FINANCIAL DETAILS

50 FY 2016 Agency Financial Report—U.S. Department of Education 

Notes to the Financial Statements 

For the Years Ended September 30, 2016 and 2015 

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 engages in four major types of activities: establishing policies related to federal 

educational funding, including the distribution of 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 prohibiting discrimination in programs that receive federal funds. 

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 significant portion of the financial activities of the Department relate to the 

execution of grant and loan 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 

FFEL program, authorized by the HEA, operates through state and private nonprofit guaranty 

agencies which provided loan guarantees on loans made by private lenders to eligible 

students. The SAFRA Act, which was included in the Health Care and Education Reconciliation 

Act of 2010 (HCERA), stated that no new FFEL loans would be made effective July 1, 2010. 

The Department also administers loans for the Historically Black Colleges and Universities 

(HBCU) Capital Financing program, the Health Education Assistance Loan (HEAL) program, 

and the Teacher Education Assistance for College and Higher Education Grant (TEACH) 

program, along with low-interest loans to institutions of higher education for the building and 

renovating of their facilities through the facilities loan programs. 

Grant Programs. The Department has more than 100 grant and loan programs. The three 

largest grant programs are Title I, Federal Pell Grant (Pell Grant), and the Individuals with 

Disabilities Education Act (IDEA) grants. In addition to student loans and grants, the 

Department offers other discretionary grants under a variety of authorizing legislation, awarded 

using a competitive process, and formula grants, using formulas determined by Congress with 

no application process. 

The Department has three major program offices that administer most of its loan and grant 

programs. 

 Federal Student Aid (FSA) administers need-based 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. 
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NOTES TO THE FINANCIAL STATEMENTS

FY 2016 Agency Financial Report—U.S. Department of Education 51

 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 pre-employment transition services and other 

transition services designed to assist students with disabilities to enter postsecondary 

education and achieve employment. 

Other offices that administer programs and provide leadership, technical assistance, and 

financial support to state and local educational activities and institutions of higher education for 

reform, strategic investment, and innovation in education include: the Office of Career, 

Technical, and Adult Education (OCTAE); Office of Postsecondary Education (OPE); Institute 

of Education Sciences (IES); Office of English Language Acquisition (OELA); and Office of 

Innovation and Improvement (OII). In addition, the Office for Civil Rights (OCR) works to ensure 

equal access to education, promotes educational excellence throughout the nation, and serves 

student populations facing discrimination and the advocates and institutions promoting 

systemic solutions to civil rights issues. (See Note 10) 

Basis of Accounting and Presentation 

These financial statements have been prepared to report the financial position, net cost of 

operations, changes in net position, and budgetary resources of the Department, as required 

by the Chief Financial Officers Act of 1990 and the Government Management Reform Act of 

1994. The financial statements were prepared from the books and records of the Department, 

in accordance with Generally Accepted Accounting Principles (GAAP) accepted in the U.S. for 

federal entities, issued by the Federal Accounting Standards Advisory Board (FASAB), and the 

Office of Management and Budget (OMB) Circular A-136, Financial Reporting Requirements, 

as revised. These financial statements are different from the financial reports prepared by the 

Department pursuant to OMB directives that are used to monitor and control the use of 

budgetary resources. FSA also issues audited stand-alone financial statements which are 

included in their annual report. 

The Department’s financial statements should be read as a component of the U.S. government, 

a sovereign entity. One of the many implications of this is that the liabilities cannot be liquidated 

without legislation providing resources and legal authority to do so. 

The accounting structure of federal agencies is designed to reflect both accrual and budgetary 

accounting transactions. Under the accrual method of accounting, revenues are recognized 

when earned and expenses are recognized when a liability is incurred, without regard to receipt 

or payment of cash. Budgetary accounting facilitates compliance with legal constraints and 

controls over the use of federal funds. 

Intradepartmental transactions and balances have been eliminated from the consolidated 

financial statements. 

The Department’s financial activities are interlinked and dependent upon the financial activities 

of the centralized management functions of the federal government. Due to financial regulation 

and management control by OMB and the U.S. Department of Treasury (Treasury), operations 

may not be conducted and financial positions may not be reported as they would if the 

Department were a separate, unrelated entity. 
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NOTES TO THE FINANCIAL STATEMENTS

52 FY 2016 Agency Financial Report—U.S. Department of Education 

Accounting for Federal Credit Programs 

The purpose of the Federal Credit Reform Act of 1990 (FCRA) is to record the lifetime subsidy 

cost of direct loans and loan guarantees at the time the loan is disbursed. Components of 

subsidy costs for loans and guarantees include defaults (net of recoveries); contractual 

payments to third-party private loan collectors who receive a set percentage of amounts 

collected; and, as an offset, origination and other fees collected. For direct loans, the difference 

between interest rates incurred by the Department on its borrowings from Treasury and interest 

rates charged to particular borrowers is also subsidized (or may provide an offset to subsidy if 

the Department’s rate is less). 

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 of subsidy is interest expense on debt with 

Treasury minus interest income from borrowers and interest on uninvested fund balance with 

Treasury. It is calculated as the difference between interest revenue and interest expense. 

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. 

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 statement of budgetary resources (SBR) as nonbudgetary credit reform accounts to allow for a clear distinction from all other budgetary 

accounts. This facilitates reconciliation of the SBR to the Budget of the United States 

Government (President’s Budget). 

 Program accounts receive and obligate appropriations to cover the positive subsidy cost of 

a direct loan or loan guarantee when the loan is approved and disburses the subsidy cost to 

the financing account when the loan is issued. Program accounts also receive 

appropriations for administrative expenses. 

 Treasury General Fund receipt accounts receive amounts paid from financing accounts 

when there are negative subsidies for new loan disbursements or downward re-estimates of 

existing loans. 
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NOTES TO THE FINANCIAL STATEMENTS

FY 2016 Agency Financial Report—U.S. Department of Education 53

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; recoveries of prior-year obligations; 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 1 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 canceled and may not be 

used. Resources that have not expired at year-end are available for new obligations, as well as 

upward adjustments of prior-year obligations. Funds are appropriated on an annual, multiyear, 

or no-year basis. Appropriated funds shall 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 12) 

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 
FINANCIAL SECTION 

NOTES TO THE FINANCIAL STATEMENTS

54 FY 2016 Agency Financial Report—U.S. Department of Education 

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 for direct, defaulted 

guaranteed, and acquired loans; the liability for loan guarantees; the amount payable or 

receivable from annual credit program re-estimates and modifications of subsidy cost (general 

program administration cost); and grant liability and advance accruals. (See Notes 4, 5, 9, and 

10) 

Entity and Non-Entity Assets 

Assets are classified as either entity or non-entity assets. Entity assets are those that the 

Department has authority to use for its operations. Non-entity assets are those held by the 

Department but not available for use in its operations. Non-entity assets are offset by liabilities 

to third parties and have no impact on net position. The Department combines its entity and 

non-entity assets on the balance sheet and discloses its non-entity assets in the notes. (See 

Note 2) 

Fund Balance with Treasury 

Fund Balance with Treasury includes five types of funds in the Department’s accounts with 

Treasury available to pay current liabilities and finance authorized purchases, as well as funds 

restricted until future appropriations are received: (1) general funds, which consist of 

expenditure accounts used to record financial transactions funded by congressional 

appropriations (which include amounts appropriated to fund subsidy and administrative costs of 

loan programs); (2) revolving funds, which manage the activity of self-funding programs 

whether through fees, sales, or other income (which include financing accounts for loan 

programs); (3) special funds, which collect funds from sources that are authorized by law for a 

specific purpose—these receipts are available for expenditure for special programs; (4) trust 

funds are used for the acceptance and administration of funds contributed from public and 

private sources and programs and are in cooperation with other federal and state agencies or 

private donors; and (5) other funds include deposit funds, agency receipt funds, and clearing 

accounts. Treasury processes cash receipts and cash disbursements for the Department. The 

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

Accounts Receivable 

Accounts receivable are amounts due to the Department from the public and other federal 

agencies. Receivables from the public result from overpayments to recipients 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, which consist of Cash and Other Monetary Assets, 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.
FINANCIAL SECTION

NOTES TO THE FINANCIAL STATEMENTS

FY 2016 Agency Financial Report—U.S. Department of Education 55

The balance in the Federal Fund represents consolidated reserve balances of the 27 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 based on form of organization. 

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 

credited to the Department’s Fund Balance with Treasury account. (See Notes 2, 4, and 9) 

Credit Program Receivables, Net and Liabilities for Loan Guarantees 

The financial statements reflect the Department’s estimate of the long-term subsidy cost of 

direct and guaranteed loans in accordance with the FCRA. Loans and interest receivable are 

valued at their gross amounts less an allowance for the present value of amounts not expected 

to be recovered and thus having to be subsidized—called an “allowance for subsidy.” The 

difference between the gross amount and the allowance for subsidy is the present value of the 

cash flows to, and from, the Department that are expected from receivables over their projected 

lives. Similarly, liabilities for loan guarantees are valued at the present value of the cash 

outflows from the Department less the present value of related inflows. The estimated present 

value of net long-term cash outflows of the Department for subsidized costs is net of 

recoveries, interest supplements, and offsetting fees. The Department also values all pre-1992 

loans, loan guarantees, and direct loans at their net present values. If the liability for loan 

guarantees is positive, the amount is reported as a component of credit program receivables, 

net. 

