oversight

Financial Statement Audits for Fiscal Years 2009 and 2008-Federal Student Aid

Published by the Department of Education, Office of Inspector General on 2009-11-16.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

Dear Federal Student Aid Colleagues, Partners and Customers:

As someone who received federal financial
assistance in college, I know how critical financial
assistance can be in helping students pursue higher
education. As the new Chief Operating Officer of
Federal Student Aid, I am humbled by the
opportunity to join the dedicated team charged with
administering these same programs.

During 2009, Federal Student Aid faced many
challenges including a change in administration, new
amendments to our authorizing legislation, and a
disruption in the financial markets that significantly
impacted the federal student loan programs. I am
proud to say that our organization successfully met
these challenges while, at the same time, providing
approximately $113 billion in financial aid to millions
of students and their families.

In the year ahead, we will focus on continuing to
implement the administration‘s top priorities to
ensure college is more accessible and affordable,                William J. Taggart
including simplifying the Free Application for Federal        Chief Operating Officer
Student Aid and expanding operational capabilities.
Significant efforts will be expended to assist those organizations that participate in our
programs to prepare for these changes. Our commitment to increasing program integrity
and enhancing customer service will only be surpassed by our dedication to improving
stewardship of taxpayer resources. Above all, we will continue to invest in our
employees to ensure their readiness to meet the evolving needs of our customers.

None of the accomplishments outlined in the coming pages would have been possible
without the dedication of the Federal Student Aid workforce. I would like to congratulate
them for their accomplishments over the past year and extend my sincerest gratitude for
their commitment to improving our programs in the years to come. In tribute to these
remarkable public servants, I proudly present the 2009 Federal Student Aid Annual
Report.

Sincerely,



William J. Taggart
Chief Operating Officer
   Table of Contents                                                                                                                        FY 2009 Annual Report




