,686 2,639 Liability to the General Fund of the U.S. Government

 3 Advances from Others and Deferred Credits

 7 Benefit Program Contributions Payable

 37 Other Liabilities (Without Reciprocals)

Total Intragovernmental 1,301,993 1,301,993 Total Federal Liabilities

Public: Non-federal:

 Other Liabilities 12,213 3,000 Other Liabilities

 5,436 Loan Guarantee Liabilities

 3,765 Accounts Payable

 12 Federal Employee and Veteran Benefits Payable

Total Public 12,213 12,213 Total Non-Federal Liabilities

Total Liabilities $ 1,314,206 $ 1,314,206 Total Liabilities

NET POSITION NET POSITION

 Unexpended Appropriations $ 72,757 $ 72,756 Net Position - Funds Other Than Dedicated Collections

 1 Net Position - Funds from Dedicated Collections

 Cumulative Results of Operations (76,267) (76,269) Net Position - Funds Other Than Dedicated Collections

 2 Net Position - Funds from Dedicated Collections

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

Total Liabilities & Net Position $ 1,310,696 $ 1,310,696 Total Liabilities & Net Position
NOTES TO THE FINANCIAL STATEMENTS | FINANCIAL SECTION

FY 2019 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION 71

Reclassification of Statement of Net Cost to Line Items Used for the Government-wide Statement

of Net Cost for the Year Ending September 30, 2019

(Dollars in Millions)

FY 2019 Department Statement of Net Cost Line Items Used to Prepare FY 2019 Government-wide 

Statement of Net Cost

Financial Statement Line Amounts Amounts Reclassified Financial Statement Line

Total Program Gross Cost $ 191,639 $ 153,260 Non-Federal Gross Cost

 108 Benefit Program Costs

 37 Imputed Costs

 508 Buy/Sell Cost

 37,714 Borrowing and Other Interest Expense

 12 Other Expenses (Without Reciprocals)

 Total Program Gross Cost $ 191,639 $ 191,639 Department Total Gross Cost

Total Earned Revenue $ (36,910) $ (31,905) Non-Federal Earned Revenue

 (7) Buy/Sell Revenue (Exchange)

 (4,998) Borrowing and Other Interest Revenue (Exchange)

 Total Earned Revenue (36,910) (36,910) Department Total Earned Revenue

 Net Cost of Operations $ 154,729 $ 154,729 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, 2019 

(Dollars in Millions)

FY 2019 Department Statement of Changes in Net Position Line Items Used to Prepare FY 2019 Government-wide 

Statement of Operations and Changes in Net Position

Financial Statement Line Amounts Amounts Reclassified Financial Statement Line

Unexpended Appropriations 

 Beginning Balance $ 72,166 $ 72,116 Net Position, Beginning of Period (Net of GTAS Adjustment)

 Appropriations Received 122,058 118,101 

Appropriations Received as Adjusted (Rescissions and 

Other Adjustments)

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

 Appropriations Used (117,460) (117,460) Appropriations Used

 Unexpended Appropriations, Ending Balance $ 72,757 $ 72,757 

Cumulative Results of Operations

 Beginning Balance $ (23,360) $ (23,360) Net Position, Beginning of Period

 Appropriations Used 117,460 117,460 Appropriations Expended

 Nonexchange Revenue 15 15 

Collections Transferred Into a TAS Other Than the 

General Fund of the U.S. Government - Nonexchange

 Imputed Financing from Costs Absorbed by Others 37 37 Imputed Financing Sources

 Negative Subsidy Transfers, Downward Subsidy 

 Re-estimates, and Other (15,690) (12,506)

Non-Entity Collections Transferred to the General Fund 

of the U.S. Government

 (3,586)

Accrual for Non-Entity Amounts to be Collected and 

Transferred to the General Fund of the U.S. Government

 6 Other Taxes and Receipts

 396 Other Budgetary Financing Sources

 Net Cost of Operations (154,729) (154,729) Net Cost of Operations

 Cumulative Results of Operations, 

 Ending Balance $ (76,267) $ (76,267)

 Net Position $ (3,510) $ (3,510) Net Position, End of Period
FINANCIAL SECTION | REQUIRED SUPPLEMENTARY INFORMATION (UNAUDITED)

72 FY 2019 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) (Note 11) $ 15,378 $ 14,858 

Appropriations (Discretionary and Mandatory) 69,804 - 

Borrowing Authority (Discretionary and Mandatory) (Note 11) - 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 $ 40,085 

Distributed Offsetting Receipts (-) (Note 11) (12,145) - 

Agency Outlays, Net (Discretionary and Mandatory) (Notes 11 & 12) $ 57,251 $ 40,085 
REQUIRED SUPPLEMENTARY INFORMATION (UNAUDITED) | FINANCIAL SECTION

FY 2019 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION 73

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 $ 17 $ 116,636 $ 40,102 $ 156,738 

- - (128) - (12,273) - (12,273)

$ 23,123 $ 16,581 $ 7,408 $ 17 $ 104,363 $ 40,102 $ 144,465 
FINANCIAL SECTION | REQUIRED SUPPLEMENTARY INFORMATION (UNAUDITED)

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

United States Department of Education Combining Statement of Budgetary Resources 

For the Year Ended September 30, 2018

(Dollars in Millions)

(Unaudited)

Federal Student Aid 

Budgetary

Non-Budgetary Credit 

Reform Financing 

Accounts

BUDGETARY RESOURCES

Unobligated Balance from Prior Year Budget Authority (Net) $ 12,015 $ 15,859 

Appropriations (Discretionary and Mandatory) 48,627 - 

Borrowing Authority (Discretionary and Mandatory) (Note 11) - 167,543 

Spending Authority from Offsetting Collections (Discretionary and Mandatory) 393 61,439 

Total Budgetary Resources $ 61,035 $ 244,841 

STATUS OF BUDGETARY RESOURCES

New Obligations and Upward Adjustments (Total) $ 46,002 $ 221,384 

Unobligated Balance, End of Year:

Apportioned, Unexpired Accounts 12,290 - 

Unapportioned, Unexpired Accounts 2,168 23,457 

Unexpired Unobligated Balance, End of Year $ 14,458 $ 23,457 

Expired Unobligated Balance, End of Year 575 - 

Unobligated Balance, End of Year (Total) $ 15,033 $ 23,457 

Total Status of Budgetary Resources $ 61,035 $ 244,841 

OUTLAYS, NET

Outlays, Net (Discretionary and Mandatory) $ 45,918 $ 83,059 

Distributed Offsetting Receipts (-) (Note 11) (27,321) - 

Agency Outlays, Net (Discretionary and Mandatory) (Notes 11 & 12) $ 18,597 $ 83,059 
REQUIRED SUPPLEMENTARY INFORMATION (UNAUDITED) | FINANCIAL SECTION

FY 2019 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION 75

Office of Elementary and 

Secondary Education

Office of Special Education 

and Rehabilitative Services Other Combined

Total

Budgetary Budgetary Budgetary

Non-Budgetary 

Credit Reform 

Financing 

Accounts

Budgetary

Non-Budgetary 

Credit Reform 

Financing Accounts

$ 419 $ 306 $ 546 $ 4 $ 13,286 $ 15,863 $ 29,149 

26,082 16,954 7,678 - 99,341 - 99,341 

- - - 354 - 167,897 167,897 

(7) - 65 227 451 61,666 62,117 

$ 26,494 $ 17,260 $ 8,289 $ 585 $ 113,078 $ 245,426 $ 358,504 

$ 24,617 $ 16,959 $ 7,650 $ 314 $ 95,228 $ 221,698 $ 316,926 

1,828 16 361 - 14,495 - 14,495 

- - 6 271 2,174 23,728 25,902 

$ 1,828 $ 16 $ 367 $ 271 $ 16,669 $ 23,728 $ 40,397 

49 285 272 - 1,181 - 1,181 

$ 1,877 $ 301 $ 639 $ 271 $ 17,850 $ 23,728 $ 41,578 

$ 26,494 $ 17,260 $ 8,289 $ 585 $ 113,078 $ 245,426 $ 358,504 

$ 21,536 $ 16,318 $ 7,308 $ 41 $ 91,080 $ 83,100 $ 174,180 

- - (49) - (27,370) - (27,370)

$ 21,536 $ 16,318 $ 7,259 $ 41 $ 63,710 $ 83,100 $ 146,810 
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 
REQUIRED SUPPLEMENTARY STEWARDSHIP INFORMATION (UNAUDITED) | FINANCIAL SECTION

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 
FINANCIAL SECTION | REQUIRED SUPPLEMENTARY STEWARDSHIP INFORMATION (UNAUDITED)

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)
REQUIRED SUPPLEMENTARY STEWARDSHIP INFORMATION (UNAUDITED) | FINANCIAL SECTION

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. 

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

REPORT OF THE INDEPENDENT AUDITORS
REPORT OF INDEPENDENT AUDITORS | FINANCIAL SECTION

FY 2019 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION 81
FINANCIAL SECTION | REPORT OF INDEPENDENT AUDITORS

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

KPMG LLP is a Delaware limited liability partnership and the U.S. member 

firm of the KPMG network of independent member firms affiliated with 

KPMG International Cooperative (“KPMG International”), a Swiss entity. 

KPMG LLP

Suite 12000

1801 K Street, NW

Washington, DC 20006
REPORT OF INDEPENDENT AUDITORS | FINANCIAL SECTION

FY 2019 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION 83
FINANCIAL SECTION | REPORT OF INDEPENDENT AUDITORS

84 FY 2019 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION
REPORT OF INDEPENDENT AUDITORS | FINANCIAL SECTION

FY 2019 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION 85
FINANCIAL SECTION | REPORT OF INDEPENDENT AUDITORS

86 FY 2019 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION
REPORT OF INDEPENDENT AUDITORS | FINANCIAL SECTION

FY 2019 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION 87
FINANCIAL SECTION | REPORT OF INDEPENDENT AUDITORS

88 FY 2019 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION
REPORT OF INDEPENDENT AUDITORS | FINANCIAL SECTION

FY 2019 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION 89
FINANCIAL SECTION | REPORT OF INDEPENDENT AUDITORS

90 FY 2019 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION
REPORT OF INDEPENDENT AUDITORS | FINANCIAL SECTION

FY 2019 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION 91
FINANCIAL SECTION | REPORT OF INDEPENDENT AUDITORS

92 FY 2019 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION
REPORT OF INDEPENDENT AUDITORS | FINANCIAL SECTION

FY 2019 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION 93
This page intentionally left blank.
OTHER

INFORMATION
This page intentionally left blank.
FY 2019 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION 97

FRAUD REDUCTION REPORT

This section summarizes the Department’s efforts to 

comply with the Fraud Reduction and Data Analytics Act 

of 2015 (FRDAA) and details fraud reduction initiatives 

undertaken in FY 2019.

REDUCE THE FOOTPRINT

This section summarizes the Department’s efforts to 

comply with Office of Management and Budget (OMB) 

Management Procedures Memorandum-12-12, Promoting 

Efficient Spending to Support Agency Operations and OMB 

Management Procedures Memorandum 2015-01, the 

Reduce the Footprint policy implementing guidance. 

That guidance directs agencies to reduce the total square 

footage of their domestic office and warehouse inventory 

compared to an FY 2015 baseline.

CIVIL MONETARY PENALTY ADJUSTMENT 

FOR INFLATION

This section reports on the Department’s annual inflation 

adjustments to civil monetary penalties as required 

under the Federal Civil Penalties Inflation Adjustment Act 

Improvements Act of 2015.

The Other Information section includes:

OFFICE OF INSPECTOR 

GENERAL’S (OIG) MANAGEMENT AND 

PERFORMANCE CHALLENGES

OIG’s Management and Performance Challenges Report 

provides a summary of what the OIG believes are the 

Department’s biggest challenges for FY 2020. The OIG 

identified the following four challenges: (1) Improper 

Payments, (2) Information Technology Security, (3) 

Oversight and Monitoring, and (4) Data Quality and 

Reporting. The full report is available at the OIG website.

SUMMARY OF FINANCIAL STATEMENT AUDIT 

AND MANAGEMENT ASSURANCES

The Summary of Financial Statement Audit and 

Management Assurances provides information about the 

material weaknesses reported by the agency or through the 

audit process.

PAYMENT INTEGRITY

This section summarizes the Department’s efforts to 

maintain payment integrity and to develop effective 

controls designed to prevent, detect, and recover improper 

payments. It also includes information regarding the 

Department’s high-risk programs.