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 and 

reported in the financial statements under credit reform rules, similar to direct loans, although 

they are legally not direct student loans. Negative balances are reported as a component of 

credit program receivables, net. 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 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. (See Note 5)
FINANCIAL SECTION 

NOTES TO THE FINANCIAL STATEMENTS

56 FY 2016 Agency Financial Report—U.S. Department of Education 

Property and Equipment, Net and Leases 

The Department has very limited acquisition costs associated with buildings, furniture and 

equipment as all Department and contractor staff are housed in leased buildings. The 

Department does not own real property for the use of its staff. The Department leases office 

space from the General Services Administration (GSA). The lease contracts with GSA for 

privately and publicly owned buildings are operating leases. 

 

The Department also leases information technology and telecommunications equipment, as 

part of a contractor-owned, contractor-operated services contract. Lease payments associated 

with this equipment have been determined to be operating leases and, as such, are expensed 

as incurred. The noncancellable lease term is one year, with the Department holding the right 

to extend the lease term by exercising additional one-year options. (See Notes 4 and 14) 

Liabilities 

Liabilities represent actual and estimated amounts to be paid as a result of transactions or 

events that have already occurred. However, no liabilities can be paid by the Department 

without budget authority. Liabilities for which an appropriation has not been enacted are 

classified as liabilities not covered by budgetary resources, and there is no certainty that an 

appropriation will be enacted. The government, acting in its sovereign capacity, can abrogate 

liabilities that arise from activities other than contracts. FFEL program and Direct Loan program 

liabilities are entitlements covered by permanent indefinite budget authority. (See Note 6) 

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) 

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 year-end. The Department repays the principal based on available fund 

balances. Interest rates are based on the corresponding rate for 10-year Treasury securities 

and are set for those borrowings supporting each cohort of loans once the loans for that cohort 

are substantially disbursed. Interest is paid to Treasury at September 30. In addition, the 

Federal Financing Bank (FFB) holds bonds issued by a designated bonding authority, on behalf 

of the Department, for the HBCU Capital Financing program. The debt for other credit 

programs for higher education includes the liability for full payment of principal and accrued 

interest for the FFB-financed HBCU Capital Financing program. (See Note 7) 

Net Cost 

Net cost consists of gross costs and earned revenue. Gross costs and earned revenue are 

classified as intragovernmental (exchange transactions between the Department and other 

entities within the federal government) or with the public (exchange transactions between the 

Department and nonfederal entities). 

Net program costs are gross costs less revenue earned from activities. The Department 

determines gross cost and earned revenue by tracing amounts back to the specific program 

office. Administrative overhead costs of funds unassigned are allocated based on full-time 

employee equivalents of each program. (See Note 10) 
FINANCIAL SECTION

NOTES TO THE FINANCIAL STATEMENTS

FY 2016 Agency Financial Report—U.S. Department of Education 57

Credit Program Interest Expense and Interest Revenue 

The Department accrues interest receivable and records interest revenue on performing direct 

loans and FFEL loans purchased by the Department. The Department recognizes interest 

income when interest is accrued on loans to the public for the Direct Loan, FFEL, and other 

loan programs. FFEL financing and liquidating accounts accrue interest as part of allowance for 

subsidy. 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 fund balance 

with Treasury for the Direct Loan, FFEL, and other loan programs. 

Federal interest expense is recognized on the outstanding borrowing from Treasury (debt) used 

to finance loans. The interest rate for federal interest expense is the same as the rate used for 

federal interest revenue. 

Interest expense and interest revenue are equal for all credit programs due to subsidy 

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

between interest accruals and interest 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 11) 

Net Position 

Net position consists of unexpended appropriations and cumulative results of operations. 

Unexpended appropriations include undelivered orders and unobligated balances, except for 

amounts in financing accounts, liquidating accounts, and trust funds. Cumulative results of 

operations represent the net difference since inception between (1) expenses and (2) revenues 

and financing sources. 

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. 

Retirement Plans and Other Retirement Benefits. Employees participate in either the Civil 

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

Retirement System (FERS), a defined benefit and contribution plan. For CSRS employees, the 

Department contributes a fixed percentage of pay. 

FERS consists of Social Security, a basic annuity plan, and the Thrift Savings Plan. The 

Department and the employee contribute to Social Security and the basic annuity plan at rates 

prescribed by law. In addition, the Department is required to contribute to the Thrift Savings 

Plan a minimum of 1 percent per year of the basic pay of employees covered by this system, 

match voluntary employee contributions up to 3 percent of the employee’s basic pay, and 

match one-half of contributions between 3 percent and 5 percent of the employee’s basic pay. 

For FERS employees, the Department also contributes the employer’s share of Medicare. 

Contributions for CSRS, FERS, and other retirement benefits are insufficient to fund the 

programs fully and are subsidized by the Office of Personnel Management (OPM). The 

Department imputes its share of the OPM subsidy, using cost factors provided by OPM, and 

reports the full cost of the programs related to its employees. 

Federal Employees’ Compensation Act. The Federal Employees’ Compensation Act (FECA) 

provides income and medical cost protection to covered federal civilian employees injured on 

the job, employees who have incurred work-related occupational diseases, and beneficiaries of 

employees whose deaths are attributable to job-related injuries or occupational diseases. The 
FINANCIAL SECTION 

NOTES TO THE FINANCIAL STATEMENTS

58 FY 2016 Agency Financial Report—U.S. Department of Education 

FECA program is administered by the U.S. Department of Labor (DOL), which pays valid 

claims and subsequently seeks reimbursement from the Department for these paid claims. 

The FECA liability consists of two components. The first component is based on actual claims 

paid and recognized by the Department as a liability. Generally, the Department reimburses 

DOL within two to three years once funds are appropriated. The second component is the 

estimated liability for future benefit payments based on unforeseen events, such as death, 

disability, medical, and miscellaneous costs as determined by DOL annually. (See Notes 6 and 

9) 

Reclassifications 

Certain reclassifications were made to the prior year financial statements and notes to conform 

to the current year presentation. These changes had no effect on total assets, liabilities and net 

position, net cost of operations, or budgetary resources. Changes made to the balance sheet 

provide additional information related to credit program receivables and related liability 

balances, and immaterial balances were aggregated and consolidated into other lines. 

Components of the prior year Direct Loan subsidy transfers were reclassified in Note 5 to better 

reflect the fiscal year of underlying loan disbursement versus actual subsidy disbursement; the 

total FY 2015 Direct Loan subsidy transfers was not affected. Additionally, changes were made 

to the Statement of Budgetary Resources in accordance with OMB Circular A-136, Financial 

Reporting Guidance, to disaggregate end of year expired unobligated balances and recoveries 

of prior year unpaid obligations. 

Note 2. Non-Entity Assets 

As of September 30, 2016 and 2015, non-entity assets consisted of the following: 

Non-Entity Assets 

(Dollars in Millions)

 2016 2015 

Non-Entity Assets Intragovernmental 

 With the 

Public 

 Intragovernmental  With the 

Public 

Fund Balance with Treasury $ 231 $ - $ 69 $ - 

Credit Program Receivables, Net - 449 - 410 

Other Assets 

 Guaranty Agencies' Federal Funds 

 - 1,197 - 1,561 

 Accounts Receivable, Net 

 - 69 - 67 

Total Non-Entity Assets 

 231 1,715 69 2,038 

Entity Assets 96,634 1,076,227 103,628 1,017,384 

Total Assets $ 96,865 $ 1,077,942 $ 103,697 $ 1,019,422 

The Department’s FY 2016 assets are predominantly entity assets (99.8 percent), leaving the 

small portion of assets remaining as non-entity assets. Non-entity intragovernmental assets 

primarily consist of balances in non-agency receipt accounts, deposit accounts and clearing 

accounts. Non-entity assets with the public primarily consist of guaranty agency reserves (69.8 

percent), reported as Guaranty Agencies’ Federal Funds, and related Federal Perkins Loan 

program loan receivables (26.2 percent), reported as credit program receivables, net. Federal 

Perkins Loan program receivables are a non-entity asset because the assets are held by the 

Department but are not available for use by the Department. The corresponding liabilities for 

these non-entity assets are reflected in various accounts, including intragovernmental accounts 

payable, Guaranty Agencies’ Federal Funds Due to Treasury, and other liabilities. (See Note 9)
FINANCIAL SECTION

NOTES TO THE FINANCIAL STATEMENTS

FY 2016 Agency Financial Report—U.S. Department of Education 59

Note 3. Fund Balance with Treasury 

Fund Balance with Treasury by status of funds and fund type, as of September 30, 2016 and 