             MANAGEMENT’S DISCUSSION AND ANALYSIS ....................................................................... 1
                MISSION AND ORGANIZATIONAL STRUCTURE................................................................................... 3
                PERFORMANCE GOALS, OBJECTIVES AND RESULTS ........................................................................ 8
                   KEY PERFORMANCE GOALS AND RESULTS ................................................................................. 9
                   ACHIEVEMENTS IN SUPPORT OF FEDERAL STUDENT AID STRATEGIC OBJECTIVES ...................... 17
                   QUALITY OF PERFORMANCE DATA............................................................................................ 19
                ANALYSIS OF FEDERAL STUDENT AID‘S FINANCIAL STATEMENTS ................................................... 21
                ANALYSIS OF FEDERAL STUDENT AID‘S SYSTEMS, CONTROLS AND LEGAL COMPLIANCE ................. 26
                POSSIBLE FUTURE EFFECTS OF EXISTING EVENTS AND CONDITIONS ............................................. 28
                LIMITATIONS OF FINANCIAL STATEMENTS ...................................................................................... 29
             ANNUAL PROGRAM PERFORMANCE REPORT ...................................................................... 31
                ANNUAL PROGRAM PERFORMANCE .............................................................................................. 33
                  OBJECTIVE 1: INTEGRATE FEDERAL STUDENT AID SYSTEMS AND PROVIDE NEW TECHNOLOGY
                  SOLUTIONS. ............................................................................................................................ 33
                  OBJECTIVE 2: IMPROVE PROGRAM INTEGRITY TO FACILITATE ACCESS TO POSTSECONDARY
                  EDUCATION, WHILE REDUCING THE VULNERABILITY OF THE FEDERAL STUDENT FINANCIAL
                  ASSISTANCE PROGRAMS TO FRAUD, WASTE, ABUSE AND MISMANAGEMENT. ................................ 36
                  OBJECTIVE 3: REDUCE PROGRAM ADMINISTRATION COSTS. ....................................................... 39
                  OBJECTIVE 4: IMPROVE HUMAN CAPITAL MANAGEMENT. ............................................................ 41
                  OBJECTIVE 5: IMPROVE PRODUCTS AND SERVICES TO PROVIDE BETTER CUSTOMER SERVICE. .... 43
                  MAJOR OBSTACLES ................................................................................................................. 46
                  PERFORMANCE PLAN ITEMS REPORTED AS INCOMPLETE OR CANCELED .................................... 51
                LEGISLATIVE AND REGULATORY RECOMMENDATIONS .................................................................... 52
                ANNUAL BONUS AWARDS ............................................................................................................. 53
                REPORT OF THE FEDERAL STUDENT AID OMBUDSMAN .................................................................. 54
             FINANCIAL SECTION .................................................................................................................. 57
                MESSAGE FROM THE CHIEF FINANCIAL OFFICER ........................................................................... 59
                PRINCIPAL FINANCIAL STATEMENTS AND NOTES TO PRINCIPAL FINANCIAL STATEMENTS ................. 61
                  CONSOLIDATED BALANCE SHEET ............................................................................................. 63
                  CONSOLIDATED STATEMENT OF NET COST............................................................................... 64
                  CONSOLIDATED STATEMENT OF CHANGES IN NET POSITION...................................................... 65
                  COMBINED STATEMENT OF BUDGETARY RESOURCES ............................................................... 66
                NOTES TO PRINCIPAL FINANCIAL STATEMENTS ............................................................................. 67
                  NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES .................................................. 67
                  NOTE 2. NON-ENTITY ASSETS ............................................................................................. 76
                  NOTE 3. FUND BALANCE WITH TREASURY ............................................................................ 76
                  NOTE 4. ACCOUNTS RECEIVABLE ......................................................................................... 77
                  NOTE 5. CASH AND OTHER MONETARY ASSETS ................................................................... 78
                  NOTE 6. CREDIT PROGRAMS FOR HIGHER EDUCATION.......................................................... 78
                  NOTE 7. GENERAL PROPERTY, PLANT AND EQUIPMENT ........................................................ 91
                  NOTE 8. OTHER ASSETS...................................................................................................... 92
                  NOTE 9. DEBT ..................................................................................................................... 92
                  NOTE 10. OTHER LIABILITIES ................................................................................................. 93
                  NOTE 11. ACCRUED GRANT LIABILITY .................................................................................... 94
                  NOTE 12. NET POSITION ....................................................................................................... 94
                  NOTE 13. INTRAGOVERNMENTAL COST AND EXCHANGE REVENUE BY PROGRAM ..................... 94
                  NOTE 14. INTEREST EXPENSE AND INTEREST REVENUE ......................................................... 95
                  NOTE 15. STATEMENT OF BUDGETARY RESOURCES ............................................................... 96
                  NOTE 16. RECONCILIATION OF NET COST OF OPERATIONS TO BUDGET................................... 98
                  NOTE 17. AMERICAN RECOVERY AND REINVESTMENT ACT OF 2009 ..................................... 100
                  NOTE 18. CONTINGENCIES .................................................................................................. 100
                REQUIRED SUPPLEMENTARY STEWARDSHIP INFORMATION .......................................................... 102
FY 2009                                                                              i                                     Federal Student Aid Annual Report
  Table of Contents                                                                                                         FY 2009 Annual Report


                REQUIRED SUPPLEMENTARY INFORMATION................................................................................. 105
                OTHER ACCOMPANYING INFORMATION ....................................................................................... 109
             OFFICE OF INSPECTOR GENERAL TRANSMITTAL LETTER ............................................... 111
             REPORT OF INDEPENDENT AUDITORS ................................................................................. 115
             REPORT ON INTERNAL CONTROL ......................................................................................... 119
             REPORT ON COMPLIANCE WITH LAWS AND REGULATIONS ............................................ 131
             MANAGEMENT’S RESPONSE .................................................................................................. 137
             GLOSSARY OF ACRONYMS AND TERMS .............................................................................. 141
             AVAILABILITY OF FEDERAL STUDENT AID’S ANNUAL REPORT ....................................... 145




FY 2009                                                                     ii                               Federal Student Aid Annual Report
 Management’s Discussion and Analysis




           Management’s Discussion and Analysis




FY 2009                                 -1-       Federal Student Aid Annual Report
Management’s Discussion and Analysis




FY 2009                                -2-   Federal Student Aid Annual Report
Management’s Discussion and Analysis                                           Mission and Organizational Structure




          Mission and Organizational Structure

          Federal Student Aid, a principal office of the United States (U.S.) Department of
          Education (Department), seeks to ensure that all eligible individuals can benefit from
          federally funded or federally guaranteed financial assistance for education beyond high
          school. We consistently champion the promise of postsecondary education to all
          Americans – and its value to our society. Federal Student Aid plays a central and
          essential role in supporting postsecondary education. We partner with postsecondary
          schools, financial institutions and other participants in Title IV of the Higher Education
          Act (HEA) of 1965, as amended student financial assistance (Title IV) programs to
          deliver programs and services that help students finance their education beyond high
          school. Today, Federal Student Aid is responsible for a range of critical functions that
          include, among others:

             Processing millions of student financial aid applications.
             Disbursing billions of dollars in aid funds to students through schools.
             Enforcing financial aid rules and regulations.
             Educating students and families on the process of obtaining aid.
             Servicing millions of student loan accounts.
             Securing repayment from borrowers who have defaulted on their loans.
             Operating information technology (IT) systems and tools that manage billions in
              student aid dollars.