ABOUT THE OTHER INFORMATION SECTION
98 FY 2019 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION

OTHER INFORMATION | MEMORANDUM FROM THE OFFICE OF INSPECTOR GENERAL
FY 2019 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION 99

OFFICE OF INSPECTOR GENERAL’S (OIG) MANAGEMENT 

AND PERFORMANCE CHALLENGES FOR FISCAL 

YEAR 2020

MANAGEMENT CHALLENGE 1—

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 Improper Payments Elimination and Recovery Act 

of 2010 (IPERA) 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. 

IPERA 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 IPERA, 

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 high-priority 

programs, which are subject to greater levels of oversight. 

As shown in Figure 15, annual outlays for these two 

programs were about $123 billion from FY 2016 through 

FY 2018. In its FY 2018 Agency Financial Report, the 

Department reported improper payments of $2.3 billion 

(8.15 percent of total outlays) for the Pell program and 

$3.8 billion (3.99 percent of total outlays) for the Direct 

Loan program using an OMB-approved nonstatistical 

sampling and estimation methodology.

Source: U.S. Department of Education Agency Financial Reports (FY 2016–

FY 2018)

The OIG’s recent statutory work shows that the 

Department has made improvements towards meeting 

related requirements. However, as shown in Table 3, our 

audits have shown that the Department faces challenges to 

consistently meet key IPERA requirements.
100 FY 2019 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION

OTHER INFORMATION | OFFICE OF INSPECTOR GENERAL’S MANAGEMENT CHALLENGES FOR FY 2020

agencies (LEAs). Our semiannual reports to Congress 

from April 1, 2016, through March 31, 2019, included 

more than $712 million in questioned costs from audit 

activity and more than $84 million restitution payments 

from investigative activity. These examples demonstrate 

there may be other potential opportunities for the 

Department to identify and prevent improper payments.

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 a required risk 

assessment of the Department’s purchase card 

program and, if deemed necessary, conduct an audit of 

Department purchase card transactions.

Progress in Meeting the Challenge

The Department stated that it implemented a statistically 

valid improper payment estimation methodology in FY 

2019 that addressed the acknowledged limitations of 

the prior nonstatistically valid estimation methodology 

for both the Pell and Direct Loan programs. The 

methodology is based on a larger, random sample of 

the complete population of over 5,700 schools and uses 

data from the compliance audits performed by external 

auditors, as opposed to the prior methodology that used 

a smaller, nonstatistical sample of a subset of schools 

selected for program reviews. The Department noted 

that the new sampling methodology exceeded OMB’s 

precision requirements for estimates of the percentage of 

improper payments.

According to the Department, this methodology improves 

the accuracy of the improper payment estimates allowing 

for more precise root cause analyses to improve corrective 

actions and improve the effectiveness of correction action 

plans to mitigate identified root causes. The Department 

further stated that using the new methodology has resulted 

in significantly lower improper payment estimates for the 

Pell Grant and Direct Loan Programs. 

According to the Department, it remains committed to 

maintaining the integrity of payments to ensure that the 

billions entrusted to it reach intended recipients in the 

right amount and for the right purpose. To accomplish 

this, the Department stated it establishes policies, business 

processes, and controls over key payment activities, 

to include those pertaining to payment data quality, 

cash management, banking information, and financial 

reports. The Department noted that payment integrity 

includes robust controls designed to prevent, detect, and 

While our most recent audit concluded that the 

Department complied with IPERA for FY 2018, we found 

that 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.

In FY 2019, the Department implemented significant 

changes to its reporting on improper payments; 

specifically, it introduced new improper payment 

estimation methodologies for the Pell and Direct Loan 

programs and began estimating improper payments for 

two additional programs. Before FY 2019, FSA used 

OMB-approved nonstatistical sampling and estimation 

methodologies for its Pell and Direct Loan programs. 

Additionally, for FY 2019, the Immediate Aid to 

Restart School Operations Program and the Temporary 

Emergency Impact Aid for Displaced Students Program 

were designated as susceptible to significant improper 

payments. The Department plans to use statistically valid 

methodologies to estimate improper payments for all 

four programs. While the implementation of statistically 

valid estimation methodologies should improve the 

accuracy and reliability of the Department’s improper 

payment estimates, we have not yet reviewed these new 

estimates and our past audits identified weaknesses in 

the Department’s design and implementation of the 

methodologies used to estimate improper payments. 

Other audit work has identified potential improper 

payments in the student financial assistance programs and 

by State educational agencies (SEAs) and local educational 

FY

Met Reduction 

Target for Direct 

Loan Program

Met Reduction 

Target for Pell 

Program

Accurate and 

Complete 

Improper 

Payments 

Estimation 

Methodology

2014 No Yes No

2015 No Yes No

2016 No No Yes

2017 Yes No Yes

2018 Yes Yes Yes

Table 3. Results of Recent OIG Statutorily 

Required Improper Payment Audits
FY 2019 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION 101

OFFICE OF INSPECTOR GENERAL’S MANAGEMENT CHALLENGES FOR FY 2020 | OTHER INFORMATION

review and reconsideration. We support the Department’s 

efforts to pursue legislation that would allow it access 

to taxpayer information in order to reduce improper 

payments. 

MANAGEMENT CHALLENGE 2—INFORMATION 

TECHNOLOGY 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 16, the 

Department’s total spending for information technology 

investments for FY 2019 was about $731 million and may 

exceed $760 million in FY 2020. The estimated FY 2020 

information technology spending is an increase of about 

13.8 percent from FY 2017 levels. 

recover improper payments. In designing controls, the 

Department strives to strike the right balance between 

making timely and accurate payments and ensuring 

the 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 noted it must rely heavily 

on controls established by external entities that receive 

Department payments, including Federal, State, and 

private organizations and institutions, because those 

entities further distribute funds that they receive from the 

Department to subordinate organizations and individuals. 

Because these “third party” controls are outside of the 

Department’s operational authority, they present a higher 

risk than the payments made directly by the Department, 

as evidenced by the Department’s root cause analysis.

In addition, the Department stated that it is coordinating 

with the Treasury Department and OMB to pursue 

legislation that would authorize the Internal Revenue 

Service to disclose tax return information directly 

to the Department for the purpose of administering 

programs authorized by Title IV of the Higher Education 

Act of 1965, through which the Department awarded 

more than $122 billion in FY 2019. Several bills have 

been introduced in Congress that would amend the 

Internal Revenue Code to allow the Internal Revenue 

Service to disclose tax return information to authorized 

Department officials for purposes of determining 

eligibility for, and amount of, Federal student financial 

aid. The Department expects the exemption would allow 

for significant simplification of and improvement to the 

administration of Title IV programs, including reduction 

in improper payments.

What the Department Needs to Do 

This year marks a potential turning point in the 

Department’s Improper Payments Management Challenge. 

The Department’s development of a statistically valid 

estimation methodology is intended to allow for a more 

robust and accurate estimate of improper payments. The 

Department’s draft estimates using this measure indicate 

that improper payments are much lower than what 

was estimated using its previous alternative approaches. 

However, the OIG has not assessed the Department’s new 

estimation methodology or the accuracy and validity of 

the Department’s new estimates. The OIG will review the 

accuracy and validity of these measurements as part of the 

FY 2019 IPERA audit. Depending on whether the OIG 

finds issues with the new estimation methodology and 

estimates, this Management Challenge Area is subject to 

Source: Information Technology Agency Summary, ITDashboard.gov

Through the Office of the Chief Information Officer 

(OCIO), the Department monitors and evaluates the 

contractor-provided information technology 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 

information technology investments, and leading 

change to improve the efficiency and effectiveness of 

the Department’s operations. In addition to OCIO, 

Federal Student Aid (FSA) has its own chief information 
102 FY 2019 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION

OTHER INFORMATION | OFFICE OF INSPECTOR GENERAL’S MANAGEMENT CHALLENGES FOR FY 2020

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 2018 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) removing access of terminated users to the Department’s 

network (identity and access management); (4) protecting personally identifiable information (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 consistently identified information technology control as a significant deficiency. While the independent 

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 information technology 

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, information technology security audits and financial statement audits have 

identified security controls that need improvement to adequately protect the Department’s systems and data. 

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 4, 

our FY 2017 and FY 2018 FISMA audits included findings and repeat 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 their related metric domains. Both audits concluded that the Department and FSA were 

not effective in any of the five security functions—Identify, Protect, Detect, Respond, and Recover. 

Identify Protect Detect Respond Recover

FY Risk 

Management

Contractor 

Systems

Configuration 

Management

Identity and 

Access 

Management

Data 

Protection 

and Privacy

Security 

and Privacy 

Training

Information 

Security 

Continuous 

Monitoring

Incident 

Response

Contingency 

Planning

2018 Repeat 

Finding1 N/A2 Repeat 

Finding

Repeat 

Finding Finding Repeat Finding

Repeat 

Finding

Repeat 

Finding

Repeat 

Finding

2017 Finding Finding Finding Finding N/A3 Finding Repeat 

Finding

Repeat 

Finding Finding

Table 4. Results of OIG FISMA Audits—Cybersecurity Framework Security Functions and Metric Domains 

with Findings and Repeat Findings

1 Repeat findings are current report findings with the same or similar conditions contained in prior OIG reports.

2 Contractor systems was not a metric domain for the FY 2018 FISMA audit.

3 Data protection and privacy was not a metric domain for the FY 2018 FISMA audit.
FY 2019 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION 103

OFFICE OF INSPECTOR GENERAL’S MANAGEMENT CHALLENGES FOR FY 2020 | OTHER INFORMATION

Cybersecurity Framework Risk Scorecards that serve as a 

tool to prioritize and mitigate risks to the Department’s 

information systems. The Department added that the 

Cybersecurity Framework Risk Scorecard was enhanced 

during FY 2019 to allow for automated risk scoring, 

improved accessibility, more granular and user-friendly 

data filtering capabilities, and enhanced data modeling. 

The Department also stated that it had increased 

communication through targeted briefings for specific 

stakeholders on subjects that included Cybersecurity 

Framework Risk Scorecard results, phishing exercises, 

and current cyber threats. The Department believed that 

these processes enabled it to better prioritize resources 

to resolve identified vulnerabilities. The Department 

reported that this prioritization led to the closure of 

all past due Plans of Action and Milestones for the 

Department’s High Value Assets. The Department also 

noted that it had reduced total Plans of Action and 

Milestones by more than 83 percent and delayed Plans of 

Action and Milestones by 95 percent.

The Department stated that it had made substantial 

progress in the development of an enterprise Identity 

Credential and Access Management solution. The 

Department expects this solution will provide the ability 

to centrally and securely manage enterprise identity, user 

accounts, and user’s roles within and across Department 

systems and applications. The Department stated that 

it plans to deploy the Identity Credential and Access 

Management solution into the Department’s production 

environment in FY 2020.

The Department noted that it has worked with the 

Department of Homeland Security to mature its 

Continuous Diagnostics and Mitigation implementation 

by incorporating additional program elements of the 

Dynamic and Evolving Federal Enterprise Network 

Defense series of task orders. The Department reported 

that it also engaged with non-government organizations 

to expand and improve information sharing and 

communication to protect our nation’s students 

from cyber threats. The Department believes it has 

opportunities to contribute operationally, tactically, and 

strategically to strengthen cybersecurity protections within 

the educational community. For example, in FY 2019, 

the Department was able to leverage the relationship 

with the education community to quickly collaborate 

on a cybersecurity alert and enlist its assistance with 

promulgating the message. 

public accountants noted that the Department and FSA 

management demonstrated progress in addressing some 

of the deficiencies, they also generally concluded that 

ineffective information technology 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 student’s log 

in credentials and then using this information to access 

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 information technology 

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 successfully completed 

an information technology migration that transitioned 

core services and capabilities to new service providers 

during FY 2019. The Department stated this included 

the deployment of new tools that make the Department’s 

information technology environment more secure. 

The Department cited specific improvements that 

included improved spam filtering, antiphishing, and 

geo-blocking capabilities.

The Department also noted that it revised its Information 

Security Program’s policy framework to include a new 

review and approval process for cybersecurity policies, 

standards, and instructions. The Department believed that 

multiple new features, including automated workflows and 

defined review timelines, will improve the Department’s 

ability to provide critical time sensitive guidance to 

Department information technology systems stakeholders.