2015, consisted of the following: 

Fund Balance with Treasury 

(Dollars in Millions)

 

 2016 

General 

Funds

Revolving 

Funds

Special 

Funds

Trust 

Funds

All Other 

Funds Total 

Status of Funds 

Unobligated Balance 

 Available $ 10,280 $ - $ - $ - $ - $ 10,280 

 Unavailable 902 15,480 12 - - 16,394 

Obligated Balance, not Disbursed 54,240 15,630 1 - - 69,871 

Other - - - - 218 218 

Total Fund Balance with Treasury $ 65,422 $ 31,110 $ 13 $ - $ 218 $ 96,763 

 2015 

General 

Funds

Revolving 

Funds

Special 

Funds

Trust 

Funds

All Other 

Funds Total 

Status of Funds 

Unobligated Balance 

 Available $ 11,805 $ 550 $ - $ 1 $ - $ 12,356 

 Unavailable 1,394 13,886 14 - - 15,294 

Obligated Balance, not Disbursed 52,638 23,260 1 1 - 75,900 

Other - - - - 69 69 

Total Fund Balance with Treasury $ 65,837 $ 37,696 $ 15 $ 2 $ 69 $ 103,619 

Composition of Funds 

A portion of the general funds is provided in advance by multiyear appropriations for obligations 

anticipated during the current and future fiscal years. Revolving funds are derived from 

borrowings, as well as collections from the public and other federal agencies. Special funds 

include fees collected on delinquent or defaulted Perkins loans that have reverted back to the 

Department from the initial lenders. Trust funds generally consist of remaining undisbursed 

donations for the hurricane relief activities. 

Status of Funds 

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 ($16,394 million) 

differs from unapportioned and expired amounts on the SBR ($17,591 million) due to the 

Guaranty Agencies’ Federal Funds ($1,197 million). 
FINANCIAL SECTION 

NOTES TO THE FINANCIAL STATEMENTS

60 FY 2016 Agency Financial Report—U.S. Department of Education 

Note 4. Other Assets 

Other assets, as of September 30, 2016 and 2015, were comprised of the following:

Other Assets 

(Dollars in Millions)

 2016 2015 

 Intragovernmental  With the 

Public 

Intragovernmental 

 With the 

Public 

Guaranty Agencies' Federal Funds $ - $ 1,197 $ - $ 1,561 

Accounts Receivable, Net 1 137 2 101 

Advances 101 3 76 2 

Property and Equipment, Net - 24 - 21 

Other - 2 - 4 

Total Other Assets $ 102 $ 1,363 $ 78 $ 1,689 

Note 5. Credit Programs for Higher Education: Credit Program 

Receivables, Net and Liabilities for Loan Guarantees 

The Department currently operates two major student loan programs, Direct Loan and FFEL. 

The Direct Loan program offers four types of loans: Stafford, Unsubsidized Stafford, PLUS, and 

Consolidation. Evidence of financial need is required for an undergraduate student to receive a 

subsidized Stafford loan. The other three loan programs are available to borrowers at all 

income levels. Loans can be used only to meet qualified educational expenses. 

The Department holds $1,076.6 billion in outstanding credit program net receivables. This 

outstanding balance is comprised primarily of direct loans, defaulted FFEL loans, and FFEL 

loans purchased using authority provided in the Ensuring Continued Access to Student Loans 

Act of 2008 (ECASLA). There are several other loan programs that the Department 

administers—including the Federal Perkins Loan program, TEACH grant program, HEAL 

program, and the Facilities Loan programs. 
FINANCIAL SECTION

NOTES TO THE FINANCIAL STATEMENTS

FY 2016 Agency Financial Report—U.S. Department of Education 61

Credit program receivables, as of September 30, 2016 and 2015, consisted of the following: 

Credit Program Receivables, Net 

(Dollars in Millions)

 2016 

Principal Accrued 

Interest 

Allowance for 

Subsidy Net 

Direct Loan Program $ 902,754 $ 50,835 $ 5,292 $ 958,881 

FFEL Program 109,804 18,191 (13,125) 114,870 

Other Credit Programs for Higher Education 2,988 389 (549) 2,828 

Total Credit Receivables $ 1,015,546 $ 69,415 $ (8,382) $ 1,076,579 

2015 

Principal Accrued 

Interest 

Allowance for 

Subsidy* Net 

Direct Loan Program $ 800,811 $ 44,250 $ 35,496 $ 880,557 

FFEL Program 114,704 17,529 2,471 134,704 

Other Credit Programs for Higher Education 2,876 361 (765) 2,472 

Total Credit Receivables $ 918,391 $ 62,140 $ 37,202 $ 1,017,733 

* Includes allowance for subsidy and liability for loan guarantees 

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 a comprehensive description of the 

student loan programs at the Department, including summary financial data and subsidy rates. 

William D. Ford Federal 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. 

The Department records an estimated obligation each year for direct loan awards to be made 

in a fiscal year based on estimates of schools’ receipt of aid applications. 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 estimate may also not reflect the 

actual amount of awards made. Based on historical averages, the Department expects 

approximately 6.2 percent of the amount obligated for new loan awards will not be disbursed. 

Direct Loan program loan receivables includes defaulted and nondefaulted loans owned and 

held by the Department. Of the $953.6 billion in gross receivables, as of September 30, 2016, 

$57.3 billion (6.0 percent) in loan principal was in default and had been transferred to the 

Department’s defaulted loan servicer, compared to $44.1 billion (5.2 percent) as of September 

30, 2015. 

The allowance for subsidy represents the estimated cost (to taxpayers) of financing the entire 

loan program for all loans outstanding. The subsidy cost figures are estimated using OMBreviewed financial modeling methodologies which are subject to the FCRA. The allowance is 

the aggregate of all positive and negative subsidies as well as modification adjustments, at a 

point in time, for the current fiscal year and all those prior. 

Positive subsidies, which are resources provided by Treasury to the Department for continuing 

loan origination and servicing activities, are required when estimated program cash outflows 
FINANCIAL SECTION 

NOTES TO THE FINANCIAL STATEMENTS

62 FY 2016 Agency Financial Report—U.S. Department of Education 

are expected to exceed inflows. Alternatively, when the estimated cash inflows are expected to 

exceed outflows, the Department transfers excess subsidy funds back to the Treasury 

(negative subsidy transfers). Positive subsidy increases aggregate program costs and negative 

subsidy decreases aggregate program costs to taxpayers. 

The estimation process used to determine the amount of positive or negative subsidy expense 

each fiscal year, and subsequently the cumulative taxpayer cost of the program (allowance for 

subsidy), is subject to various internal and external risk factors which often show strong 

interdependence with one another. These risks include uncertainty about changes in the 

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

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

Due to the complexity of the Direct Loan program, there is inherent projection risk in the 

process used for estimating long-term program costs. As stated, some uncertainty stems from 

potential changes in student loan legislation and regulations because these changes may 

fundamentally alter the cost structure of the program. Operational and policy shifts, such as 

growing efforts to increase borrower enrollment in income-driven repayment (IDR) plans, may 

also affect program costs by causing significant changes in borrower repayment timing. Actual 

performance may deviate from estimated performance, which is not unexpected given the longterm nature of these loans (cash flows may be estimated up to 40 years), and the multitude of 

projection paths and possible outcomes. The increasing enrollment of borrowers in the IDR 

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

uncertainty is directly tied to the macroeconomic climate and is another inherent program 

element which displays the interrelated risks facing the Direct Loan program. 

The following schedule provides a reconciliation between the beginning and ending balances of 

the allowance for subsidy for the Direct Loan program: 

Direct Loan Program Reconciliation of Allowance for Subsidy 

(Dollars in Millions)

 2016 2015 

Beginning Balance, Allowance for Subsidy $ (35,496) $ (47,358) 

Activity 

Fee Collections 1,685 1,618 

Loan Cancellations (5,065) (4,777) 

Subsidy Allowance Amortization 17,815 16,373 

Other (350) (460) 

Total Activity 14,085 12,754 

Subsidy Expense for Direct Loans Disbursed in the Current Year by 

Component 

Interest Rate Differential (15,463) (15,555) 

Defaults, Net of Recoveries (127) 217 

Fees (1,993) (1,678) 

Other 11,887 10,830 

Total of the Above Subsidy Expense Components (5,696) (6,186) 

Loan Modification - 9,936 

Components of Subsidy Re-estimates 

Interest Rate Re-estimates (1,536) 1,506 

Technical and Default Re-estimates 23,351 (6,148) 

Upward/(Downward) Subsidy Re-estimates 21,815 (4,642) 

Ending Balance, Allowance for Subsidy $ (5,292) $ (35,496) 
FINANCIAL SECTION

NOTES TO THE FINANCIAL STATEMENTS

FY 2016 Agency Financial Report—U.S. Department of Education 63

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

declared bankruptcy. The interest rate re-estimate reflects the cost of finalizing the Treasury 

borrowing rate to be used for borrowings received to fund the disbursed portion of the loan 

awards obligated. The remaining components of subsidy expense for direct loans disbursed in 

the current year consist of contract collection costs, program review collections, fees, loan 

forgiveness under PAYE and other accruals. Components of the FY 2015 subsidy expense for 

direct loans disbursed in the current year were reclassified to better reflect the fiscal year of 

underlying loan disbursement versus actual subsidy disbursement. Due to the interaction of the 

timing of disbursements by loan type and other underlying subsidy rates, the bulk of these 

expenses for both the 2015 cohort and 2016 cohort were recorded in FY 2016. 