          This is a complex, multifaceted mission that calls on a range of staff skills and demands
          coordination by all levels of management. Designated as a Performance-Based
          Organization (PBO) by Congress in 1998, Federal Student Aid emphasizes tangible
          results and efficient performance, as well as the continuous improvement of the
          processes and systems that support our mission.

          Federal Student Aid currently operates under a functional organizational structure that
          aligns our organization closely with our strategic drivers, business objectives and
          mission goals. This structure reinforces a key business goal: efficient, effective and
          productive interaction with our many stakeholders. This community of stakeholders
          includes students and parents, schools, lenders, guaranty agencies and taxpayers, as
          well as other federal entities and the Department itself. The following graphic illustrates
          the current functional organizational structure of Federal Student Aid.




FY 2009                                                 -3-                      Federal Student Aid Annual Report
Management’s Discussion and Analysis                                          Mission and Organizational Structure




          A Chief Operating Officer, who is appointed to a five-year term by the Secretary of
          Education, leads Federal Student Aid. In June 2009, the Secretary appointed William J.
          Taggart as the organization‘s third Chief Operating Officer. During fiscal year (FY) 2009,
          the organization operated on an annual administrative budget of approximately $693
          million. Federal Student Aid operates as a public-private partnership staffed by
          approximately 1,000 full-time employees and is augmented by contractors who provide
          outsourced business operations. This workforce is based out of Washington, D.C., with
          ten regional offices located throughout the country as reflected in the following graphic.




FY 2009                                               -4-                      Federal Student Aid Annual Report
Management’s Discussion and Analysis                                          Mission and Organizational Structure



          As a federally designated PBO, Federal Student Aid operates under a congressional
          mandate to achieve concrete mission results as it improves efficiency in operations, and
          manages and mitigates risks in Title IV portfolio performance. Federal Student Aid has
          focused on innovations for upgrading student aid delivery and servicing operations, and
          improving vendor and contract management, budgeting and cost control as well as
          financial and operational management. Much of the resulting operational performance
          improvement stems from business process re-engineering and large-scale technology
          integration.

          Federal Student Aid is responsible for helping students manage the costs of education
          beyond high school. This duty includes administering the federal student financial
          assistance programs authorized under Title IV. The Title IV programs collectively
          represent the nation‘s largest source of financial aid for postsecondary students. In the
          paragraphs that follow, each of the major Title IV programs that deliver aid to students
          and their families is described.

          In FY 2009, Federal Student Aid delivered or supported the delivery of approximately
          $113 billion in grant, work-study and loan assistance to almost 13 million postsecondary
          students and their families. These students attend approximately 6,200 active institutions
          of postsecondary education accredited by dozens of agencies. Many of these students
          also receive loans from approximately 2,900 lenders with 35 agencies administering the
          guarantee on those loans.

          The Federal Pell Grant (Pell Grant) Program helps ensure financial access to
          postsecondary education by providing grant aid to low-income and middle-income
          undergraduate students. As the most need-based of the Department‘s student aid
          programs, Pell Grants vary according to the financial circumstances of students and their
          families. For the 2008–09 award year, the Department disbursed $18.4 billion in Pell
          Grants averaging approximately $2,973 to 6.2 million students. The maximum Pell Grant
          award was $4,731 for the 2008–09 award year. The maximum Pell Grant award
          increased to $5,350 for the 2009–10 award year. The American Recovery and
          Reinvestment Act of 2009 (Recovery Act), enacted on February 17, 2009, by Public Law
          (P.L.) 111-5 continues the Department‘s goal of making college affordable by providing
          additional Pell Grant authority for low-income and middle-income undergraduate
          students.