The Department stated that it made significant progress 

to maintain an accurate system inventory, communicate 

the impact of identified cybersecurity risks, and actively 

manage its Plans of Actions and Milestones.3

 As part of 

this ongoing work, the Department continued to publish 

3 Plans of Action and Milestones are management tools for tracking the mitigation 

of cyber security program and system level findings and weaknesses.
104 FY 2019 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION

OTHER INFORMATION | OFFICE OF INSPECTOR GENERAL’S MANAGEMENT CHALLENGES FOR FY 2020

management strategy; (2) FSA has not fully implemented 

a process for identifying, managing, or tracking activity 

of privileged accounts; and (3) the Department did 

not remove terminated users from its network. For 

information security continuous monitoring, stakeholders 

are unable to perform monitoring functions in the Cyber 

Security Assessment and Management tool. 

Our FISMA audits will continue to assess the 

Department’s efforts, and this will remain a management 

challenge until our work corroborates that the 

Department’s system of controls achieves expected 

outcomes. To that end, the Department needs to 

effectively address information technology security 

deficiencies, continue to provide mitigating controls for 

vulnerabilities, and implement planned actions to correct 

system weaknesses. 

MANAGEMENT CHALLENGE 3—OVERSIGHT AND 

MONITORING

Effective oversight and monitoring of the Department’s 

programs and operations are critical to ensure that 

funds are used for the purposes intended and programs 

are achieving goals and objectives. This is a significant 

responsibility for the Department given the numbers of 

different entities and programs requiring monitoring and 

oversight, the amount of funding that flows through the 

Department, and the impact that ineffective monitoring 

could have on stakeholders. Two subareas are included in 

this management challenge: student financial assistance 

programs and grantees. 

Oversight and Monitoring—Student Financial 

Assistance Programs 

FSA, as 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 also oversees 

about 6,000 postsecondary institutions that participate 

in the Federal student aid programs.

Finally, the Department stated that it has managed a 

significant amount of transition risk and made significant 

progress during FY 2019 to strengthen the Department’s 

information security program. It believed that the 

infrastructure, processes, and tools deployed in FY 2019 

created an environment for further growth in maturing its 

programs during FY 2020.

What the Department Needs to Do

The Department relies on information technology 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 information technology 

security program through our annual FISMA audits, 

financial statement audits, and management challenges 

reports. While the Department reported significant 

progress towards addressing long-standing concerns, 

managing information technology 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 addressing these 

weaknesses and continuing to place a priority on 

improving its information technology security 

program. Our FISMA report for FY 2018 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 information technology 

security controls, particularly in the areas of configuration 

management, identity and access management, and 

information security continuous monitoring. Within 

configuration management, we identified weaknesses 

where (1) the Department is not consistently ensuring 

the use of secure connections; (2) the Department 

and FSA continued to use outdated secure connection 

protocols; and (3) FSA is using unsupported operating 

systems, databases, and applications in its production 

environment. Within identity and access management, 

we identified weaknesses where (1) the Department has 

not fully implemented its identity, credential, and access 
FY 2019 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION 105

OFFICE OF INSPECTOR GENERAL’S MANAGEMENT CHALLENGES FOR FY 2020 | OTHER INFORMATION

In FY 2018, FSA performed these functions with an administrative budget of $1.5 billion and 1,257 employees, along with 

contractors that provide outsourced business operations. As shown in Figure 17, FSA delivered an average of about $126.2 

billion in Federal student aid to more than 12.7 million students each year from FY 2014 to FY 2018.

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. 

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 OIG’s audit related work 

within this area has covered a wide range of activities, including the following. 

Source: U.S. Department of Education Agency Financial Reports FY 2014–FY 2018
106 FY 2019 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION

OTHER INFORMATION | OFFICE OF INSPECTOR GENERAL’S MANAGEMENT CHALLENGES FOR FY 2020

The OIG’s investigative work continues to identify fraud, waste, and abuse of student financial assistance program funds. 

This includes the following areas. 

Activities Reviewed Review Results

Accreditation We found that the Department’s process for reviewing agency petitions for recognition did not provide reasonable 

assurance that Department recognized only agencies meeting Federal criteria. We also reported that OPE’s postrecognition 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 

information that 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 and ensured that all contractor employees had appropriate security screening.

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.

School Closures We found that FSA could enhance its policies and procedures to help ensure that it takes timely and appropriate action to 

resolve schools’ composite score appeals. FSA should also implement controls to prevent schools from manipulating their 

composite scores to avoid sanctions or increased oversight.

School Compliance with 

the Higher Education 

Act and Tile IV 

Regulations

We found that a school became ineligible to participate in the Title IV programs because it did not comply with the 

institutional eligibility requirement that limits the percentage of regular students who may enroll in correspondence courses. 

We also found that the school did not always comply with the requirements governing disbursements or return of Title IV 

aid. 

Verification of Free 

Application for Federal 

Student Aid (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 five schools covered by these audits, two did not always complete verification of applicant data in 

accordance with Federal requirements, and one did not always accurately report verification results to FSA.

Area Example of Related Investigative Activity

Institutions An OIG investigation identified an instance where a school 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.
FY 2019 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION 107

OFFICE OF INSPECTOR GENERAL’S MANAGEMENT CHALLENGES FOR FY 2020 | OTHER INFORMATION

performance, particularly from loan servicers. Under Next 

Gen FSA, FSA plans to take an enhanced approach to 

vendor oversight. 

Oversight and Monitoring of Schools 

To improve its oversight and monitoring of schools 

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 schools’ disbursements of Pell Grants 

and Direct Loans. FSA further stated that it plans to 

deploy an analysis model, as early as the end of FY 2020, 

to continually monitor partner data and performance. 

FSA noted that this will improve its ability to identify 

schools most at-risk and allow it to more effectively use 

oversight and monitoring resources by informing and 

prioritizing support for schools. FSA also stated that it has 

implemented improvements in response to specific issues 

within this area that were identified by the OIG. 

Oversight and Monitoring of Accrediting Agencies 

According to the Department, over the course of the 

next several years, it will implement additional riskbased procedures to evaluate an accrediting agency’s 

ability to effectively determine and measure schools’ 

compliance with accreditation standards. Additionally, 

the Department will develop a risk-based methodology to 

identify agencies at higher risk of failing to meet statutory 

and regulatory requirements and additional procedures to 

prioritize oversight of those higher risk agencies. 

Oversight & Monitoring of Applicants, Aid 

Recipients, and Borrowers 

FSA stated that it has implemented an improved model 

for verification selection and evaluation of data elements 

from the Federal student aid application. According to 

FSA, this allows it to better identify applicants for which 

errors will result in a change in their Federal aid award, 

potentially reducing improper payments. FSA stated that 

it continually seeks to improve its verification process for 

the Federal student aid application and is seeking costeffective options to verify borrower income and family 

size reporting when borrowers apply for income driven 

repayment plans. The Department has worked with the 

Treasury Department and OMB to propose legislation for 

an exemption to the Internal Revenue Code that would 

allow FSA to directly access tax return information. The 

exemption would greatly reduce verification burden at 

the time of application for financial aid and would enable 

FSA to verify borrower’s information when applying 

for income-driven repayment plans. Additionally, FSA 

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, 

involvement in and oversight of activities related to the 

sale and operations of a chain of career colleges, and 

controls over institutional processes for completing 

verification and reporting results. Additional planned 

projects for FY 2020 include audits of schools’ 

compliance with career pathway programs and ability 

to benefit provisions, schools’ use of online program 

management providers, 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 they continue 

to improve the risk-based oversight and monitoring 

of the student financial assistance programs, including 

the oversight and monitoring of servicers and vendors, 

schools, accrediting agencies, and the provision of aid to 

program participants. 

Oversight and Monitoring of Contractors, Including 

Servicers and Vendors 

FSA stated that its current oversight and monitoring 

environment includes policies and procedures that 

work to ensure high performance from contractors 

and to prevent fraud, waste and abuse. FSA added that 

it is focused on enforcing high-quality loan servicer 

performance to improve the value of products and 

services that FSA provides. According to FSA, its Chief 

Operating Officer has conducted onsite visits with all 

loan servicers to emphasize expectations for consistent 

and high-quality service. FSA stated that it conducts daily 

monitoring and oversight of all loan servicers, including 

regularly monitoring all servicers’ telephone interactions 

with borrowers. FSA stated that it compiles customer 

satisfaction survey scores and default prevention statistics 

for each Federal loan servicer every 6 months to determine 

each servicer’s allocation of loan volume. FSA also noted 

that it has implemented improvements in response to 

specific issues identified within this area by the OIG. 

According to FSA, because it continually strives to 

improve oversight and monitoring of contractors, it has 

launched the Next Gen FSA initiative. SFA stated that 

a key element of Next Gen FSA will be restructuring 

systems, processes, and contracts to introduce even greater 

accountability based on more target standards, metrics, 

and incentives and disincentives to drive outstanding 
108 FY 2019 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION

OTHER INFORMATION | OFFICE OF INSPECTOR GENERAL’S MANAGEMENT CHALLENGES FOR FY 2020

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 

18,300 public school districts and over 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. Under the President’s FY 

2020 budget request, this program would deliver more 

than $15.8 billion for local programs that provide extra 

academic support to help about 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 

would provide more than $12.3 billion 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. 

anticipates undertaking a 12-month pilot project to assess 

the incidence of error or fraud in determining monthly 

payment amounts under income-driven repayment 

plans. Based on the results of the pilot project, FSA will 

determine the additional procedures needed, if any, to 

review and verify income for borrowers reporting zero 

income on income-driven repayment plan applications 

and procedures to review and substantiate borrowers’ 

reported family size. 

FSA stated that it implemented a case management 

platform to improve the processing of OIG distance 

education fraud ring referrals during FY 2019. FSA stated 

that this platform allows it to more easily obtain and 

analyze the data from the referrals to better detect and 

prevent fraud. 

What the Department Needs to Do

Through the Next Gen FSA initiative, FSA seeks to create 

an improved, world-class customer experience for FSA’s 

millions of customers. FSA envisions that this initiative 

will create a more agile, flexible model that will streamline 

FSA’s existing operations, improve the integrity of the Title 

IV programs, and transform how it provides oversight 

of organizations that support its mission. The Next Gen 

FSA initiative involves a multistage procurement process 

intended to identify vendors most capable of supporting 

the implementation. While the Next Gen FSA 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 in its early phases of 

implementation. 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 clearly demonstrate 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, with a particular focus on FSA’s 

implementation of its Next Gen initiative. This area 

remains a management challenge given our continued 

findings in this area. 
FY 2019 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION 109

OFFICE OF INSPECTOR GENERAL’S MANAGEMENT CHALLENGES FOR FY 2020 | OTHER INFORMATION

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. Our work included audits within the following areas.

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 following 

programs and activities.

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.

Disaster Recovery We have issued two reports relating to disaster recovery funding authorized under the Bipartisan Budget Act of 2018. 

We identified weaknesses at two SEAs in areas that included programmatic monitoring processes, internal audit division 

staffing, processes to assess fraud risks, internal controls over procurement, and segregation of duties.

McKinney-Vento 

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.

Statewide Longitudinal 

Data Systems

We found that an SEA’s Statewide Longitudinal Data System and data warehouse did not meet minimum security 

requirements. This increased the risk of breaches that could compromise any stored personally identifiable information. We 

identified similar issues in earlier audits of two other SEAs’ internal controls to protect personally identifiable information in 

their Statewide Longitudinal Data Systems. 

Single Audit Resolution We issued a management information report to highlight areas of concern related to work performed in three States. 

The report included suggested actions that the Department should take to improve SEA oversight of the LEA single audit 

resolution process.

Area Reviewed Review Results

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.

Statewide Longitudinal 

Data Systems

We found that the Department lacked controls to ensure that grantees followed grant requirements regarding the protection 

of personally identifiable information in their Statewide Longitudinal Data Systems. This included a lack of monitoring 

to ensure that grantees followed their State laws and regulations regarding IT system security to prevent and detect 

unauthorized access and disclosure of personally identifiable information.
110 FY 2019 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION

OTHER INFORMATION | OFFICE OF INSPECTOR GENERAL’S MANAGEMENT CHALLENGES FOR FY 2020

Ongoing work in this area includes reviews of the Charter School Program Grants for Replication and Expansion of HighQuality Charter Schools, Immediate Aid to Restart School Operations and Temporary Emergency Impact Aid for Displaced 

Students programs, and oversight of virtual charter schools’ implementation of selected requirements under IDEA. Planned 

projects for FY 2020 include work on statewide accountability systems under the Every Student Succeeds Act, controls over 

Student Support and Academic Enrichment Program grants, and the oversight and implementation of requirements related 

to annual determinations for LEAs under IDEA.