The following schedule summarizes the Direct Loan interest expense and interest revenue for 

the years ended September 30, 2016 and 2015: 

Direct Loan Program Interest Expense and Revenue 

(Dollars in Millions)

 2016 2015 

Interest Expense on Treasury Borrowing $ 30,503 $ 27,593 

Total Interest Expense $ 30,503 $ 27,593 

Interest Revenue from the Public $ 44,375 $ 39,760 

Amortization of Subsidy (17,815) (16,373) 

Interest Revenue on Uninvested Funds 3,943 4,206 

Total Interest Revenue $ 30,503 $ 27,593 

The following schedule summarizes the Direct Loan subsidy expense for the years ended 

September 30, 2016 and 2015: 

Direct Loan Program Subsidy Expense 

(Dollars in Millions)

 2016 2015 

Subsidy Expense for New Direct Loans Disbursed 

Interest Rate Differential $ (15,463) $ (15,555) 

Defaults, Net of Recoveries (127) 217 

Fees (1,993) (1,678) 

Other 11,887 10,830 

Total Subsidy Expense for New Direct Loans Disbursed (5,696) (6,186) 

Loan Modification - 9,936 

Upward/(Downward) Subsidy Re-estimates 21,815 (4,642) 

Direct Loan Subsidy Expense $ 16,119 $ (892) 

Direct Loan program re-estimated subsidy cost was adjusted upward by $21.8 billion in 

FY 2016. The re-estimates reflect several updated assumptions: however, in this case, the size 

of the net upward re-estimate was due largely to collection rates on defaulted loans and 

repayment plan selection. Actual collections on defaults since FY 2011 were lower than 

anticipated, which reduced estimated lifetime rates and increased the cost to the Department 

by $10.1 billion. For repayment plan selection, a greater percentage of borrowers chose costlier 

plans than had been estimated and increased the cost to the Department by $8.1 billion. The 
FINANCIAL SECTION 

NOTES TO THE FINANCIAL STATEMENTS

64 FY 2016 Agency Financial Report—U.S. Department of Education 

percentage of borrowers choosing an income-driven repayment plan was the primary cost 

driver for that assumption. 

Subsidy rates are sensitive to the difference between the borrowers’ rates and the rate the 

Department is charged by Treasury on the debt to fund the loans; for example, a 1 percent 

increase in projected borrower interest rates would reduce projected direct loan subsidy cost by 

$4.8 billion. Re-estimated costs only include cohorts that are 90 percent disbursed; cohort 

years 1994–2015. With the increase in income-driven repayment participation, the Department 

also conducted sensitivities on incomes for students in IDR and Public Service Loan 

Forgiveness (PSLF) plans. A 10 percent upward increase in borrower incomes decreases costs 

almost $8.7 billion for cohorts 1994–2015. A 10 percent increase in PSLF plan participation 

would increase costs $6.3 billion for cohorts 1994–2015. 

Direct Loan program re-estimated subsidy cost was adjusted downward by $4.6 billion in 

FY 2015. Updated discount rates for the 2014 and 2013 cohorts decreased cost by $6.2 billion. 

Higher participation in income-dependent repayment plans increased cost by $15 billion. The 

introduction of a new model for estimating income-driven repayment plan costs resulted in a 

decrease in subsidy costs by $5.8 billion. Costs increased $1.8 billion due to increases in 

default rates. Changes in prepayment rates reflect larger than expected prepayment activity, 

leading to decreased interest earnings, resulting in $3.5 billion in upward subsidy cost. Costs 

decreased $5.7 billion due to higher forbearance rates. Interest accrues during forbearance 

and that interest is eventually paid to the Department. Other assumption updates produced 

offsetting costs, with the remainder attributable to interest on the re-estimate. 

FY 2015 Modification. Recorded subsidy cost of a loan is based on a set of assumed future 

cash flows. Government actions that change these assumed future cash flows change subsidy 

cost and are recorded as loan modifications. Loan modifications are recognized under the 

same accounting principle as subsidy re-estimates. Modification adjustment transfers are 

required to adjust for the difference between the discount rate used to calculate the cost of the 

modification and the interest rate at which the cohort pays or earns interest. 

The Department modified direct loans in FY 2015. Borrowers formerly ineligible for a more 

generous PAYE repayment plan became eligible for a modified version of PAYE leading to 

increased costs, resulting in a $9.3 billion upward modification of subsidy cost and a 

$629 million net upward modification adjustment transfer. In FY 2015, the Department forgave 

$2.1 billion in interest for borrowers participating in the PAYE/income-based repayment (IBR) 

plans, which provide that, if the borrower’s monthly payment amount is not sufficient to pay the 

accrued interest on the borrower’s direct subsidized loan or the subsidized portion of a direct 

consolidation loan, the Secretary does not charge the borrower the remaining accrued interest 

for a period not to exceed three consecutive years from the established repayment period start 

date on that loan under the PAYE/IBR plan. 

The subsidy rates applicable to the 2016 loan cohort year follow: 

Direct Loan Subsidy Rates—Cohort 2016

Interest 

Differential Defaults Fees Other Total 

Stafford 6.82% 1.56% (1.68)% 4.98% 11.68% 

Unsubsidized Stafford (8.34)% 1.06% (1.68)% 6.24% (2.72)% 

PLUS (22.04)% 0.78% (4.27)% 5.38% (20.15)% 

Consolidation 3.32% (0.50)% 0.00% 10.68% 13.50% 

Total (4.40)% 0.65% (1.58)% 7.18% 1.85% 

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 
FINANCIAL SECTION

NOTES TO THE FINANCIAL STATEMENTS

FY 2016 Agency Financial Report—U.S. Department of Education 65

expense for new direct loans reported in the current year relates to disbursements of loans 

from both current and prior years’ cohorts. Subsidy expense is recognized when the 

Department disburses direct loans. The subsidy expense reported in the current year may 

include re-estimates. The subsidy rates shown above, which reflect aggregate positive subsidy 

in the FY 2016 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 2018 President’s Budget.

The subsidy costs of the Department’s student loan programs, especially the Direct Loan 

program, are highly sensitive to changes in actual and forecasted interest rates. The formulas 

for determining program interest rates are established by statute; the existing loan portfolio has 

a mixture of borrower and lender rate formulas. Interest rate projections are based on 

probabilistic interest rate scenario inputs developed and provided by OMB. 

The following schedule summarizes the Direct Loan program loan disbursements by loan type 

for the years ended September 30, 2016 and 2015: 

Direct Loan Program Loan Disbursements by Loan Type 

(Dollars in Millions)

 2016 2015 

Stafford $ (23,752) $ (23,953) 

Unsubsidized Stafford (52,254) (52,698) 

PLUS (19,001) (19,163) 

Consolidation (45,518) (46,434) 

Total Expenditures $ (140,525) $ (142,248) 

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

trend information. 

Student and parent borrowers may prepay existing loans without penalty through a new 

consolidation loan. Under the FCRA and requirements provided by OMB regulations, the 

retirement of direct loans being consolidated is considered a collection of principal and interest. 

This receipt is offset by the disbursement related to the newly created consolidation loan. 

Underlying direct or guaranteed loans, performing or nonperforming, are paid off in their 

original cohort; new consolidation loans are originated in the cohort in which the new 

consolidation loan was obligated. Consolidation activity is taken into consideration in 

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

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

loans could contribute to re-estimates of prior cohort subsidy costs. The net receivables include 

estimates of future prepayments of existing loans through consolidations; they do not reflect 

subsidy costs associated with anticipated future consolidation loans. 

Direct loan consolidations were $46 billion during both FY 2016 and FY 2015. Under the FCRA, 

the subsidy costs of new consolidation loans are not reflected until the future fiscal year in 

which they are disbursed. The effect of the early payoff of the existing loans—those being 

consolidated—is recognized in the future projected cash flows of the past cohort year in which 

the loans were originated. 