          The Academic Competitiveness Grant (ACG) and National Science and
          Mathematics Access to Retain Talent (SMART) Grant Programs were created by the
          Higher Education Reconciliation Act of 2005 (HERA), signed into law in 2006. The ACG
          is for full-time undergraduates who meet Pell Grant eligibility requirements. The student
          must have completed a rigorous high school program, as determined by the state or
          local education agency and as recognized by the Secretary of Education. First-year
          students may receive an ACG award up to $750, whereas second-year students may
          receive up to $1,300 if they have maintained a cumulative grade point average of at
          least 3.0. The ACG award became available in the 2006–07 school year for first-year
          students who graduated high school after January 1, 2006, and second-year students
          who graduated high school after January 1, 2005. The ACG award is in addition to the
          student‘s Pell Grant award. For the 2008–09 academic year, $343 million in ACG
          awards were disbursed to approximately 452,000 students.


FY 2009                                                -5-                      Federal Student Aid Annual Report
Management’s Discussion and Analysis                                             Mission and Organizational Structure



          The National SMART Grant Program provides up to $4,000 to third- and fourth-year
          undergraduates studying full-time and majoring in physical, life or computer sciences,
          mathematics, technology, engineering or a foreign language critical to national security.
          The student must meet Pell Grant eligibility requirements. The student must maintain a
          cumulative grade point average of at least a 3.0 for coursework required for the major.
          The grant award is in addition to the student‘s Pell Grant award. A student cannot
          receive more than one ACG or National SMART Grant award in each academic year for
          which they are eligible. For the 2008–09 academic year, $201 million in National SMART
          grants were disbursed to approximately 71,000 students.

          The Teacher Education Assistance for College and Higher Education (TEACH)
          Grant, authorized by the College Cost Reduction and Access Act of 2007 (CCRAA),
          provides up to $4,000 per year to students agreeing to teach mathematics, science, or
          other specialized subjects in a high-poverty school for at least four years within eight
          years of their graduation. If students fail to fulfill the service requirements, grants convert
          to Unsubsidized Stafford Loans, with interest accrued from the time of the grant award.
          This grant program began in the 2008–09 school year, starting July 1, 2008. In
          FY 2009, the Department disbursed approximately 15,000 grants for almost $44 million
          under TEACH.

          The Federal Supplemental Educational Opportunity Grant (FSEOG), the Federal
          Work-Study (FWS) and the Federal Perkins Loan Programs are three campus-based
          programs through which the Department provides funds directly to eligible institutions,
          enabling them to offer grants, employment and low-interest loans to students based on
          need. For the 2008–09 award year, approximately $3.5 billion were disbursed through
          approximately 2.7 million campus-based awards. The Recovery Act continues the
          Department‘s goal of making college affordable by increasing the amount of grants
          available as part of the FWS program. As a result of the Recovery Act, FWS funding
          increased by $200 million in FY 2009. Also, the President‘s FY 2010 budget request
          proposes an increase in the new Perkins Loan Program from $1 billion to $6 billion
          annually. Participating colleges and universities would increase from 1,800 to 4,400
          institutions.

          There are two state grant programs. The Leveraging Educational Assistance
          Partnership (LEAP) Program, authorized by Section 415A of the HEA, makes federal
          funds available to assist states in providing student financial assistance programs for
          individuals with substantial financial need. The Special Leveraging Educational
          Assistance Partnership (SLEAP) Program was added to the LEAP Program in the
          1998 Amendments to the HEA (Section 415E). SLEAP makes federal funds available to
          states to cover a third of the cost of supplementing their respective LEAP programs,
          supplementing their LEAP Community Service Work-Study programs and/or providing
          Merit and Academic Achievement or Critical Careers Scholarships to students with
          substantial financial need. For the 2008–09 academic year, approximately $162 million
          in LEAP grants were disbursed to approximately 162,000 students.

          In fulfilling our program responsibilities, Federal Student Aid directly manages or
          oversees almost $622 billion in outstanding loans—representing over 111 million student
          loans to more than 32 million borrowers.



FY 2009                                                  -6-                       Federal Student Aid Annual Report
Management’s Discussion and Analysis                                         Mission and Organizational Structure



          The William D. Ford Federal Direct Loan (Direct Loan sm) Program sm lends funds
          directly to students and parents through participating schools. This program is funded by
          borrowings from the U.S. Department of the Treasury (Treasury), as well as an
          appropriation for subsidy costs. In FY 2009, the Department made $22.3 billion1 in net
          loans to 2.9 million recipients.