Progress in Meeting the Challenge

The Department stated that it focused on several key milestones in FY 2019 to improve grantee oversight and monitoring 

at the SEA and LEA levels and to improve oversight and monitoring of grant programs. The Department reported 

accomplishments in grantee oversight and monitoring across multiple offices. These efforts included actions to implement 

risk-based oversight and monitoring and improving processes to provide timely and effective guidance and technical 

assistance. For example, according to the Department, the Risk Management Services division continued its long-standing 

efforts to identify and mitigate risk across the Department’s formula and discretionary grant programs. In addition, the 

Department reported it took actions to monitor the timely publishing of State report cards and also took actions across 

multiple offices to identify employee skill gaps in grants administration and then to develop strategies to close those gaps. 

The Department also noted that the Office of Special Education and Rehabilitative Services revised the Differentiated 

Monitoring and Support component of its accountability system, Results Driven Accountability, in order to improve its 

focus and efficiency before the release of the OIG’s audit report. It also has developed written policies and procedures that 

further address the OIG’s recommendations. 

The Department stated that the Institute of Education Sciences has provided more effective guidance and technical 

assistance to grantees on privacy issues related to their Statewide Longitudinal Data Systems in several ways that resulted 

in (1) expanded technical assistance from information security and data privacy experts to help States address the technical 

issues raised in the OIG’s audit report; and (2) revised application requirements for new Statewide Longitudinal Data 

Systems awards to provide information on compliance with applicable Federal and State data privacy and information 

technology security requirements up front. These requirements allow applicants to request infrastructure support to meet 

security requirements. The Institute of Education Sciences is also collecting and maintaining data security and privacy 

documentation (policy and processes) as part of its grantee site visit preparation process.

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 periodically assess the results of these efforts, identify the 

most promising approaches, and determine whether these best practices can be effectively applied in other program offices. 

The OIG’s investigative work continues to identify fraud relating to Federal education grant programs. This includes the 

following areas.

Subject Area Example of Related Investigative Activity

Contractors OIG investigations identified instances were 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 investigation identified instances where charter school officials improperly awarded a no-bid contract for equipment on 

campus that had not been constructed in exchange for cash payments, embezzled funds intended for the operation of a 

charter school, and used school credit cards to purchase items for personal use.
FY 2019 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION 111

OFFICE OF INSPECTOR GENERAL’S MANAGEMENT CHALLENGES FOR FY 2020 | OTHER INFORMATION

The Department should also continue its efforts to offer common training, encourage effective 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. Given the flexibilities 

offered by the Every Student Succeeds Act, the Department needs to ensure that its monitoring approaches support State and 

local efforts while providing effective oversight of financial stewardship and ensuring progress towards positive program 

outcomes. Further, 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 C.F.R. 200, Subpart 

F, given its generally limited staffing in relation to the amount of Federal funding that it oversees. 

MANAGEMENT CHALLENGE 4—DATA QUALITY AND REPORTING 

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 18,300 public school districts and 98,000 public schools; over 7,300 

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. 

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.

Area Reviewed Review Results

Adult Education We found that an SEA used incomplete data obtained from two educational regions, two adult education centers, and a 

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. 

Graduation Rates In a series of three reports on SEAs’ processes to calculate and report graduation rates, we concluded that internal 

controls at each of the three SEAs reviewed did not provide reasonable assurance that reported graduation rates were 

accurate and complete during our audit period. 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.

McKinney-Vento 

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. 

Ongoing work in this area includes multiple reviews of the accuracy and completeness of displaced student count data 

provided by SEAs to the Department along with multiple reviews of the accuracy and completeness of campus crime 

statistics provided to the Department under the Clery Act. Planned projects for FY 2020 include work to assess the 

effectiveness of the Department’s processes to assist State Vocational Rehabilitation Program grantees in improving their 

financial reporting.
112 FY 2019 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION

OTHER INFORMATION | OFFICE OF INSPECTOR GENERAL’S MANAGEMENT CHALLENGES FOR FY 2020

data verification process in FY 2019 by expanding data 

quality checks, including at the LEA level, and increasing 

standardization. 

According to the Department, the EDFacts Data 

Governance Board consolidated all business rules used 

within the EDFacts system into a Business Rules Single 

Inventory document available to States to support their 

efforts to build internal controls. The Department stated it 

also continues to improve coordination and collaboration 

among offices using submitted data on graduation rates, 

the subject of multiple recent OIG audit reports. The 

Department noted that this has resulted in consistent 

feedback back to States in a more timely fashion, and has 

helped identify questionable data resulting in follow up 

with State data submitters. The Department reported that 

during this past year, the EDFacts data governance process 

resulted in 37 States receiving a total of 300 data quality 

questions or comments from stakeholder program offices 

related to Adjusted Cohort Graduation Rates. According 

to the Department, all identified issues were resolved 

through resubmission or explained through data quality 

comments from the State explaining the observed issue.

What the Department Needs to Do

The Department’s efforts to improve the overall quality 

of data that it collects and reports remain important 

to its program management and reporting. While the 

Department has made progress in strengthening both 

grantees’ data quality processes and its own internal 

reviews of grantee data, findings from our recent audit 

reports show that this area remains an ongoing challenge. 

The Department’s efforts to promote strong data 

management practices across its program offices, which 

include building on data verification processes by 

expanding data quality checks at all levels and increasing 

standardization, are important steps to improving data 

quality. In addition, efforts to perform outreach to States 

and other entities that report data to the Department are 

critical to reinforcing the importance of good data quality 

practices. The Department should continue to monitor 

the quality of the data it receives, work to implement 

effective controls to address known weaknesses, and take 

steps to ensure that strong data management practices are 

implemented across the Department as well as by entities 

that submit data to the Department. The Department 

should also continue its implementation of requirements 

under the Evidence Act, the Information Quality Act, and 

other laws and regulations whose principal aims include 

improving data quality and reporting.

Progress in Meeting the Challenge

The Department noted that under Goal 3 of its Strategic 

Plan, it is committed to strengthening the quality, 

accessibility, and use of education data. In response 

to additional authorities granted by the President and 

Congress to manage education data as a strategic asset, 

the Department stated it 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. Additionally, the Department 

reported that in response to Evidence Act requirements, 

it has named a chief data officer, statistical official, and 

evaluation officer, each of whom has responsibility for 

data quality within their own sphere of authority. Further, 

to facilitate coordination and in adherence with OMB 

guidance, the Department stated it has established an 

agency-wide Data Governance Board which will be 

chaired by the chief data officer and meet regularly 

beginning in November 2019 to set and enforce policies 

for managing data as a strategic asset. The chief data officer 

also leads the Department’s new Office of the Chief Data 

Officer, which is responsible for managing and improving 

the Department’s ability to leverage its data routinely for 

program operations and to inform policy. The chief data 

officer, with the Data Governance Board, is beginning 

the process of selecting a data maturity assessment model 

which will be used to evaluate the current state of the 

Department’s data and data-related infrastructure. 

The Department also noted that it continues to support 

complementary data governance initiatives, including a 

Data Strategy Team and the EDFacts Data Governance 

Board. The Department stated that during FY 2019, the 

Data Strategy Team offered 10 data management trainings 

to 15 program offices on topics including improving data 

quality, understanding differential privacy protections, 

and using data visualization, among others. According to 

the Department, the Data Strategy Team developed eight 

data governance and management tools and templates for 

Department offices, including an example data dictionary, 

a data terms glossary, and a data quality documentation 

guide. The Department further stated that The Data 

Strategy Team also assists the Office of Elementary and 

Secondary Education in planning and managing its Data 

Governance Team, which was created to better understand 

the data collected by the office and to create Office of 

Elementary and Secondary Education-wide strategies and 

standards for use throughout the data lifecycle. Finally, 

the Department stated that the Office of Elementary 

and Secondary Education continued to improve its 
FY 2019 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION 113

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 82 and the Department’s management 

assurances on page 17.

SUMMARY OF FINANCIAL STATEMENT AUDIT

Audit Opinion: Unmodified

Restatement: No

Material Weaknesses Beginning Balance New Resolved Consolidated Ending Balance

Total Material Weaknesses 1 0 0 0 1

SUMMARY OF MANAGEMENT ASSURANCES

Effectiveness of Internal Control over Financial Reporting—Federal Managers’ Financial Integrity Act 

(FMFIA) 2

Statement of Assurance: Unmodified

Material 

Weaknesses Beginning Balance New Resolved Consolidated Reassessed Ending Balance

Total Material 

Weaknesses 0 0 0 0 0 0

The Department had no material weaknesses in the design or operation of the internal control over financial reporting.

Effectiveness of Internal Control over Operations—FMFIA 2 

Statement of Assurance: Unmodified

Material 

Weaknesses Beginning Balance New Resolved Consolidated Reassessed Ending Balance

Total Material 

Weaknesses 0 0 0 0 0 0

Conformance with Financial Management System Requirements—FMFIA 4

Statement of Assurance: The Department systems conform to financial management system requirements.

Nonconformances Beginning Balance New Resolved Consolidated Reassessed Ending Balance

Total 

Nonconformances 0 0 0 0 0 0

Compliance with Federal Financial Management Improvement Act (FFMIA)

Agency Auditor

1. System Requirements No lack of compliance noted No lack of compliance noted

2. Federal Accounting Standards No lack of compliance noted No lack of compliance noted

3. United States Standard General Ledger at Transaction Level No lack of compliance noted No lack of compliance noted
114 FY 2019 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION

PAYMENT INTEGRITY

I. PAYMENT 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. Because these 

“third-party” controls are 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.

Readers can obtain more detailed information on 

improper payments at https://paymentaccuracy.gov.

DESCRIPTION OF RISK-SUSCEPTIBLE 

AND HIGH-PRIORITY PROGRAMS 

In FY 2019, 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 2019, the Department began 

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 two programs that met this criterion: the 
FY 2019 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION 115

PAYMENT INTEGRITY | OTHER INFORMATION

Temporary Emergency Impact Aid for Displaced Students 

(Emergency Impact Aid) and Immediate Aid to Restart 

School Operations (RESTART) 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. 

Details on improper payment estimates, root causes, and 

corrective actions for the programs are included within the 

Improper Payment Estimates, Payment Reporting - Root 

Cause Categories, and Improper Payment Corrective 

Actions sub-sections that follow.

PELL GRANT 

The Pell Grant program, authorized under Title IV 

of the Higher Education Act of 1965 (HEA), provides 

need-based grants to low-income undergraduate and 

certain post-baccalaureate students to promote access to 

postsecondary education. 

DIRECT LOAN 

The Direct Loan program, added to HEA in 1993 by 

the Student Loan Reform Act of 1993, authorizes the 

Department to make loans through participating 

schools to eligible undergraduate and graduate 

students and their parents.

TEMPORARY EMERGENCY IMPACT 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.

IMMEDIATE AID TO RESTART 

SCHOOL OPERATIONS 

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.

IMPROPER PAYMENT ESTIMATES

In FY 2019, the Department used statistically valid and 

rigorous sampling and estimation methodologies to 

estimate the improper payment rates for the Pell Grant, 

Direct Loan, Emergency Impact Aid and RESTART 

programs. Please refer to Section VII, Sampling and 

Estimation Methodology, for additional details about 

these methodologies. 

In FY 2018, the Department collaborated with 

stakeholders to identify an approach to overcome 

previously identified challenges with implementing a 

statistically valid estimation methodology for the Pell 

Grant and Direct Loan programs, and in FY 2019, 

FSA implemented a new statistically valid and rigorous 

estimation methodology. This new methodology improves 

the accuracy of the improper payment estimates. The 

prior, non-statistical methodology relied on non-random, 

limited-size sampling of the 100-300 annual FSA Program 

Compliance reviews which target high-risk schools of the 

approximately 5,700 schools that receive Title IV aid. The 

new methodology implemented in FY 2019 is based on a 

larger, random sample of the universe of schools receiving 

Title IV aid. As this is the first year implementing the 

new methodology, modest reduction targets were set. The 

reduction target for the Pell Grant program is 2.22 percent 

and the reduction target for the Direct Loan program is 

0.51 percent. 

According to OMB guidance, reduction targets for 

programs are not expected to be published until a full 

baseline has been established and reported. Baselines for 

the Emergency Impact Aid and RESTART programs will 

not be established until the conclusion of a 24-month 

reporting cycle in FY 2020.