Federal Family Education Loan Program. As a result of the SAFRA Act, no new FFEL loans 

have been made since July 1, 2010. Federal guarantees on FFEL program loans and 

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

Department through an ECASLA program, consolidated into a direct loan, or otherwise 

satisfied, discharged, or cancelled. As of September 30, 2016 and 2015, total principal 
FINANCIAL SECTION 

NOTES TO THE FINANCIAL STATEMENTS

66 FY 2016 Agency Financial Report—U.S. Department of Education 

balances outstanding of guaranteed loans held by lenders were approximately $197 billion and 

$220 billion, respectively. As of September 30, 2016 and 2015, the estimated maximum 

government exposure on outstanding guaranteed loans held by lenders was approximately 

$193 billion and $215 billion, respectively. Of the insured amount, the Department would pay a 

smaller amount to the guaranty agencies. The rates range from 75 to 100 percent of the loan 

value depending on when the loan was made and the guaranty agency’s claim experience. 

FFEL Program Loan Receivables 

(Dollars in Millions)

 2016 

Principal Accrued 

Interest 

Allowance 

for Subsidy 

Loan 

Guarantee 

Liability 

Net 

FFEL GSL Program (Pre-1992) $ 4,087 $ 5,674 $ (7,622) $ - $ 2,139 

FFEL GSL Program (Post-1991) 35,645 6,562 (12,398) - 29,809 

Loan Purchase Commitment 23,867 2,090 2,922 - 28,879 

Loan Participation Purchase 44,434 3,600 4,347 - 52,381 

ABCP Conduit 1,771 265 (374) - 1,662 

FFEL Program Loan Receivables $ 109,804 $ 18,191 $ (13,125) $ - $ 114,870 

 2015 

Principal Accrued 

Interest 

Allowance 

for Subsidy 

Loan 

Guarantee 

Liability 

Net 

FFEL GSL Program (Pre-1992) $ 4,388 $ 6,149 $ (8,162) $ (10) $ 2,365 

FFEL GSL Program (Post-1991) 33,415 5,756 (4,389) 3,398 38,180 

Loan Purchase Commitment 26,474 1,981 4,410 - 32,865 

Loan Participation Purchase 48,540 3,403 7,573 - 59,516 

ABCP Conduit 1,887 240 (349) - 1,778 

FFEL Program Loan Receivables $ 114,704 $ 17,529 $ (917) $ 3,388 $ 134,704 

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 FFEL guaranteed student loan financing account had a negative estimated liability for loan 

guarantees of $3.4 billion as of September 30, 2015. This indicated that expected collections 

on anticipated future defaulted loans was in excess of default disbursements, calculated on a 

net present value basis. Under GAAP, the negative estimated liability as of September 30, 

2015, was classified as a component of credit program receivables on the consolidated 

balance sheet. 
FINANCIAL SECTION

NOTES TO THE FINANCIAL STATEMENTS

FY 2016 Agency Financial Report—U.S. Department of Education 67

The following schedule provides a reconciliation between the beginning and ending balances of 

the liability for loan guarantees for the insurance portion of the FFEL program: 

FFEL Program Reconciliation of Liabilities for Loan Guarantees 

(Dollars in Millions)

 2016 2015 

Beginning Balance, FFEL Financing Account Liability for Loan Guarantees $ (3,398) $ (4,218) 

Activity 

Interest Supplement Payments (830) (896) 

Claim Payments (6,678) (6,917) 

Fee Collections 1,731 1,926 

Interest on Liability Balance (1,766) (1,826) 

Other 5,648 12,797 

Total Activity (1,895) 5,084 

Components of Loan Modification 

Loan Modification Costs 151 - 

Modification Adjustment Transfers 24 - 

Loan Modification 175 - 

Upward/(Downward) Subsidy Re-estimates 6,535 (4,264) 

Ending Balance, FFEL Financing Account Liability for Loan Guarantees 1,417 (3,398) 

FFEL Liquidating Account Liability for Loan Guarantees 12 10 

FFEL Liabilities for Loan Guarantees $ 1,429 $ (3,388) 

 

Other activity includes negative special allowance collections, collections on defaulted FFEL 

loans, guaranty agency expenses, and loan cancellations due to death, disability, or 

bankruptcy. 
FINANCIAL SECTION 

NOTES TO THE FINANCIAL STATEMENTS

68 FY 2016 Agency Financial Report—U.S. Department of Education 

The following schedules provide reconciliations between the beginning and ending balances of 

the allowance for subsidy for the loan purchase commitment component and the loan 

participation purchase component of the FFEL program. Loans in these programs are loans 

acquired by the Department. Acquired loans are reported at their net present value of future 

cash flows. 

Loan Purchase Commitment Reconciliation of Allowance for Subsidy 

(Dollars in Millions)

 2016 2015 

Beginning Balance, Allowance for Subsidy $ (4,410) $ (5,228) 

Activity 

Subsidy Allowance Amortization 644 724 

Loan Cancellations (193) (274) 

Contract Collection Cost and Other (40) (40) 

Total Activity 411 410 

Upward/(Downward) Subsidy Re-estimates 1,077 408 

Ending Balance, Allowance for Subsidy $ (2,922) $ (4,410) 

Loan Participation Purchase Reconciliation of Allowance for Subsidy 

(Dollars in Millions)

 2016 2015 

Beginning Balance, Allowance for Subsidy $ (7,573) $ (8,373) 

Activity 

Subsidy Allowance Amortization 1,208 1,362 

Loan Cancellations (355) (518) 

Direct Asset Activities (74) (44) 

Total Activity 779 800 

Upward/(Downward) Subsidy Re-estimates 2,447 - 

Ending Balance, Allowance for Subsidy $ (4,347) $ (7,573) 

The following schedule provides FFEL program subsidy expense for the years ended 

September 30, 2016 and 2015, respectively: 

FFEL Program Subsidy Expense 

(Dollars in Millions)

 2016 2015 

FFEL Loan Guarantee Program Subsidy Re-estimates $ 6,535 $ (4,264) 

Loan Purchase Commitment Subsidy Re-estimates 1,077 408 

Loan Participation Purchase Subsidy Re-estimates 2,447 - 

FFEL Program Upward/(Downward) Subsidy Re-estimates 10,059 (3,856) 

FFEL Guaranteed Loan Program Modification Costs 175 - 

FFEL Program Subsidy Expense $ 10,234 $ (3,856) 

FFEL guaranteed re-estimated subsidy cost was adjusted upward by $10.2 billion in FY 2016. 

The net upward re-estimates in these programs were due primarily to collection rates on 

defaulted loans which were lower than anticipated. 

Subsidy rates are sensitive to interest rate fluctuations; for example, a 1 percent increase in 

borrower interest rates and the guaranteed yield for lenders would increase projected FFEL 

subsidy costs by $16.6 billion. 

FFEL guaranteed re-estimated subsidy cost was adjusted downward by $3.9 billion in FY 2015. 

Subsidy costs decreased $2.1 billion due to updated economic assumptions, including 
FINANCIAL SECTION

NOTES TO THE FINANCIAL STATEMENTS

FY 2016 Agency Financial Report—U.S. Department of Education 69

probabilistic deterministic rates, which reflected historically low commercial paper rates, 

resulting in substantially higher negative special allowance payments. Subsidy costs decreased 

$706 million due to lower deferment rates on consolidated loans that have subsidized 

components of outstanding debt. The Department pays interest benefits when loans are in 

deferment, so lower deferment rates mean less interest benefits when loans are in deferment 

and thus, less interest benefit payments to lenders. Other assumption updates produced 

offsetting subsidy costs, with the remainder attributable to interest on the re-estimate. 

FY 2016 Modification. In the FFEL program, private lenders provided loan capital, backed by 

a federal guarantee on the loans. The federal government provided interest subsidies to 

lenders and reimbursement to guaranty agencies for most of the costs associated with loan 

defaults and other loan cancellations. The Consolidated Appropriations Act, 2016, increased 

the guaranty agencies’ maximum reinsurance percentage on default claims from 95 percent to 

100 percent. State and private nonprofit guaranty agencies provide services that include: 

insurance payments to lenders for defaults, collection of some defaulted loans, default 

avoidance activities, and counseling to schools, students, and lenders. 

Other Credit Programs for Higher Education 

Receivables, Net for Other Credit Programs for Higher Education 

(Dollars in Millions)

 2016 

Principal Accrued 

Interest 

Allowance 

for Subsidy 

Loan 

Guarantee 

Liability 

Net 

Federal Perkins Loans $ 385 $ 242 $ (178) $ - $ 449 

TEACH Program Loans 698 101 (109) - 690 

HEAL Program Loans 405 31 (99) - 337 

Facilities Loan Programs 1,500 15 (163) - 1,352 

Total $ 2,988 $ 389 $ (549) $ - $ 2,828 

 2015 

Principal Accrued 

Interest 

Allowance 

for Subsidy 

Loan 

Guarantee 

Liability 

Net 

Federal Perkins Loans $ 356 $ 222 $ (168) $ - $ 410 

TEACH Program Loans 642 97 (108) - 631 

HEAL Program Loans 415 28 (127) (193) 123 

Facilities Loan Programs 1,463 14 (169) - 1,308 

Total $ 2,876 $ 361 $ (572) $ (193) $ 2,472 

Federal Perkins Loan Program. The Federal Perkins Loan program provides low-interest 

loans to eligible postsecondary school students. In some statutorily defined cases, funds are 

provided to reimburse schools for loan cancellations. For defaulted loans assigned to the 

Department, collections of principal, interest, and fees, net of amounts paid by the Department 

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

TEACH Grant Program. 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. Since grants can be converted to direct loans, for budget and accounting purposes, the 

program is operated as a loan program under the FCRA. 
FINANCIAL SECTION 

NOTES TO THE FINANCIAL STATEMENTS

70 FY 2016 Agency Financial Report—U.S. Department of Education 

The subsidy rates applicable to the 2016 loan cohort year follow: 

TEACH Subsidy Rates—Cohort 2016

 

 Interest 

Differential Defaults Fees Other Total 

Subsidy Rates 6.23% 0.21% 0.00% 6.61% 13.05% 

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 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 $235 million obligated to support 

near term lending as of September 30, 2016. 