          Under the Federal Family Education Loan (FFEL sm) Program sm, students and parents
          may obtain loans through private lenders. Loan guaranty agencies insure these loans
          and they are, in turn, reinsured by the federal government.

          During FY 2009, Federal Student Aid supported the delivery of $67.9 billion2 in net loans
          to 7.7 million FFEL recipients. In addition, Federal Student Aid made gross payments of
          approximately $5.4 billion to lenders for interest and special allowance subsidies and
          $11.9 billion to guaranty agencies for reinsurance claims and fees paid to guaranty
          agencies for loan processing, issuance and account maintenance. Total principal
          balances outstanding of guaranteed loans held by lenders were approximately $457
          billion as of September 30, 2009 with a maximum government exposure of $445 billion.

          In August 2008, the Department implemented a number of programs authorized under
          the Ensuring Continued Access to Student Loans Act of 2008 (ECASLA) (P.L. 110-227)
          to ensure credit market disruptions did not deny eligible students and parents access to
          federal student loans for the 2008–09 academic year. The ECASLA authority, which
          originally expired on September 30, 2009, was subsequently extended through
          September 30, 2010, to continue to ensure unfettered access to loans through the
          2009–10 academic year. Programs authorized under ECASLA are summarized below
          along with FY 2009 activity. For additional information on the Loan Purchase Programs
          authorized under ECASLA, please see Loan Purchase Programs in the Key
          Performance and Results Section. Also, more information on these programs can be
          found at http://www.federalstudentaid.ed.gov/ffelp.




          1
              Excludes consolidation loans of $13.9 billion.
          2
              Excludes consolidation loans of $0.2 billion.
FY 2009                                                        -7-             Federal Student Aid Annual Report
Management’s Discussion and Analysis                                    Performance Goals, Objectives and Results




          Performance Goals, Objectives and Results

          This section provides a high-level overview of Federal Student Aid‘s FY 2009
          performance objectives and results. The information provides a summary of our
          achievements and progress in meeting both the organization‘s stated performance
          standards and those critical functions that were not included in the FY 2006 – 2010 Five-
          Year Plan.

          We have introduced many substantial and measurable improvements in how we plan
          and report operational and portfolio performance in administering the federal student
          financial assistance programs since Federal Student Aid became a PBO in 1998.

          Strategic Planning and Reporting. Several key strategic drivers form the scope and
          content of Federal Student Aid‘s long-term goals and objectives:

             HEA Legislation.
             Legislation and Budget Requirements.
             Federal Financial Management Laws and Regulations.
             Customer Needs.
             PBO Legislation.
             The Department‘s Strategic Plan.
             The Department‘s Management Challenges.

          The foundation of our long-term strategic planning is Federal Student Aid‘s five core
          strategic objectives. Taken collectively, these objectives provide the framework for
          continuous improvement at Federal Student Aid, guiding us in managing our programs
          more effectively and providing clear strategic direction to all of Federal Student Aid‘s
          internal and external constituencies.

          Our core strategic objectives are to:

             Integrate Federal Student Aid systems and provide new technology solutions.
             Improve program integrity to facilitate access to postsecondary education, while
              reducing vulnerability of the federal student financial assistance programs to fraud,
              waste, abuse and mismanagement.
             Reduce program administration costs.
             Improve human capital management.
             Improve products and services to provide better customer service.

          Federal Student Aid‘s long-term planning is outlined in its Five-Year Plan, a statement of
          strategic direction providing long-term guidance. Beginning with the FY 2006 – 2010
          Five-Year Plan, Federal Student Aid established and documented strategic performance
          standards to measure the organization‘s success in meeting the stated long-term
          objectives. The Five-Year Plan aligns with Federal Student Aid‘s annual, tactical
          business-level planning, tracking and implementation processes including the Annual
          Performance Plan.



FY 2009                                                -8-                      Federal Student Aid Annual Report
Management’s Discussion and Analysis                                   Performance Goals, Objectives and Results



          Tactical Performance Planning and Reporting. Federal Student Aid‘s Annual
          Performance Plan establishes specific tactical initiatives to achieve organizational
          strategic objectives outlined in the Five-Year Plan. Timelines, milestones and status are
          maintained in the Annual Performance Plan and evaluated on a monthly basis to ensure
          their alignment with current business needs, the allocation of resources and capital,
          policy considerations and statutory and regulatory requirements.