Readers can obtain more detailed information on 

reporting improper payment estimates in FY 2019 and 

prior years at https://paymentaccuracy.gov.
116 FY 2019 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION

OTHER INFORMATION | PAYMENT INTEGRITY

The FY 2019 Pell Grant estimates include results from the Free Application for Federal Student Aid (FAFSA®) Internal 

Revenue Service (IRS) Data Statistical Study which estimates Pell Grant improper payment rates based on a comparison 

between information reported by applicants on the FAFSA and income details reported to the IRS. Rates from the Study 

are included in the Pell Grant improper payment estimate as a proxy for improper payments associated with misreported 

income. This proxy of misreported income accounts for approximately 77% of the estimated FY 2019 Pell Grant 

improper payments.

 

The source of the FY 2019 Pell Grant and Direct Loan outlay amounts is FSA’s Financial Management System (FMS). The source of Emergency Impact Aid and 

RESTART outlay amounts is the Office of Finance and Operations (OFO)’s Grants Management System (G5). Emergency Impact Aid and RESTART outlays are 

taken from prior year program data. No improper payments were identified in FY 2019 for the RESTART program.
FY 2019 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION 117

PAYMENT INTEGRITY | OTHER INFORMATION

Program Overpayments

(Dollars in Millions)

Overpayments

(%)

Underpayments

(Dollars in Millions)1

Underpayments

(%)

Unknown

(Dollars in Millions)2

Unknown

(%)

Pell Grants $380.04 58.82% $211.18 32.68% $54.92 8.50%

Direct Loans $199.34 41.26% $40.47 8.38% $243.33 50.36%

Emergency 

Impact Aid $3.87 100% $0 0% $0 0%

RESTART $0 0% $0 0% $0 0%

Total $583.25 51.47% $251.65 22.21% $298.25 26.32%

Table 5. FY 2019 Improper Payments for Risk-Susceptible Programs

1

 In FY 2019, Emergency Impact Aid’s estimated underpayments totaled just $39.50 (not in millions) resulting in an improper payment rate of <0.01%.

2

 For the Pell Grant and Direct Loan programs, “Unknown” improper payments include overpayments and underpayments where the exact amount of the 

overpayment and underpayment is unknown due to lack of supporting documentation maintained by third parties. 
118 FY 2019 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION

OTHER INFORMATION | PAYMENT INTEGRITY

Figure 22 and Figure 23 summarize the estimated amount of improper payments made directly by the Department and 

the amount of improper payments made by recipients of federal money. For additional details, please refer to the Payment 

Reporting – Root Cause Categories section. 

PAYMENT REPORTING - INSUFFICIENT OR LACK OF DOCUMENTATION

Of the $646.14 million and $483.14 million in estimated improper payments for the Pell Grant and Direct Loan programs, 

respectively, approximately 8.50% and 50.36%, respectively, are categorized as improper due to inability to discern whether 

the payment was proper as a result of insufficient or lack of documentation.

Documentation deficiencies for the Pell Grant and Direct Loan programs include but are not limited to inadequate tracking 

of attendance by schools, including inadequate tracking of students’ last date of attendance or withdrawal date, lack of 

other supporting eligibility documentation retained by schools, and lack of evidence to support a school completed required 

verification of information reported by an applicant on their FAFSA.

PAYMENT REPORTING - MONETARY LOSS, NON-MONETARY LOSS, AND UNKNOWN 

This section presents the portion of the improper payment estimates that are attributed to monetary loss, non-monetary 

loss, or unknown. Monetary loss, non-monetary loss, and unknown are defined by OMB. 

 Monetary loss to the Federal Government: An amount that should not have been paid and in theory should/could 

be recovered. 

 Non-monetary loss to the Federal Government: Either an underpayment or a payment to the correct recipient for the 

correct amount where the payment process fails to follow applicable regulation and/or statute. 

 Unknown: The estimated amount within the improper payment estimate that could be either proper or improper 

but the Department is unable to discern whether the payment was proper or improper as a result of insufficient or lack 

of documentation. 

The monetary loss, non-monetary loss, and unknown amounts reported in Table 6 are estimates. Not all monetary loss 

is recoverable. 
FY 2019 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION 119

PAYMENT INTEGRITY | OTHER INFORMATION

Program Reporting Category Reporting Sub-Category Amount 

(Dollars in Millions)

Percentage of 

Improperly Paid 

Estimate (%)

Pell Grants

Monetary Loss, Non-Monetary 

Loss and Unknown

Estimated Monetary loss to the Government $380.04 58.82%

Estimated Non-Monetary loss to the Government $211.18 32.68%

Estimated Unknown improper payments $54.92 8.50%

Total $646.14 100.00%

Monetary Loss Control

Estimated Monetary loss Within Agency Control $0.00 0.00%

Estimated Monetary loss Outside Agency Control $380.04 58.82%

Direct Loan

Monetary Loss, Non-Monetary 

Loss and Unknown

Estimated Monetary loss to the Government $189.03 39.13%

Estimated Non-Monetary loss to the Government $50.78 10.51%

Estimated Unknown improper payments $243.33 50.36%

Total $483.14 100.00%

Monetary Loss Control

Estimated Monetary loss Within Agency Control $4.91 1.02%

Estimated Monetary loss Outside Agency Control $184.12 38.11%

Emergency 

Impact Aid

Monetary Loss, Non-Monetary 

Loss and Unknown

Estimated Monetary loss to the Government $2.88 74.42%

Estimated Non-Monetary loss to the Government $.99 25.58%

Estimated Unknown improper payments $0.00 0.00%

Total $3.87 100.00%

Monetary Loss Control

Estimated Monetary loss Within Agency Control $0.00 0.00%

Estimated Monetary loss Outside Agency Control $2.88 74.42%

RESTART

Monetary Loss, Non-Monetary 

Loss and Unknown

Estimated Monetary loss to the Government $0.00 0.00%

Estimated Non-Monetary loss to the Government $0.00 0.00%

Estimated Unknown improper payments $0.00 0.00%

Total $0.00 0.00%

Monetary Loss Control

Estimated Monetary loss Within Agency Control $0.00 0.00%

Estimated Monetary loss Outside Agency Control $0.00 0.00%

Table 6. FY 2019 Monetary and Non-Monetary Loss for Risk-Susceptible Programs
120 FY 2019 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION

OTHER INFORMATION | PAYMENT INTEGRITY

Of the estimated monetary loss for the Pell Grant and Direct Loan programs, the majority is outside of the agency’s 

control. As explained previously, the Department must rely heavily on controls established by external entities that receive 

Department payments, including federal, state, and private organizations and institutions, because they further distribute 

the funds they receive from the Department to subordinate organizations and individuals. These “third-party” controls are 

outside of the Department’s operational control. Examples of root causes outside of the Department’s operational control 

are defined further in the following sections.

PAYMENT REPORTING - ROOT CAUSE CATEGORIES

Our analysis indicated that the underlying root causes of improper payments for the Pell Grant and Direct Loan programs 

in FY 2019 were “Failure to Verify—Financial Data”, “Administrative or Process Errors Made by—Other Party” and 

“Insufficient Documentation to Determine” using categories of error as defined in OMB Circular A-123, Appendix C 

(OMB Memorandum M-18-20). Specific root causes associated with the “Failure to Verify—Financial Data” category 

include, but are not limited to, a school’s failure to perform or properly complete verification, the process by which 

schools confirm the accuracy of select data reported by students on their FAFSA, failure of schools to resolve conflicting 

information reported by applicants, and incorrect self-reporting of an applicant’s information that leads to incorrect awards 

based on Expected Family Contribution (EFC). Specific root causes associated with the “Administrative or Process Errors 

Made by—Other Party” category include, but are not limited to, credit balance errors; Satisfactory Academic Progress not 

achieved; student withdrawal deficiencies; disbursement of funds to ineligible recipients; disbursement of funds to students 

attending ineligible institutions, programs, or locations; incorrect disbursement amounts; disbursements in excess of 

students’ maximum eligibility; documentation deficiencies; improper use of funds; and processing errors at the servicer level. 

Specific root causes associated with the “Insufficient Documentation to Determine” category include, but are not limited 

to, inadequate tracking of attendance by schools, including inadequate tracking of students’ last date of attendance or 

withdrawal date, lack of supporting eligibility documentation retained by schools, and lack of evidence to support a school 

completed required verification of information reported by an applicant on their FAFSA.

1

 Improper payment estimates attributed to Insufficient Documentation to Determine are reported as overpayments in accordance with OMB reporting requirements.
FY 2019 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION 121

PAYMENT INTEGRITY | OTHER INFORMATION

IMPROPER PAYMENT CORRECTIVE ACTIONS

This section presents the corrective actions for the Pell Grant and Direct Loan programs. 

The Department has established an integrated system of complementary oversight functions to help prevent, detect, and 

recover improper payments, and ensure compliance by all participating parties. FSA’s Program Compliance annually 

conducts approximately 100–300 Program Reviews of the approximately 5,700 eligible schools to assess institutions’ 

compliance with Title IV regulations. Program Compliance evaluates a school’s compliance with federal requirements, 

assesses liabilities for errors in performance, and identifies actions the school must take to make the Title IV, HEA programs, 

or the recipients, whole for any funds that were improperly managed and to prevent the same problems from recurring. A 

school with serious violations may be placed on heightened cash monitoring (HCM) for disbursements, lose funding for 

specific programs, or be terminated from participation in all Title IV programs for noncompliance.

FSA’s Program Compliance monitors annual compliance audits of schools. A school that participates in any Title IV 

program must at least annually have a compliance audit of its administration of that program unless an allowable waiver 

or exemption has been granted or, for Single Audit filers, the Title IV programs (major program) have been determined 

low-risk. Independent auditors perform the compliance audits to monitor schools’ administration of FSA programs. If 

any deficiencies are identified, the school must develop a corrective action plan that addresses the audit report findings. 

Auditors are required to evaluate whether the school has taken appropriate corrective action to address findings and 

recommendations from prior audits. FSA’s Program Compliance also performs audit resolution. This includes reviewing 

and evaluating the effectiveness of a school’s corrective action and mitigation efforts for noted exceptions in audit reports.

Figure 25 below shows Emergency Impact Aid root causes for improper payments were attributed to “Administrative or Process 

Error Made by – State Agency” and “Failure to Verify – Other Eligibility Data”, also done at the SEA level. Overpayments for 

the Emergency Impact Aid program resulted in $0.98 million in estimated improper payments attributed to the “Failure to 

Verify – Other Eligibility Data” root cause and $2.89 million to the “Administrative or Process Error Made by – State Agency”. 

Estimated underpayments for Emergency Impact Aid totaled $39.50 (not in millions) and was attributed to the “Administrative 

or Process Error Made by – State Agency” root cause. Root Causes for improper payments include, but are not limited to, the 

program statutory design that specifically authorizes these types of occurrences. The timeline for dispersing the funds is short 

and the program statute allows for upward and downward adjustments to student counts as the data are reviewed through either 

monitoring or audits (even if that review period is beyond the date provided by the state for amending the application). State 

required audits identified issues in the data and funds were returned to the state based upon downward adjustments. 
122 FY 2019 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION

OTHER INFORMATION | PAYMENT INTEGRITY

Corrective 

Action Status (Including Planned or Actual Completion Dates)1 Root Cause Category

Pursue 

legislation that 

would provide 

an exemption 

to the IRS Tax 

Code Section 

6103 

Long-term. The Department is coordinating with the Treasury Department and OMB 

to pursue legislation that would provide an exemption to the IRS Tax Code Section 

6103 to further streamline FSA’s ability to receive and verify applicants’ and borrowers’ 

income data. FSA expects this to have a meaningful impact on improper payments, 

reduce burden on applicants and schools, and reduce burden on borrowers, helping 

them avoid delinquency and default. Several bills have been introduced in Congress 

that would amend the Internal Revenue Code to allow IRS to disclose tax return 

information to authorized Department officials for purposes of determining eligibility 

for, and amount of, federal student financial aid. 

FSA does not have control over the completion date as this corrective action is 

dependent on the legislative process. The corrective action will be re-assessed at 

the end of FY 2020. Therefore, the planned completion date is tentatively set as 

September 30, 2020.

Misreported income – Information 

reported by an applicant on its FAFSA 

is used to calculate EFC. Schools use 

the EFC to determine federal student 

aid eligibility and financial aid award in 

accordance with Title IV requirements.