The Department administers the College Housing and Academic Facilities Loan (CHAFL) 

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. 

Administrative Expenses 

Administrative expenses, for the years ended September 30, 2016 and 2015, consisted of the 

following: 

Administrative Expenses 

(Dollars in Millions)

 2016 2015 

Direct Loan 

Program 

FFEL

Program 

Direct Loan 

Program 

FFEL

Program 

Operating Expense $ 721 $ 465 $ 653 $ 442 

Other Expense 50 33 28 18 

Total $ 771 $ 498 $ 681 $ 460 
FINANCIAL SECTION

NOTES TO THE FINANCIAL STATEMENTS

FY 2016 Agency Financial Report—U.S. Department of Education 71

Note 6. Liabilities Not Covered by Budgetary Resources 

Liabilities not covered by budgetary resources include liabilities for which congressional action 

is needed before budgetary resources can be provided. Although future appropriations to fund 

these liabilities are likely, it is not certain that appropriations will be enacted to fund these 

liabilities. 

Liabilities Not Covered by Budgetary Resources 

(Dollars in Millions)

2016 2015 

Intragovernmental With the 

Public 

Intragovernmental With the 

Public 

Liabilities Not Covered by Budgetary Resources 

 Subsidy Due to Treasury General Fund $ 2,429 $ - $ 2,786 $ - 

 Other Liabilities 

 Federal Perkins Loan Program 437 - 395 - 

 Accrued Unfunded Annual leave - 40 - 38 

 FECA Liabilities 8 1 3 16 

 Custodial Liabilities 2 - - - 

Total Liabilities Not Covered by Budgetary Resources $ 2,876 $ 41 $ 3,184 $ 54 

Total Liabilities Covered by Budgetary Resources 1,129,411 9,642 1,058,889 6,189 

Total Liabilities $ 1,132,287 $ 9,683 $ 1,062,073 $ 6,243 

Note 7. Debt 

Debt, as of September 30, 2016 and 2015, consisted of the following: 

Debt 

(Dollars in Millions)

2016 

Beginning 

Balance Borrowing Repayments Ending 

Balance 

Direct Loan Program $ 909,927 $ 146,992 $ (62,634) $ 994,285 

FFEL Program 139,771 160 (8,584) 131,347 

Other Credit Programs for Higher Education 2,078 224 (111) 2,191 

Total $ 1,051,776 $ 147,376 $ (71,329) $ 1,127,823 

 2015 

Beginning 

Balance Borrowing Repayments Ending Balance 

Direct Loan Program $ 819,007 $ 159,667 $ (68,747) $ 909,927 

FFEL Program 145,800 2,557 (8,586) 139,771 

Other Credit Programs for Higher Education 1,864 268 (54) 2,078 

Total $ 966,671 $ 162,492 $ (77,387) $ 1,051,776 

The Department borrows from Treasury to fund the disbursement of new loans and the 

payment of credit program outlays and related costs. During FY 2016, debt increased 7 percent 

from $1,052 billion in the prior year to $1,128 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. 
FINANCIAL SECTION 

NOTES TO THE FINANCIAL STATEMENTS

72 FY 2016 Agency Financial Report—U.S. Department of Education 

Approximately 88.2 percent of the Department’s debt, as of September 30, 2016, 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 2016, TEACH net borrowing of $67 million was used for the advance of 

new grants and repayments of principal made to Treasury. In FY 2016, debt in HBCU 

increased by $63 million, or 4.52 percent. This total represents the aggregate of new bonds 

administered and repayments made on previously issued bonds. 

Note 8. Subsidy Due to Treasury General Fund 

Subsidy Due to Treasury General Fund 

(Dollars in Millions)

2016 2015 

Credit Program Downward Subsidy Re-estimates 

 Direct Loan Program $ - $ 1,474 

 FFEL Program 213 3,977 

Total Credit Program Downward Subsidy Re-estimates 213 5,451 

Future Liquidating Account Collections 

 FFEL Program 2,253 2,603 

 Other Credit Programs for Higher Education 176 183 

Total Future Liquidating Account Collections 2,429 2,786 

Total Subsidy Due to Treasury General Fund $ 2,642 $ 8,237 

When downward subsidy re-estimates are executed, the amounts will be transferred to the 

Treasury General Fund in the following fiscal year. Future liquidating account collections 

represent the net present value of estimated future excess collections (estimated collections in 

excess of estimated outlays) for the Department’s pre-1992 FFEL and HEAL loan programs. 

When collected, these liquidating account excess collections will also be returned to the 

Treasury General Fund. 
FINANCIAL SECTION

NOTES TO THE FINANCIAL STATEMENTS

FY 2016 Agency Financial Report—U.S. Department of Education 73

Note 9. Other Liabilities 

Other liabilities, as of September 30, 2016 and 2015, consisted of the following: 

Other Liabilities 

(Dollars in Millions)

 

2016 2015 

 Intragovernmental  With the 

Public 

 Intragovernmental  With the 

Public 

Accounts Payable $ 1 $ 3,966 $ 1 $ 3,695 

Accrued Grant Liability - 3,760 - 2,377 

Guaranty Agencies' Funds Due to Treasury 1,197 - 1,561 - 

Loan Guarantee Liability - 1,633 - - 

Federal Perkins Loan Program 437 - 395 - 

Miscellaneous Receipt, Deposit Funds and Clearing 

Accounts 40 255 83 84 

Advances from Others and Deferred Credits 11 9 14 18 

Accrued Unfunded Annual Leave - 40 - 38 

FECA Liabilities 8 1 3 16 

Accrued Payroll and Benefits - 19 - 15 

Employer Contributions and Payroll Taxes 126 - 3 - 

Custodial Liability 2 - - - 

Total Other Liabilities $ 1,822 $ 9,683 $ 2,060 $ 6,243 
FINANCIAL SECTION 

NOTES TO THE FINANCIAL STATEMENTS

74 FY 2016 Agency Financial Report—U.S. Department of Education 

Note 10. Intragovernmental Cost and Exchange Revenue by 

Program 

As required by the GPRA Modernization Act of 2010, each of the Department’s major program 

offices has been aligned with the goals presented in the Department’s Strategic Plan 2014–

2018. Strategic Plan Goals 1–5 guide the Department’s program offices to carry out the vision 

and programmatic mission, and the net cost programs can be specifically associated with these 

five strategic goals. The Department also has a cross-cutting Strategic Plan Goal 6, U.S. 

Department of Education Capacity, focusing primarily upon improving the organizational 

capacities of the Department to implement the Strategic Plan Goals 1–5. The costs associated 

with Strategic Plan Goal 6 are allocated to Goals 1–5 based on the number of full-time 

employee equivalents of each program. Some principal offices support more than one 

Departmental strategic goal, but have been assigned to a single net cost program for the 

purposes of this table based on their primary area of support. 

Net Cost Program Program Office Strategic Goal 

Increase College Access, 

Quality, and Completion 

FSA 

OPE 

OCTAE 

Goal 1: Postsecondary Education, Career and 

Technical Education, and Adult Education. 

Increase college access, affordability, quality, and 

completion by improving postsecondary education 

and lifelong learning opportunities for youths and 

adults. 

Improve Preparation for 

College and Career from 

Birth Through 12th Grade, 

Especially for Children with 

High Needs 

OESE 

Goal 2: Elementary and Secondary Education.

Improve the elementary and secondary education 

system’s ability to consistently deliver excellent 

instruction aligned with rigorous academic standards 

while providing effective support services to close 

achievement and opportunity gaps, and ensure all 

students graduate high school college- and careerready. 

Goal 3: Early Learning. Improve the health, socialemotional, and cognitive outcomes for all children 

from birth through 3rd grade, so that all children, 

particularly those with high needs, are on track for 

graduating from high school college- and careerready. 

Ensure Effective Educational 

Opportunities for All Students 

OELA 

OCR 

OSERS 

Goal 4: Equity. Increase educational opportunities 

for underserved students and reduce discrimination 

so that all students are well-positioned to succeed. 