          The Annual Report provides the mechanism for reporting the organization‘s annual
          performance results, including the organization‘s audited financial statements, a
          summary of the organization‘s progress in meeting tactical goals established in the
          Annual Performance Plan and detailed results of the organization‘s success in meeting
          performance standards established in the Five-Year Plan. These documents—the Five-
          Year Plan, the Annual Performance Plan and the Annual Report—form the foundation of
          Federal Student Aid‘s strategic planning, tactical implementation and reporting
          processes.

          Key Performance Goals and Results

          This section provides a high-level overview of Federal Student Aid‘s FY 2009
          performance objectives and results. The information provides a summary of our
          achievements and progress in meeting the organization‘s stated performance standards.

          In the FY 2006 – 2010 Five-Year Plan, Federal Student Aid established and documented
          strategic performance standards to measure the organization‘s success in meeting the
          stated long-term objectives. In that plan, Federal Student Aid generally published the
          FY 2006 and the FY 2010 targets. Because Federal Student Aid has not updated that
          plan, performance standards have changed, and interim year targets, where developed,
          may not have been published. All targets referenced in this report, whether previously
          published or not, are aligned with the FY 2010 targets and gauge Federal Student Aid‘s
          incremental progress in achieving its objectives.

          The underlying assumptions in Federal Student Aid‘s performance planning and
          reporting processes stem from the Five-Year Plan and are based on current budgetary,
          operational and policy considerations. However, during FY 2009, Federal Student Aid
          was faced with many challenges and unanticipated events that forced the organization to
          reallocate much-needed human and capital resources. Most notably was the disruption
          to the credit markets and its impact on FFEL Program lenders, the change in
          administration and new priorities that resulted from these events. As a result, many
          previously identified tactical objectives were reprioritized contributing to the
          organization‘s inability to achieve many previously identified performance targets.

          Nonetheless, during FY 2009, Federal Student Aid made progress in meeting a majority
          of our performance standards. For the most recent data available, Federal Student Aid
          met targets for eight key measures, showed improvement on two measures and did not
          meet targets for eight measures. Federal Student Aid discontinued two measures and
          measured performance for three measures that did not have standards or targets
          established. The organization continues to analyze the impact of portfolio performance
          on the Cumulative Lifetime Default Rate (CLTDR) before identifying future performance
          targets as noted below.


FY 2009                                               -9-                      Federal Student Aid Annual Report
Management’s Discussion and Analysis                                  Performance Goals, Objectives and Results



          The actual results for each performance standard are presented in conjunction with each
          objective. The respective tables present whether the actual result met or failed to meet
          the target. In some cases, establishing a baseline is the target and is recognized as met
          if the baseline was established. Note: Because performance standards were established
          in the FY 2006 – 2010 Five-Year Plan, historical data may not be available for some of
          the indicated standards because the Department did not collect the data prior to
          FY 2006.

          Please see the Annual Program Performance Report section of this report for applicable
          footnotes and more specific accomplishments, by objective.

          The Performance Results Summary Table on the following page uses the following
          notations:

             ―Met‖ represents that performance results met or exceeded the target.
             ―Not met‖ represents that performance results fell short of the target.
             ―Improved‖ represents that the performance results improved over the prior year but
              fell short of the target.
             ―PM‖ represents that the measured performance, standards and/or targets were not
              established.
             ―T‖ represents that the measure was replaced or discontinued.
             ―NA‖ represents that the data is not available.




FY 2009                                             - 10 -                    Federal Student Aid Annual Report
Management’s Discussion and Analysis                                                       Performance Goals, Objectives and Results




                        Performance Results Summary Table Fiscal Years 2007 – 2009


                       Performance Results Summary                                  FY 2007             FY 2008              FY 2009