Verification Deficiencies – Verification is 

the process where schools, in partnership 

with FSA, confirm the accuracy of 

select data reported by students on 

their FAFSA. FSA’s Central Processing 

System selects which applications are 

to be verified. Schools also have the 

authority to verify additional students. 

Students selected for verification are 

placed in one of several verification 

tracking groups to determine which 

FAFSA information must be verified. 

Items verified include Adjusted Gross 

Income (AGI), taxes paid, and other tax 

data. Income verification helps detect and 

prevent misreported income.

Continue to 

utilize and 

promote the IRS 

Data Retrieval 

Tool (DRT)

On-going. The IRS DRT enables Title IV student aid applicants and, as needed, 

parents of applicants, to transfer certain tax return information from an IRS website 

directly to their online FAFSA. The IRS DRT remains the fastest, most accurate way 

to input tax return information into the FAFSA form. To increase IRS DRT usage, 

and thereby reduce improper payments associated with misreported income, FSA

has taken action to vigorously increase access to and promote the tool. As part of 

the ongoing effort to expand usage of the IRS DRT by applicants and parents, FSA 

publishes information about the benefits and use of the IRS DRT, including on its blog, 

and sends electronic announcements via Information for Financial Aid Professionals 

(IFAP) urging institutions to promote the use of the IRS DRT. FSA actively monitors 

the impact of its promotion of the IRS DRT. For example, FSA reports IRS DRT usage 

figures, disaggregated by dependency status and tax filing status on a quarterly 

basis. FSA also conducts an annual FAFSA/IRS Data Statistical Study (Study). This 

Study includes an analysis of Pell applicants based on IRS DRT usage. Additionally, 

FSA monitors reports from schools and IRS DRT users via annual surveys, usability 

studies, and the FSA Feedback System, among other mechanisms.

The planned completion date is September 30, 2020. The corrective action will be 

re-assessed at the end of FY 2020 and may be renewed, intensified, or expanded for 

FY 2021.

Analyze 

verification data 

to inform the 

upcoming award 

year cycle

On-going. In FY 2019, FSA completed an analysis of the verification data to inform 

the upcoming award year cycle before launch (to allow for system changes) using the 

most recently available data at that time. 

FSA also conducts a monthly review of the verification percentages to determine what 

percentage of applicants were selected for verification. Through this process, FSA 

verifies that the selection process is working as intended.

In FY 2020, FSA will continue to refine the verification selection process. As with prior 

years’ verification selection, data-based statistical analysis will continue to be used 

by FSA to select for verification the 2020–2021 FAFSA applicants with the highest 

statistical probability of error and the impact of such error on award amounts.

The planned completion date is September 30, 2020. The corrective action will be 

re-assessed at the end of FY 2020 and may be renewed, intensified, or expanded for 

FY 2021.

The corrective actions listed below are specific to the root causes of improper payments identified from FY 2019 improper 

payment fieldwork, and are tailored to reflect the unique processes, procedures, and risks involved with the Pell Grant and 

Direct Loan programs.

Table 7. Pell Grant and Direct Loan Improper Payment Corrective Actions—Root Cause Category

1

 FSA does not attempt to quantify the reduction of the improper payment estimates in terms of percentage or amount due to these corrective actions. The 

quantification of results is not feasible because this is FSA’s first year using a statistically valid estimation methodology. Therefore, there are no prior year results to 

compare against. Also, FSA has multiple corrective actions for several of the root causes.
FY 2019 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION 123

PAYMENT INTEGRITY | OTHER INFORMATION

Publish an 

updated listing 

of FAFSA 

information 

schools and 

applicants may 

be required to 

verify 

Reoccurring (annually). FSA published an updated listing of FAFSA information 

schools and applicants may be required to verify for the 2020–2021 award year. 

This notice was published in the Federal Register on May 24, 2019. Reevaluating 

the FAFSA information schools and applicants may be required to verify helps target 

higher-risk areas while reducing the documentation burden on schools and students. 

In FY 2020, FSA will continue to enhance verification procedures, requiring selected 

schools to verify specific information reported on the FAFSA by student aid applicants. 

FSA will publish an updated notice in the Federal Register announcing the FAFSA 

information schools and financial aid applicants may be required to verify, as well as 

the acceptable documentation for verifying FAFSA information.

The planned completion date is June 30, 2020. The corrective action will be reassessed in FY 2020 and may be renewed, intensified, or expanded for FY 2021.

Misreported income – Information 

reported by an applicant on its FAFSA 

is used to calculate EFC. Schools use 

the EFC to determine federal student 

aid eligibility and financial aid award in 

accordance with Title IV requirements.

Verification Deficiencies – Verification is 

the process where schools, in partnership 

with FSA, confirm the accuracy of 

select data reported by students on 

their FAFSA. FSA’s Central Processing 

System selects which applications are 

to be verified. Schools also have the 

authority to verify additional students. 

Students selected for verification are 

placed in one of several verification 

tracking groups to determine which 

FAFSA information must be verified. 

Items verified include Adjusted Gross 

Income (AGI), taxes paid, and other tax 

data. Income verification helps detect and 

prevent misreported income.

Publish updates 

to questions and 

answers about 

verification 

requirements, if 

identified

On-going. FSA published questions and answers about verification on its website. 

Questions and answers were updated in FY 2019 to help clarify verification 

requirements. These questions and answers provide clarity on verification 

requirements, reducing the risk of verification deficiencies.

FSA will continue to update the frequently asked questions and answers, if updates 

are identified.

The planned completion date is September 30, 2020. The corrective action will be 

re-assessed at the end of FY 2020 and may be renewed, intensified, or expanded for 

FY 2021.
124 FY 2019 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION

OTHER INFORMATION | PAYMENT INTEGRITY

Publish and 

deliver updated 

free training, 

guidance, and 

resources

Ongoing. The Department annually publishes and delivers updated free training, 

guidance, and resources. This content is annually updated, if not more frequently, 

to target the root causes of improper payments and other frequently identified 

compliance issues. These free training, guidance, and resources include the:

- FSA Training Conference for Financial Aid Professionals. From November 27 to 

November 30, 2018, FSA held its annual FSA Training Conference for Financial 

Aid Professionals to provide training and technical assistance to financial aid 

professionals charged with administering the Title IV student financial assistance 

programs. More than 2,000 unique schools registered for the conference. All 50 

states were represented as well as the U.S. territories to include Guam, Puerto 

Rico, and U.S. Virgin Islands. More than 200 Foreign School officials also attended 

from countries all over the world. The FY 2019 Training Conference included 

sessions related to the root causes of improper payments. The session recordings 

are publicly available. The FSA Training Conference also provides schools direct 

access to federal staff, and one-on-one time with subject matter specialists. In FY 

2020, FSA will again hold and promote the FSA Training Conference. 

- FSA Handbook. FSA annually updates and publishes the FSA Handbook for 

college financial aid administrators and counselors. The FSA Handbook includes 

an Application and Verification Guide, and Volumes on Student Eligibility, School 

Eligibility and Operations, Calculating Awards and Packaging, Processing Aid and 

Managing FSA Funds, and Withdrawals and the Return of Title IV Funds. Each 

volume provides examples and guidance to help schools appropriately administer 

federal student aid. 

- FSA Coach. FSA offers free training via FSA Coach, a suite of interactive courses 

for new and experienced financial aid administrators in the essential knowledge 

and skills needed to successfully administer the federal student aid programs. 

FSA annually updates training content to address annual updates for the new 

award year, provide interactive exercises and self-assessments, and target the 

root causes of improper payments and other frequently identified compliance 

issues. New for 2019, the Department launched the Financial Aid Administrator’s 

Tool Kit. The new FAA Tool Kit, included within FSA Coach, offers quick access 

to Federal Student Aid resources, reference guides, and training material, and is 

designed to assist financial aid professionals in administering the federal student 

aid programs in compliance with federal regulations. In addition to providing 

links to key FSA resources, the Tool Kit also includes short videos to assist with 

navigating several FSA products.

- FSA Assessments. FSA designed, in collaboration with financial aid professionals, 

FSA Assessments that help schools with compliance and improvement activities 

associated with each of the root causes of improper payments. The FSA 

Assessments contain links to applicable laws and regulations as well as guidance, 

worksheets, and checklists to help schools comply with these requirements.

- HomeRoom, the Department’s official blog. The Department maintains a 

blog to provide insights on the activities of schools, programs, grantees, and 

other education stakeholders to promote continuing discussion of educational 

innovation and reform, including activities to help address the root causes of 

improper payments. For example, on September 10, 2019, the Department 

published an article about 7 Things You Need to Know Before You Fill Out the 

2020-21 FAFSA Form. 

FSA solicits input on the effectiveness of these training and resources, and invests in 

improving these critical sources of information to better serve program participants, as 

described above.

The planned completion date is September 30, 2020. The corrective action will be 

re-assessed at the end of FY 2020 and may be renewed, intensified, or expanded for 

FY 2021.

Multiple root causes: verification 

deficiencies; credit balance deficiencies; 

Satisfactory Academic Progress 

deficiencies; student withdrawal 

deficiencies; ineligible recipients; 

ineligible institutions, programs, 

or locations; incorrect amounts; 

documentation deficiencies; improper use 

of funds; maximum eligibility deficiencies; 

and misreported income.
FY 2019 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION 125

PAYMENT INTEGRITY | OTHER INFORMATION

Initiate an 

assessment 

of the 

feasibility and 

effectiveness 

of servicers 

implementing 

additional 

levels of quality 

assurance over 

processing of 

Loan Verification 

Certificates 

(LVCs)

Completed. In FY 2019, FSA surveyed the Title IV Additional Servicers (TIVAS) 

and reviewed their Direct Loan Consolidation procedures. FSA identified a flawed 

automated TIVAS process which was causing improper payments. The process was 

revised to address the root cause of improper payments. This corrective action will 

eliminate improper payments associated with the flawed automated process.

The actual completion date was May 2019.

Incorrect processing of Loan Verification 

Certificates (LVCs)

Meet with 

the TIVAS 

to discuss 

incorrect 

processing of 

LVCs

Completed. In FY 2019, FSA met with the TIVAS to solicit ideas on how to best 

address incorrect processing of LVCs. No additional or alternative corrective actions 

were identified.

The actual completion date was September 12, 2019.

Update TIVAS 

Direct Loan 

Consolidation 

procedure

Completed. The TIVAS updated its Direct Loan Consolidation procedures to help 

mitigate the risk of Direct Loan Consolidation manual errors.

The actual completion date was September 24, 2019.

Incorrect Direct Loan Consolidation 

manual entry or oversight

Implement 

a new 

reconciliation 

process to 

mitigate 

the risk of 

incorrect Direct 

Loan Refund 

calculations

Completed. The new process was implemented at the TIVAS. As a result, issues 

identified from the new reconciliation process are researched, and any incorrectly 

processed Direct Loan Refunds are cancelled and corrected prior to resulting in 

improper payments.

The actual completion date was July 23, 2019.

Incorrect calculation of Direct Loan 

Refund

Corrective actions are required when a program’s improper payments exceed statutory thresholds, which did not apply to the 

Emergency Impact Aid and RESTART programs in FY 2019.
126 FY 2019 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION

OTHER INFORMATION | PAYMENT INTEGRITY

III. AGENCY IMPROVEMENT OF 

PAYMENT ACCURACY WITH THE

DO NOT PAY (DNP) INITIATIVE

The Department continues its efforts to prevent and detect 

improper payments via the Department of Treasury’s 

Do Not Pay (DNP) Business Center Portal as required 

by the Improper Payments Elimination and Recovery 

Improvement Act of 2012 (IPERIA), as amended by the 

Bipartisan Budget Act of 2013 and the Federal Improper 

Payments Coordination Act of 2015 (FIPCA). During FY 

2019, 1,607,013 payments, totaling $184.3 billion, were 

reviewed for possible improper payments through the DNP 

Portal screening, which includes the Death Master File 

and the System for Award Management File (SAM). The 

Department continues to validate that potential improper 

payments identified through this screening process were 

properly adjudicated and reported to Treasury timely.

Readers can learn more about DNP at 

https://fiscal.treasury.gov/DNP/.