Enhance the Education 

System’s Ability to 

Continuously Improve 

IES 

OII 

Goal 5: Continuous Improvement of the U.S. 

Education System. Enhance the education 

system’s ability to continuously improve through 

better and more widespread use of data, research 

and evaluation, evidence, transparency, innovation, 

and technology. 
FINANCIAL SECTION

NOTES TO THE FINANCIAL STATEMENTS

FY 2016 Agency Financial Report—U.S. Department of Education 75

Gross Cost and Exchange Revenue by Program 

(Dollars in Millions)

2016 

 FSA OESE OSERS Other Total 

Increase College Access, Quality, and Completion 

Gross Cost 

 Intragovernmental $ 36,325 $ - $ - $ 120 $ 36,445 

 With the Public 56,707 - - 4,162 60,869 

Total Gross Program Costs 93,032 - - 4,282 97,314 

Earned Revenue 

 Intragovernmental (4,744) - - (6) (4,750) 

 With the Public (29,516) - - (50) (29,566) 

Total Program Earned Revenue (34,260) - - (56) (34,316) 

Total Program Costs 58,772 - - 4,226 62,998 

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

Children with High Needs 

Gross Cost 

 Intragovernmental - 183 - - 183 

 With the Public - 22,179 - 1 22,180 

Total Gross Program Costs - 22,362 - 1 22,363 

Earned Revenue 

 Intragovernmental - (5) - - (5) 

 With the Public - (11) - - (11) 

Total Program Earned Revenue - (16) - - (16) 

Total Program Costs - 22,346 - 1 22,347 

Ensure Effective Educational Opportunities for All Students 

Gross Cost 

 Intragovernmental - - 105 35 140 

 With the Public - - 15,973 812 16,785 

Total Gross Program Costs - - 16,078 847 16,925 

Earned Revenue 

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

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

Total Program Costs - - 16,068 846 16,914 

Enhance the Education System's Ability to Continuously Improve 

Gross Cost 

 Intragovernmental - - - 96 96 

 With the Public - - - 2,025 2,025 

Total Gross Program Costs - - - 2,121 2,121 

Earned Revenue 

 With the Public - - - (58) (58) 

Total Program Earned Revenue - - - (58) (58) 

Total Program Costs - - - 2,063 2,063 

Net Cost of Operations $ 58,772 $ 22,346 $ 16,068 $ 7,136 $ 104,322 
FINANCIAL SECTION 

NOTES TO THE FINANCIAL STATEMENTS

76 FY 2016 Agency Financial Report—U.S. Department of Education 

Gross Cost and Exchange Revenue by Program 

(Dollars in Millions) 

2015 

 FSA OESE OSERS Other Total 

Increase College Access, Quality, and Completion 

Gross Cost 

 Intragovernmental $ 33,873 $ - $ - $ 80 $ 33,953 

 With the Public 25,627 - - 4,117 29,744 

Total Gross Program Costs 59,500 - - 4,197 63,697 

Earned Revenue 

 Intragovernmental (5,134) - - (11) (5,145) 

 With the Public (26,413) - - (42) (26,455) 

Total Program Earned Revenue (31,547) - - (53) (31,600) 

Total Program Costs 27,953 - - 4,144 32,097 

Improve Preparation for College and Career from Birth Through 12th Grade, Especially for Children with High 

Needs 

Gross Cost 

 Intragovernmental - 179 - - 179 

 With the Public - 22,169 - 2 22,171 

Total Gross Program Costs - 22,348 - 2 22,350 

Earned Revenue 

 Intragovernmental - (12) - - (12) 

 With the Public - (8) - - (8) 

Total Program Earned Revenue - (20) - - (20) 

Total Program Costs - 22,328 - 2 22,330 

Ensure Effective Educational Opportunities for All Students 

Gross Cost 

 Intragovernmental - - 91 33 124 

 With the Public - - 15,776 756 16,532 

Total Gross Program Costs - - 15,867 789 16,656 

Earned Revenue 

 Intragovernmental - - (2) - (2) 

 With the Public - - (8) (1) (9) 

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

Total Program Costs - - 15,857 788 16,645 

Enhance the Education System's Ability to Continuously Improve 

Gross Cost 

 Intragovernmental - - - 100 100 

 With the Public - - - 2,312 2,312 

Total Gross Program Costs - - - 2,412 2,412 

Earned Revenue 

 Intragovernmental - - - (4) (4) 

 With the Public - - - (55) (55) 

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

Total Program Costs - - - 2,353 2,353 

Net Cost of Operations $ 27,953 $ 22,328 $ 15,857 $ 7,287 $ 73,425 
FINANCIAL SECTION

NOTES TO THE FINANCIAL STATEMENTS

FY 2016 Agency Financial Report—U.S. Department of Education 77

Note 11. Credit Program Interest Expense and Interest Revenue 

For FY 2016 and FY 2015, interest expense and interest revenue for credit programs consisted 

of the following: 

Credit Program Interest Expense and Interest Revenue 

(Dollars in Millions)

2016 

Interest 

Expense 

Subsidy 

Amortization 

Net 

Expense 

Gross Interest 

Revenue 

Subsidy 

Amortization 

Net 

Revenue 

Federal Nonfederal Federal Nonfederal 

Nonfederal 

Direct Loan 

Program $ 30,503 $ - $ 30,503 $ 3,943 $ 44,375 $ (17,815) $ 30,503 

FFEL Program 4,980 (1,766) 3,214 516 4,600 (1,902) 3,214 

Other Credit 

Programs for 

Higher Education 66 - 66 12 79 (25) 66 

Total $ 35,549 $ (1,766) $ 33,783 $ 4,471 $ 49,054 $ (19,742) $ 33,783 

2015 

Interest 

Expense 

Subsidy 

Amortization 

Net 

Expense 

Gross Interest 

Revenue 

Subsidy 

Amortization 

Net 

Revenue 

Federal Nonfederal Federal Nonfederal 

Nonfederal 

Direct Loan 

Program $ 27,593 $ - $ 27,593 $ 4,206 $ 39,760 $ (16,373) $ 27,593 

FFEL Program 5,252 (1,826) 3,426 454 5,110 (2,138) 3,426 

Other Credit 

Programs for 

Higher Education 60 - 60 13 72 (25) 60 

Total $ 32,905 $ (1,826) $ 31,079 $ 4,673 $ 44,942 $ (18,536) $ 31,079 
FINANCIAL SECTION 

NOTES TO THE FINANCIAL STATEMENTS

78 FY 2016 Agency Financial Report—U.S. Department of Education 

Note 12. Statement of Budgetary Resources 

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

30, 2016, budgetary resources were $335 billion and net agency outlays were $160 billion. As 

of September 30, 2015, budgetary resources were $350 billion and net agency outlays were 

$167 billion. 

New Obligations and Upward Adjustments by Apportionment Type 

and Category 

New obligations and upward adjustments by apportionment type and category, as of 

September 30, 2016 and 2015, consisted of the following: 

New Obligations and Upward Adjustments by Apportionment Type and Category 

(Dollars in Millions)

2016 2015 

Direct: 

 Category A $ 2,170 $ 2,083 

 Category B 304,270 318,212 

 Exempt from Apportionment 638 104 

 Total Direct Apportionment 307,078 320,399 

Reimbursable: 

 Category A 3 4 

 Category B 63 64 

New Obligations and Upward Adjustments $ 307,144 $ 320,467 

New obligations and upward adjustments can be either direct or reimbursable. Reimbursable 

obligations are those financed by offsetting collections received in return for goods and 

services provided, while all other obligations are direct. The apportionment categories are 

determined in accordance with the guidance provided in OMB regulations. Category A 

apportionments are those resources that can be obligated in the current fiscal year without 

restriction on the purpose of the obligation, other than to be in compliance with legislation 

underlying programs for which the resources were made available. Category B apportionments 

are restricted by purpose for which obligations can be incurred. In addition, some resources are 

available without apportionment by OMB. 

Unused Borrowing Authority 

Unused borrowing authority and related changes in available borrowing authority, as of 

September 30, 2016 and 2015, consisted of the following: 

Unused Borrowing Authority 

(Dollars in Millions)

 2016 2015 

Beginning Balance, Unused Borrowing Authority $ 54,829 $ 61,327 

Current Year Borrowing Authority 167,400 171,807 

Funds Drawn from Treasury (147,376) (162,492) 

Borrowing Authority Withdrawn (13,862) (15,813) 

Ending Balance, Unused Borrowing Authority $ 60,991 $ 54,829 

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 
FINANCIAL SECTION

NOTES TO THE FINANCIAL STATEMENTS

FY 2016 Agency Financial Report—U.S. Department of Education 79

borrowing authority balances in relation to its obligations resulting in the withdrawal of unused 

amounts. 