          Objective 1 – Integrate Federal Student Aid systems and provide new technology solutions.
          Integrated Partner Management (IPM)                                           Met              Not met             Not met
          Integrate aid delivery systems*                                               Met              Not met              Met
          Acquisition strategy                                                          Met              Not met              Met
          Infrastructure                                                                Met               Met                 Met
          Objective 2 – Improve program integrity to facilitate access to postsecondary education, while
          reducing vulnerability of the federal student financial assistance programs to fraud, waste, abuse
          and mismanagement.
          President‘s Management Agenda (PMA) scorecard
              A. Financial management                                                   Met                 Met                 T
              B. Improper payments                                                      Met                 Met                 T
          CLTDR – Title IV student loan portfolio                                       PM                  PM                 PM
          National Cohort Default Rate (CDR)                                            Met                 Met              Not met
          Direct Loan default recovery rate                                             Met                 Met              Not met
          FFEL default recovery rate                                                    Met                 Met              Not met
          Objective 3 – Reduce program administration costs.
          Reduce electronic Free Application for Federal Student
                     sm                                                                 Met                 Met                   Met
          Aid (FAFSA ) direct unit cost
          Reduce origination and disbursement direct unit cost                        Met                 Met                  Met
          Reduce Direct Loan servicing direct unit cost                              Not met            Improved             Improved
          Reduce collections direct unit cost                                         Met                Not met             Improved
          Objective 4 – Improve human capital management.
          Leadership training                                                         Met                 Met                Not met
          Acquisitions training                                                       Met                 Met                 Met
          Project management training                                                Not met             Not met              Met
          Federal Student Aid business knowledge training                             Met                Not met             Not met
          School compliance officials training                                        Met                Not met             Not met
          General workforce training                                                  Met                Not met             Not met
          Objective 5 – Improve products and services to provide better customer service.
          Student aid application                                                    Not met                Met                   Met
          Lender payment processing                                                   Met                   Met                   PM
          Direct Loan borrower servicing                                              Met                   Met                   PM
          *In June 2009, the target for Debt Management Collection System (DMCS) was updated to reflect that the procurement
          was changed from having a new system built to a procurement contract for a service. The original schedule to do all
          requirements and produce a system was estimated at 24 months. In procuring a service, as a replacement to the default
          processes, we are expecting to be fully operational by the end of 2010.




FY 2009                                                            - 11 -                            Federal Student Aid Annual Report
Management’s Discussion and Analysis                                    Performance Goals, Objectives and Results



          As previously noted, there were several other planned and unplanned initiatives that
          forced the organization to re-prioritize much-needed human and capital resources. The
          following is a brief summary of the unanticipated events that influenced Federal Student
          Aid‘s performance planning and execution processes in FY 2009.

          New Administration. On January 20, 2009, Barack H. Obama was sworn in as the 44th
          President of the United States. Federal Student Aid and the Department immediately
          began the transition of implementing the new President‘s agenda and policies for federal
          financial aid. This included implementation of the Recovery Act and preparations for
          implementation of the President‘s FY 2010 budget request. Another higher education
          priority of President Obama includes simplification of the FAFSA. To lead student
          financial aid efforts, Secretary Arne Duncan appointed William J. Taggart as the Chief
          Operating Officer of Federal Student Aid on June 1, 2009.

          Recovery Act. In February 2009, President Obama signed the Recovery Act into law.
          The Recovery Act provides an additional $17 billion for Pell Grants in FY 2009 and
          FY 2010; the FY 2009 funding is $16.2 billion, with 6.1 million students participating. In
          addition to increases in the CCRAA, the Recovery Act increased the maximum Pell
          Grant award to $5,350 in the first year. The Recovery Act also increased FWS by $200
          million in academic year 2009.

          The President’s FY 2010 Budget Request. In February 2009, the President also
          released proposals for the FY 2010 budget, which included increasing the maximum Pell
          Grant award to $5,550 and making the Pell Grant Program mandatory. The President
          proposed that beginning in July 2010 all new federal student loans would be originated
          through the Direct Loan Program. The budget request calls for an expansion of the
          Perkins Loan Program from its current new loan volume of $1 billion to $6 billion.
          Colleges and universities participating in the Federal Perkins Loan Program would
          increase from 1,800 to as many as 4,400.

          As a result of the unanticipated events described above, Federal Student Aid had to
          revise its performance plans and reassess priorities. Below are descriptions of some of
          the select priorities for Federal Student Aid in FY 2009.

          Loan Purchase Programs. On May 7, 2008, President Bush signed the ECASLA. The
          legislation provided the Department with the authority to address concerns about the
          availability of FFEL Program loans for the upcoming academic year. ECASLA also
          increased annual and aggregate loan amounts in the FFEL as well as Direct Loan
          programs plus provided relief for certain Parent Loan for Undergraduate Students
          (PLUS) Loan borrowers whose adverse credit history is related to payments on home
          mortgages or medical bills.