IV. BARRIERS

The Department must rely on controls established 

by fund recipients who make payments on behalf of 

the Department. These controls are outside of the 

Department’s operational authority. In designing controls, 

the Department strives to strike the right balance 

between providing timely and accurate payments to grant 

recipients and students, while at the same time ensuring 

that the controls are not too costly and burdensome to 

II. RECAPTURE OF IMPROPER 

PAYMENTS REPORTING

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. The Department works with grantees and Title 

IV (FSA) program participants to resolve and recover 

amounts identified in compliance audits, OIG audits, 

and Department-conducted program reviews. The 

Department also analyzes the return of grant funds 

from recipients to determine if they are due to improper 

payments. When an improper payment is detected 

and deemed collectable, the Department establishes an 

account receivable and pursues collections. Recoveries 

are also made through grant program, payroll, and 

other offsets. Recipients of Department funds can 

appeal management’s decisions regarding funds to be 

returned to the Department or they may go bankrupt 

before the Department can collect, thereby delaying or 

decreasing the amounts the Department is able to collect. 

Additionally, the Department has wide discretion to 

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.

In FY 2019, the Department identified $220.48 million 

in improper payments and recovered $58.70 million 

in improper payments (or 27 percent), as depicted in 

Figure 26. For detailed information on identified and 

recovered improper payments, readers can visit https://

paymentaccuracy.gov. The Department continues to work 

to improve its methods to identify, collect, and report on 

improper payment collections.
FY 2019 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION 127

PAYMENT INTEGRITY | OTHER INFORMATION

Audit Follow-up

The Department gathers and manages thousands of audits 

of grantees related to our loan and grant programs. Audit 

records are managed, maintained, and analyzed in the 

Department’s automated audit tracking systems. Audits 

are a key source of identifying risks and in identifying 

potential improper payments made by outside entities. 

The Department has demonstrated tremendous success 

in working with grant recipients to resolve audit findings 

timely. The Department is continuously looking for 

options to gain further insight from audit reports and is 

partnering with OMB and others to do so.

VII. SAMPLING AND ESTIMATION METHODOLOGY 

For FY 2019 AFR reporting, the Department used a 

statistically valid and rigorous estimation methodology 

for estimating improper payments for the Pell Grant and 

Direct Loan programs. The Department submitted the 

statistically valid and rigorous estimation methodology 

to OMB on June 26, 2019. This statistical methodology 

uses a random sample of annual compliance audits. A 

small population of schools may apply for and receive 

a waiver or exemption from the compliance audit 

requirements. FSA accounts for these disbursements 

through a statistically valid sampling process. 

Additionally, on June 27, 2019, the Department 

submitted its statistically valid and rigorous 

methodologies for estimating improper payments for 

the Emergency Impact Aid and RESTART programs. 

The Department selected statistical payment samples 

to estimate the percentage and dollar value of improper 

payments for each program’s disbursements associated 

with supplemental disaster relief funding. Sample design 

was developed in accordance with the Improper Payments 

Elimination and Recovery Improvement Act (IPERIA) of 

2012, the Improper Payments Elimination and Recovery 

Act (IPERA) of 2010, the Improper Payments Information 

Act (IPIA) of 2002, and the sampling guidance provided 

in OMB Circular A-123, Appendix C (as revised by 

OMB document M-18-20, Requirements for Payment 

Integrity Improvement). The Department obtained FY 

2018 disbursement data for all disaster-related programs 

via the Department’s grants management system (G5). 

These data were based on amounts distributed from 

fund recipients. Additionally, there are limitations to the 

availability of data necessary to verify FAFSA information 

without increasing the burden on schools and students. 

For example, the Internal Revenue Code does not 

currently permit a database match with the IRS. Such a 

match would eliminate the need to rely on tax transcripts 

submitted by the applicant (and the applicant’s parent, if 

the applicant is a dependent) to verify income data in cases 

where the IRS DRT is not used to transfer tax information 

directly into the FAFSA form.

A detailed discussion of program-specific barriers can be 

found in the FY 2012 Report on the Department of 

Education’s Payment Recapture Audits.

V. ACCOUNTABILITY

The Department offices, managers, and staff are held 

accountable for promoting payment integrity by being 

held accountable for maintaining effective controls in 

their day-to-day jobs and key management officials have 

specific expectations related to payment integrity included 

in their annual performance plans. Additionally, Senior 

Accountable Officials are identified for the Department 

and FSA.

VI. AGENCY INFORMATION SYSTEMS AND 

OTHER INFRASTRUCTURE

FSA Programs

FSA has the internal controls, human capital, and 

information systems and other infrastructure to reduce 

Pell Grant and Direct Loan improper payments. However, 

as noted in Section IV. Barriers, the Department must 

also rely on controls established by fund recipients who 

make payments on behalf of the Department. These 

controls are outside of the Department’s operational 

control. Additionally, there are limitations on FSA’s ability 

to obtain data necessary to verify FAFSA information 

without increasing the burden on schools and students. 

In its most recent budget submission, the Department 

included information on pursuing legislation to aid an 

income data match between FSA and the Internal Revenue 

Service. Such a match would eliminate the need to rely on 

tax transcripts submitted by the applicant and allow FSA 

to verify income directly with the IRS.
128 FY 2019 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION

OTHER INFORMATION | PAYMENT INTEGRITY

that is not reporting an improper payment estimate. In 

FY 2019, the Department assessed improper payment risk 

for 266 grant activities (formula grants and discretionary 

grant competitions) under approximately 120 program 

authorities identified with disbursements in FY 2018. This 

risk assessment did not identify any additional Education 

programs as being susceptible to significant improper 

payments. In FY 2019, the Department did not conduct 

risk assessments of FSA-managed programs, as all FSAmanaged programs and activities were previously assessed 

for risk in FY 2017. 

SEAs to LEAs. For each state, the sampling timeframe 

represents the list of prior FY payments from which the 

statistical samples were selected.

The methodologies used for each of these programs 

are described in detail on the Department’s improper 

payments website.

VIII. RISK ASSESSMENTS

As required by OMB Circular A-123, Appendix C, the 

Department assesses the risk of improper payments at 

least once every three years for each program and activity 
FY 2019 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION 129

within the existing Customer Engagement Management 

Systems (CEMS) infrastructure. The fraud referral module 

went live in December 2018, and data migration of 

historical referral information was completed in July 2019. 

This module will enable more comprehensive analysis 

across all OIG fraud referrals and provide better tracking 

of referrals and possible recoveries of resultant improper 

payments. This common and interactive case processing 

tool will also reduce fraud review/case processing time and 

provide analytics to allow for better fraud detection and 

prevention. FSA is also exploring ways to leverage data 

analytics to better detect and combat fraud in operations. 

In FY 2019, the Department revised its improper payment 

risk assessment methodology to include a fraud risk factor 

to assist in identifying fraud risk in non-FSA programs. 

This revised methodology was used to assess the improper 

payment risk of 266 grant activities (formula grants and 

discretionary grant competitions) under approximately 

120 program authorities in FY 2019. The Department 

has also catalogued internal controls related to fraud 

prevention and detection, which includes over 150 

detective and preventive controls related to its grant and 

administrative payments.

Finally, 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.

FRAUD REDUCTION REPORT

The Department continues to participate actively 

with OMB and other agencies in a governmentwide workgroup that is collaborating on an 

implementation plan for the Fraud Reduction and Data 

Analytics Act (FRDAA) of 2015. The Department will 

continue to work with OMB to implement the FRDAA.

The Department recognizes the challenges that often 

surround fraud risk management and is taking action to 

address each challenge. These challenges include limited 

resources to conduct fraud risk management activities 

and difficulties in definitively separating fraud from other 

negative outcomes.

The Department is exploring ways to refine or enhance 

its business processes to be in a better position to define, 

deter, detect, and take action on fraud. For Title IV 

programs, FSA has established a Fraud Risk Group 

(FRG) within its Enterprise Risk Management Office to 

build capacity and expertise for and to dedicate resources 

to fraud risk identification and mitigation. The FRG 

established an Enterprise Fraud Risk Advisory Group 

to promote the integration of fraud risk management 

practices and processes into the daily operations of FSA 

to assist in achieving FSA’s strategic goals and objectives. 

Its primary responsibility is to provide oversight, 

planning, and coordination of enterprise fraud risk 

management activities. 

In 2018, responsibility for receiving, processing, and 

taking action on fraud referrals from the Department’s 

Office of the Inspector General (OIG) was transferred 

from FSA’s Finance Office to FRG. FRG launched a new 

initiative to implement workflow and case management 

capabilities to perform analysis of all OIG fraud referrals 
130 FY 2019 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION

THE DEPARTMENT STRATEGY IS TO:

 Renew workspaces including sit-stand desks and 

ergonomic chairs.

 Allow more natural light into workspaces by providing 

more open workspace.

 Improve use of shared, common, and multi–

functional spaces.

 Enhance technology.

 Provide electronic file storage and reduce paper file 

storage, resulting in a reduced footprint.

The square footage totals are for the office and warehouse 

domestic assets, which are assets located in the 50 states, 

Washington, D.C., and United States territories. The 

square footage total includes owned and leased assets. The 

Department does not own any assets; they are all leased. 

Updated square footage information is posted on the 

performance.gov website.

REDUCE THE FOOTPRINT

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. The Reduce the 

Footprint effort will allow the agency to meet the federal 

space guidelines (150–180 usable square footage per person 

vs. the current usable square footage per person of 338).

THE DEPARTMENT CHALLENGES ARE:

 If requested funding is not received, future planned 

projects will be at risk. As a result, the Department 

may be faced with future increased rent payments while 

continuing to occupy oversized, inefficient space. 

 Existing lease terms of several properties restrict the 

Department’s movement to more efficient space.

Table 8. Reduce the Footprint Baseline Comparison

FY 2015 Baseline FY 2018 Change (FY 2015 Baseline to FY 2018)

Usable Area, or 

Usable Square 

Footage per Person

1,548,425 1,382,553 (165,872)
FY 2019 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION 131

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/2019/02/01/2019-00670/adjustment-of-civil-monetary-penalties-for-inflation

Table 9.

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) 15-Jan-18 2-01-19 $38,549

Failure to provide information regarding teacherpreparation programs20 USC 

1022d(a)(3) 15-Jan-18 2-01-19 $32,110

Violation of Title IV of the HEA 20 USC 1082(g) 15-Jan-18 2-01-19 $57,317

Violation of Title IV of the HEA 20 USC 

1094(c)(3)(B) 15-Jan-18 2-01-19 $57,317

Failure to disclose information to minor children and parents 20 USC 

1228c(c)(2)(E) 15-Jan-18 2-01-19 $1,692

Improper lobbying for government grants and contracts 31 USC 

1352(c)(1) 15-Jan-18 2-01-19 $20,134 to $201,340

False claims and statements 31 USC 3802(a)(1) 15-Jan-18 2-01-19 $11,463
This page intentionally left blank.
APPENDICES
134 FY 2019 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 NAVIGATOR

College Navigator consists of the latest data from the 

Integrated Postsecondary Education Data System, the 

core postsecondary education data collection program 

for the National Center for Education Statistics, as well 

as data from Federal Student Aid on cohort default rates, 

the Office of Postsecondary Education on campus safety 

and accreditation, and information on veterans from the 

Veterans Benefits Administration. https://nces.ed.gov/

collegenavigator/

COLLEGE PREPARATION CHECKLIST

This Departmental tool gives prospective college students 

step-by-step instructions on how to prepare academically 

and financially for education beyond high school. Each 

section is split into subsections for students and parents, 

explaining what needs to be done and which publications or 

websites might be useful to them. http://studentaid.ed.gov

Additional resources within the checklist assist students in 

finding scholarships and grants.

https://studentaid.ed.gov/sa/prepare-for-college/

checklists

https://studentaid.ed.gov/sa/types/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 postcollege earnings. The 

College Scorecard continues to move the field forward in 

informing college choices with the help of technology and 

open data, making it possible for anyone—a student, a 

school, a policymaker, or a researcher—to decide which 

factors to evaluate. https://collegescorecard.ed.gov/

CONDITION OF EDUCATION AND DIGEST OF 

EDUCATION STATISTICS

The Condition of Education is a congressionally mandated 

annual report that summarizes developments and trends 

in education using the latest available statistics. The report 

presents statistical indicators containing text, figures, and 

data from early learning through graduate-level education, 

as well as labor force outcomes and international 

comparisons. https://nces.ed.gov/programs/coe/

The primary purpose of the Digest of Education Statistics 

is to provide a compilation of statistical information 

covering the broad field of American education from 

prekindergarten through graduate school. The Digest 

includes a selection of data from many sources, both 

government and private, and draws especially on the 

results of surveys and activities carried out by the National 

Center for Education Statistics. https://nces.ed.gov/

programs/digest/

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 2019 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION 135

SELECTED DEPARTMENT WEB LINKS AND EDUCATION RESOURCES | APPENDICES

PERFORMANCE DATA

EDFacts is a Department initiative to put performance 

data at the center of policy, management, and budget 

decisions for all K–12 educational programs. EDFacts

centralizes performance data supplied by K–12 state 

educational agencies with other data assets, such as 

financial grant information, within the Department to 

enable better analysis and use in policy development, 

planning, and management. http://www.ed.gov/about/

inits/ed/edfacts/index.html

PRACTICE GUIDES FOR EDUCATORS

The Department offers guides that help educators address 

everyday challenges faced in classrooms and schools. 