Undelivered Orders at the End of the Period 

Undelivered orders, as of September 30, 2016 and 2015, consisted of the following: 

Undelivered Orders 

(Dollars in Millions)

2016 2015 

Budgetary $ 50,019 $ 49,838 

Non-Budgetary 73,366 75,064 

Undelivered Orders (Unpaid) $ 123,385 $ 124,902 

Budgetary undelivered orders represent the amount of goods and/or services ordered which 

have not been actually or constructively received. This amount includes any orders which may 

have been prepaid or advanced but for which delivery or performance has not yet occurred. 

Non-budgetary undelivered orders primarily represent undisbursed loan awards and related 

negative subsidy. 

Distributed Offsetting Receipts 

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. Distributed offsetting receipts, for the years ended September 30, 2016 and 2015, 

consisted of the following: 

Distributed Offsetting Receipts 

(Dollars in Millions)

2016 2015 

Negative Subsidies and Downward Re-estimates of Subsidies: 

 FFEL Program $ 2,550 $ 4,658 

 Direct Loan Program 7,881 8,211 

 Facilities Loan Programs 18 83 

 TEACH Program 5 31 

 HEAL Program - 19 

 Total Negative Subsidies and Downward Re-estimates 10,454 13,002 

Other 312 103 

Distributed Offsetting Receipts $ 10,766 $ 13,105 

Explanation of Differences Between the Statement of Budgetary 

Resources and the Budget of the United States Government

The FY 2018 Budget of the United States Government (President’s Budget), which presents 

the actual amounts for the year ended September 30, 2016, has not been published as of the 

issue date of these financial statements. The FY 2018 President’s Budget is scheduled for 

release in February 2017. 
FINANCIAL SECTION 

NOTES TO THE FINANCIAL STATEMENTS

80 FY 2016 Agency Financial Report—U.S. Department of Education 

A reconciliation of the FY 2015 SBR to the FY 2017 President’s Budget (FY 2015 actual 

amounts) for budgetary resources, obligations incurred, distributed offsetting receipts, and net 

outlays is presented below. 

SBR to Budget of the United States Government

(Dollars in Millions)

 

Budgetary 

Resources 

Obligations 

Incurrred 

Distributed 

Offsetting 

Receipts Net Outlays 

Combined Statement of Budgetary 

Resources $ 349,678 $ 320,467 $ 13,105 $ 167,138 

Expired Funds (2,195) (997) 

FFEL Guaranty Agency Amounts 

Included in the President's Budget 9,239 9,240 

Distributed Offsetting Receipts 13,105 

Other (10) (3) 1 3 

Budget of the United States 

Government1 $ 356,712 $ 328,707 $ 13,106 $ 180,246 

1

 Amounts obtained from the Appendix, Budget of the United States Government, FY 2017 

Reconciling differences exist because the President’s Budget excludes expired funds. 

Additionally, the President’s Budget includes a public enterprise fund that reflects the gross 

obligations by the FFEL program for the estimated activity of the consolidated federal fund of 

the guaranty agencies. Ownership by the federal government is independent of the actual 

control of the assets. Since the actual operation of the federal fund is independent from the 

Department’s direct control, budgetary resources and obligations incurred are estimated and 

disclosed in the President’s Budget to approximate the gross activities of the combined federal 

fund. Amounts reported on the FY 2015 SBR for the federal fund are compiled by combining all 

guaranty agencies’ annual reports to determine a net valuation amount for the federal fund.

Note 13. Reconciliation of Net Cost of Operations to Budget 

The reconciliation of net cost of operations to budget reconciles the resources used to finance 

activities, both those received through budgetary resources and those received through other 

means, with the net cost of operations on the statement of net cost. This reconciliation provides 

an explanation of the differences between budgetary and financial (proprietary) accounting, as 

required by FASAB Standard No. 7, Accounting for Revenue and Other Financing Sources and 

Concepts for Reconciling Budgetary and Financial Accounting. 

Resources used to finance activities (section one) are reconciled with the net cost of operations 

by: (a) excluding resources used or generated for items not part of the net cost of operations 

(section two); and (b) including components of the net cost of operations that will not require or 

generate resources in the current period (section three). The primary resources used to finance 

activities that do not fund the net cost of operations include the acquisition of net credit program 

assets, the liquidation of liabilities for loan guarantees, and subsidy re-estimates accrued in the 

prior period. Significant components of the net cost of operations that will not generate or use 

resources in the current period include subsidy amortization, interest on the liability for loan 

guarantees, and increases in exchange revenue receivable from the public. 
FINANCIAL SECTION

NOTES TO THE FINANCIAL STATEMENTS

FY 2016 Agency Financial Report—U.S. Department of Education 81

The reconciliation of net cost of operations to budget, as of September 30, 2016 and 2015, are 

presented below: 

Reconciliation of Net Cost of Operations to Budget 

(Dollars in Millions)

 2016 2015 

Resources Used to Finance Activities: 

New Obligations and Upward Adjustments $ 307,144 $ 320,467 

Spending Authority from Offsetting Collections and Recoveries (136,094) (145,810) 

Offsetting Receipts (10,766) (13,105) 

Net Budgetary Resources Obligated 160,284 161,552 

Imputed Financing from Costs Absorbed by Others 81 30 

Other Financing Sources (5,124) (14,293) 

Net Other Resources (5,043) (14,263) 

Net Resources Used to Finance Activities 155,241 147,289 

Resources Used or Generated for Items Not Part of the Net Cost of Operations: 

(Increase)/Decrease in Budgetary Resources Obligated but Not Yet Provided 1,763 5,177 

Resources that Fund Subsidy Re-estimates Accrued in Prior Period (2,598) (20,131) 

Credit Program Collections 92,080 102,183 

Acquisition of Fixed Assets (11) (15) 

Acquisition of Net Credit Program Assets or Liquidation of Liabilities for Loan 

Guarantees (161,826) (165,850) 

Resources from Non-Entity Activity 5,196 14,948 

Net Resources that Do Not Finance the Net Cost of Operations (65,396) (63,688) 

Net Resources Used to Finance the Net Cost of Operations 89,845 83,601 

Components of the Net Cost of Operations that Will Not Require or Generate Resources in the 

Current Period: 

Change in Depreciation - 1 

Subsidy Amortization and Interest on the Liability for Loan Guarantees 17,977 16,710 

Other 22 (1) 

Total Components Not Requiring or Generating Resources 17,999 16,710 

Increase/(Decrease) in Annual Leave Liability 2 1 

Accrued Re-estimates of Credit Subsidy Expense 28,006 2,598 

Increase in Exchange Revenue Receivable from the Public (31,611) (29,486) 

Accrued Interest with Treasury 1 1 

Other (+/-) 80 - 

Total Components Requiring or Generating Resources in Future Periods (3,522) (26,886) 

Total Components that Will Not Require or Generate Resources in the Current 

Period 14,477 (10,176) 

Net Cost of Operations $ 104,322 $ 73,425 
FINANCIAL SECTION 

NOTES TO THE FINANCIAL STATEMENTS

82 FY 2016 Agency Financial Report—U.S. Department of Education 

Note 14. Commitments and Contingencies 

The Department discloses contingencies where any of the conditions for liability recognition are 

not met and there is at least a reasonable possibility that a loss or an additional loss may have 

been incurred in accordance with FASAB Standard No. 5, Accounting for Liabilities of the 

Federal Government. The following commitments are amounts for contractual arrangements 

that may require future financial obligations. 

Future Minimum Lease Payments 

The Department leases all or a portion of 17 privately owned and 10 publicly owned buildings in 

20 cities. Estimated future minimum lease payments for the privately and publicly owned 

buildings are presented below. 

Future Minimum Lease Payments 

(Dollars in Millions)

2016 2015 

 FY Amount FY Amount 

 2017 $ 74 2016 $ 83 

 2018 78 2017 76 

 2019 80 2018 81 

 2020 83 2019 79 

 2021 85 2020 82 

 After 2021 86 After 2020 84 

 Total $ 486 Total $ 485 

Guaranty Agencies 

The Department may assist guaranty agencies experiencing financial difficulties. The 

Department has not done so in fiscal years 2016 or 2015 and does not expect to in future 

years. No provision has been made in the financial statements for potential liabilities. 

Federal Perkins Loan Program 

The Federal Perkins Loan program provides financial assistance to eligible postsecondary 

school students. In FY 2016, the Department 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 latest academic year 

that ended June 30, 2016, approximately 421 thousand loans were made totaling $1.0 billion at 

1,378 institutions, making an average of $2,480 per loan. The Department’s equity interest was 

approximately $6.5 billion as of June 30, 2016. 

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. 

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 effect on the 

Department’s financial position. 
FINANCIAL SECTION

NOTES TO THE FINANCIAL STATEMENTS

FY 2016 Agency Financial Report—U.S. Department of Education 83

The cost of loan forgiveness related to the recent proprietary school closures reflected in the 

accompanying financial statements is limited to claims received through September 30. On 

November 1, 2016, the Department issued certain regulations that may affect the amount to 

ultimately be paid related to these claims. The final disposition of claims filed and those yet to 

be filed from schools closed before September 30 is not expected to have a material impact to 

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.