Developed by a panel of nationally recognized experts, 

practice guides consist of actionable recommendations, 

strategies for overcoming potential roadblocks, and an 

indication of the strength of evidence supporting each 

recommendation. The guides themselves are subjected to 

rigorous external peer review. Users can sort by subject 

area, academic level, and intended audience to find the 

most recent, relevant, and useful guides. https://ies.

ed.gov/ncee/wwc/PracticeGuides

EDUCATION RESOURCES INFORMATION 

CENTER (ERIC) 

The Department offers ERIC—the world’s largest free, 

digital library of education research. It is composed of 

1.7 million bibliographic records and 400,000 fulltext materials indexed from 1966 to the present. Each 

ERIC bibliographic record contains an abstract of a 

journal article or grey literature document (for example, 

a technical report or conference paper), along with such 

indexed information as author, title, and publication date. 

https://eric.ed.gov

REGIONAL EDUCATIONAL LABORATORY 

(REL) PROGRAM

The Department administers the REL program to support 

the use of research and evidence to help states and 

school districts improve their education programs and, 

ultimately, student performance. To do this, each regional 

REL contractor works with teachers, administrators, 

GOVERNMENT ACCOUNTABILITY OFFICE (GAO)

The Government Accountability Office supports Congress 

in meeting its constitutional responsibilities and helps 

improve the performance and accountability of the federal 

government for the benefit of the American people. 

http://www.gao.gov/docsearch/agency.php

GRANTS INFORMATION AND RESOURCES

In addition to student loans and grants, the Department 

offers other discretionary grants. These are awarded using 

a competitive process, and formula grants use formulas 

determined by Congress with no application process. This 

site lists Department discretionary grant competitions 

previously announced, as well as those planned for later 

announcement, for new awards organized according to 

the Department’s principal program offices. http://www2.

ed.gov/fund/grant/find/edlite-forecast.html

For more information on the Department’s programs, see 

http://www2.ed.gov/programs.

NATIONAL ASSESSMENT OF 

EDUCATIONAL PROGRESS

The National Assessment of Educational Progress assesses 

samples of students in grades 4, 8, and 12 in various 

academic subjects. Results of the assessments are reported 

for the nation and states in terms of achievement levels—

Basic, Proficient, and Advanced. https://nces.ed.gov/

nationsreportcard/

OFFICE OF INSPECTOR GENERAL (OIG)

The Office of Inspector General conducts independent 

and objective audits, investigations, inspections, and other 

activities to promote the efficiency, effectiveness, and 

integrity of the Department’s programs and operations. 

http://www.ed.gov/about/offices/list/oig/index.html

For a list of recent reports, go to http://www2.ed.gov/

about/offices/list/oig/reports.html.

ONE-STOP SHOPPING FOR STUDENT LOANS

The Department provides a site from which students can 

manage their loans. http://studentloans.gov/
136 FY 2019 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION

APPENDICES | SELECTED DEPARTMENT WEB LINKS AND EDUCATION RESOURCES

RESOURCES FOR ADULT, CAREER, AND 

TECHNICAL EDUCATION 

The Department, through the Perkins Collaborative 

Resource Network, offers resources and tools for the 

development and implementation of comprehensive 

career guidance programs. This includes guides for 

students, parents, teachers, counselors, and administrators 

across relevant topics, such as planning and exploring 

careers, selecting institutions, finances, and guidance 

evaluation. This source is an example of interdepartmental 

cooperation between the Department and the U.S. 

Department of Labor. http://cte.ed.gov

To support the Workforce Innovation and Opportunity 

Act (WIOA), the Department offers professional 

development resources through the Literacy Information 

and Communication System (LINCS). This initiative 

seeks to expand evidence-based practice in the field of 

adult education and literacy. LINCS serves as Office 

of Career, Technical, and Adult Education’s (OCTAE) 

primary outreach and dissemination mechanism to 

adult educators and provides high-quality, on-demand 

educational opportunities to practitioners of adult 

education. LINCS is comprised of: the LINCS Resource 

Collection, which provides online access to high-quality, 

evidence-based materials and instructional resources; 

the LINCS Community, a virtual professional learning 

space where adult educators can engage in discussions 

focused on critical topics to the field of adult education; a 

Learning Portal that offers anytime, anywhere professional 

development courses; a Professional Development Center 

that provides technical assistance to states in meeting the 

state leadership requirements set forth in WIOA; and 

the Learner Center, which provides access to federally 

developed or federally reviewed resources to assist adult 

learners in reaching their learning goals. Through these 

efforts, LINCS demonstrates OCTAE’s commitment 

to delivering high-quality, on-demand educational 

opportunities to practitioners of adult education and 

literacy, so those practitioners can help adult learners 

successfully transition to postsecondary education and 

21st century jobs. http://lincs.ed.gov/

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 address these “high-leverage” problems. https://ies.

ed.gov/ncee/edlabs/

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.

PROJECTIONS OF EDUCATION STATISTICS 

TO 2027 

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 2027. The report 

includes a methodology section that describes the models 

and assumptions used to develop national and state-level 

projections. https://nces.ed.gov/pubs2019/2019001.pdf
FY 2019 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION 137

EDGAR Education Department General 

Administrative Regulations 

EDSOC The Department of Education 

Security Operations Center 

EFC Expected Family Contribution

ELG Evidence Leadership Group 

EO Evaluation Officer 

ERIC Education Resources 

Information Center

ERM Enterprise Risk Management

ESEA Elementary and Secondary 

Education Act

ESSA Every Student Succeeds Act

FAFSA® Free Application for Federal 

Student Aid

FASAB Federal Accounting Standards 

Advisory Board

FCRA Federal Credit Reform Act of 1990

FECA Federal Employees’ 

Compensation Act

FERS Federal Employees 

Retirement System

FAA Financial Aid Administrator

FFB Federal Financing Bank

FFEL Federal Family Education Loan

FFMIA Federal Financial Management 

Improvement Act of 1996

FIO Financial Improvement Operations

FIPCA Federal Improper Payments 

Coordination Act of 2015

FISMA Federal Information Security 

Modernization Act of 2014

FMFIA Federal Managers’ Financial Integrity 

Act of 1982

FMS Financial Management System 

APPENDIX B: GLOSSARY OF ACRONYMS 

AND ABBREVIATIONS

ABCP Asset-Backed Commercial Paper

AFR Agency Financial Report

AGI Adjusted Gross Income

APG Agency Priority Goals

APR Annual Performance Report

AR Abandon rate

CDO Department Chief Data Officer 

CEAR Certificate of Excellence in 

Accountability Reporting 

CEMS Customer Engagement 

Management Systems

CFO Chief Financial Officer

CPSS Contracts and Purchasing 

Support System

CPT Contingency Plan Testing 

CSF Cyber Security Framework

CSP Charter School Program

CSRS Civil Service Retirement System

DATA Digital Accountability and 

Transparency Act of 2014

DCIA Debt Collection Improvement Act 

of 1996

DGB ED Data Governance Board 

DL Direct Loan

DMCS Debt Management and 

Collection System

DNP Do Not Pay

DOL U.S. Department of Labor

DRT Data Retrieval Tool

ECASLA Ensuring Continued Access to 

Student Loans Act of 2008 

EDCAPS Education Central Automated 

Processing System
138 FY 2019 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION

APPENDICES | GLOSSARY OF ACRONYMS AND ABBREVIATIONS

IPERA Improper Payments Elimination and 

Recovery Act of 2010

IPERIA Improper Payments Elimination and 

Recovery Improvement Act of 2012

IPIA Improper Payments Information Act 

of 2002

IRP Incident Response Plan 

IRS Internal Revenue Service

IRS DRT IRS Data Retrieval Tool

ISCM Information Security 

Continuous Monitoring

IT Information Technology

LEA Local Educational Agency

LEU Lifetime Eligibility Used

LINCS Literacy Information and 

Communication System

LVC Loan Verification Certificate

NLSCD National Longitudinal School 

Choice Database

Next Gen FSA Next Generation Financial 

Services Environment

NCES National Center for 

Education Statistics

NSLDS® National Student Loan Data System

OCDO Office of the Chief Data Officer 

OCIO Office of the Chief 

Information Officer

OFM Office of Financial Management

OFO Office of Finance and Operations

OCR Office for Civil Rights

OCTAE Office of Career, Technical, and 

Adult Education

OELA Office of English 

Language Acquisition

OESE Office of Elementary and 

Secondary Education

OGA Office of Grants Administration

FMSS Financial Management 

Support System

FPRD Final Program Review Determination 

FR Financial Report of the 

U.S. Government 

FSA Federal Student Aid

FY Fiscal Year

FRDAA Fraud Reduction and Data Analytics 

Act of 2015

FRG Fraud Risk Group

G5 Grants Management System 

GAAP Generally Accepted 

Accounting Principles

GAO Government Accountability Office

GLBA Gramm-Leach-Bliley Act 

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

HCERA Health Care and Education 

Reconciliation Act of 2010

HCM Heightened cash monitoring 

HEA Higher Education Act of 1965

HEAL Health Education Assistance Loans

HHS U.S. Department of Health and 

Human Services

IDEA Individuals with Disabilities 

Education Act 

IDR Income-Driven Repayment

IES Institute of Education Sciences

IFAP Information for Financial Aid 

Professionals

IHE Institutions of Higher Education
FY 2019 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION 139

GLOSSARY OF ACRONYMS AND ABBREVIATIONS | APPENDICES

REL Regional Educational Laboratory

RESTART Immediate Aid to Restart

School Operations 

RRTF Regulatory Reform Task Force 

SAFRA Student Aid and Fiscal Responsibility 

Act (SAFRA Act)

SAP Satisfactory Academic Progress

SAT Senior Assessment Team

SBR Statement of Budgetary Resources

SEA State Educational Agency

SMC Senior Management Council 

STEM Science, technology, engineering and 

mathematics

SULA Subsidized Usage Limit Applies

TBMS Technology Business 

Management Solutions

TEACH Teacher Education Assistance for 

College and Higher Education Grant

TIVAS Title IV Additional Servicers

TPD Total and permanent disability 

Treasury U.S. Department of Treasury

WIOA Workforce Innovation and 

Opportunity Act

OIG Office of Inspector General

OII Office of Innovation 

and Improvement

OMB Office of Management and Budget

OPE Office of Postsecondary Education

OPM Office of Personnel Management

OSERS Office of Special Education and 

Rehabilitative Services

P–12 Prekindergarten through 12th grade

PAYE Pay as You Earn

Pell Program Pell Grant Program 

PEPS Postsecondary Education 

Participants System

PII Personally Identifiable Information 

PIMA Payment Integrity

Monitoring Application 

PIV Personal Identity Verification

PLUS Parent Loan for

Undergraduate Students 

POA&Ms Plan of Actions & Milestones 

PSLF Public Service Loan Forgiveness

PTAC Privacy Technical Assistance Center

REACH Research on Education Access 

and Choice
140 FY 2019 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 2019 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 2019 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 2019

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 Grants Administration (OGA) develops, manages, 

and provides policy guidance and oversight of the 

Department’s grant management activities and operations.

The Contracts and Acquisitions Division, within OFO’s 

Office of Acquisition Management, is responsible for 

the solicitation, award, administration, and closeout 

of all contracts and other acquisition instruments for 

the Department.

We offer our sincerest thanks and acknowledgment to 

staff of all participating principal offices. In particular, we 

recognize the following organizations for their contribution:

OTHER CONTRIBUTORS

Office of the Deputy Secretary

Federal Student Aid

Office of the Inspector General

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
This page intentionally left blank.
Our Mission is to promote student achievement and 

preparation for global competitiveness by fostering 

educational excellence and ensuring equal access.

WWW.ED.GOV