FY 2009                                               - 12 -                    Federal Student Aid Annual Report
Management’s Discussion and Analysis                                      Performance Goals, Objectives and Results



          In May 2008, based on the authority granted by ECASLA, the Secretary announced a
          comprehensive plan to ensure that all eligible students (and their parents) had access to
          federal student loans for the 2008–09 academic year. That plan included four key
          components:

          1. An offer to purchase FFEL Program loans made for the 2008–09 academic year from
             lenders and thereby offering lenders access to short-term liquidity;

          2. A pledge to work with the student lending community on forward-looking solutions to
             ensure the FFEL Program and other student lending programs serve the best
             interests of students and taxpayers for years to come;

          3. An enhanced lender-of-last-resort program designed to provide access to FFEL
             Program loans for those students who face difficulty obtaining conventional loans;
             and

          4. A more efficient Direct Loan Program with increased capacity.

          A key component of this plan was the development and implementation of two loan
          purchase programs to provide immediate liquidity to FFEL lenders.

            1. Loan Participation Purchase Program – Under the Loan Participation Purchase
               Program, the Department offered to purchase through September 30, 2009,
               ―participation interests‖ in pools of FFEL loans made for the 2008–09 academic
               year. By October 15, 2009, lenders must have either redeemed those loans or sold
               them outright to the Department.

                   Under this program, the lender pays the Department a yield on its participation
                    interest calculated as the three-month commercial paper rate reported by the
                    Federal Reserve in Publication H-15 plus 50 basis points on the principal
                    amount of loans in which the Department purchased a participation interest.

            2. Loan Purchase Commitment Program – Under the Loan Purchase Commitment
               Program, the Department offered to purchase eligible FFEL loans made for the
               2008–09 academic year through October 15, 2009.

                   The Department‘s purchase price is equal to the total of the (1) outstanding
                    principal balance of the loan, plus (2) accrued interest, plus (3) a refund of the
                    one percent lender origination fee paid to the Department on the amount
                    disbursed, plus (4) $75 per loan.

          The 2008–09 Loan Purchase Programs will conclude on October 15, 2009. As of
          September 30, 2009, lenders participating in the 2008–09 Program had requested and
          the Department purchased participation interests in pools of loans totaling $33.3 billion.
          In addition, lenders had requested the Department purchase outright approximately
          $23.8 billion in eligible 2008–09 loans through the 2008–09 Loan Purchase Commitment
          Program. Of these, approximately $10.1 billion or 42 percent of these loans were initially
          funded from the 2008–09 Participation Program. The $23.8 billion represents the gross



FY 2009                                                - 13 -                     Federal Student Aid Annual Report
Management’s Discussion and Analysis                                     Performance Goals, Objectives and Results



          amount the Department paid for the loans and includes accrued interest, $75 per loan
          and the rebate of the 1 percent origination fee. More information on the closeout of the
          2008–09 Program is provided in the Annual Program Performance Report section of this
          report.

          Replication of the Loan Purchase Programs for the 2009–10 Academic Year. Under
          the initial programs, the Department purchased loans that had already been made by
          lenders, or participation interests in those loans on which the lenders had made at least
          a first disbursement. This required lenders to obtain short-term financing from private
          sources in order to make the loans. In addition, only 2008–09 loans would be eligible to
          be sold to the Department through these programs.

          With more than $65 billion in 2007–08 loans and approximately $130 billion in eligible
          2003–07 student loans on bank balance sheets and auction rate securitizations, the
          capital markets were unable to generate adequate funds at prices that would ensure
          2009–10 loans could be made. As conditions in the credit markets continued to
          deteriorate, lenders were faced with a decision whether to commit to providing loans to
          schools for the coming academic year. The Department began hearing concerns from
          both the school and lender communities that assistance was needed to ensure 2009–10
          loans would be available.

          In October 2008, the President signed a one-year extension of authorities contained in
          ECASLA. In early November 2008, the Secretary announced a plan to ensure availability
          of federal student loans for the 2009–10 academic year by replicating the 2008–09 loan
          purchase programs for the 2009–10 academic year. Under the plan, the 2008–09 loan
          purchase programs would conclude as designed and the Department would offer the
          same programs, on substantially the same terms, for loans made for the 2009–10
          academic year.

          Results for the 2009-10 Loan Purchase Programs included:

             As of September 30, 2009, 28 lenders had entered into Master Participation
              Agreements with the Department for the 2009-10 academic year. The Department
              has, to date, purchased participation interests under these agreements totaling $7.9
              billion.

             As of September 30, 2009, 36 lenders had entered into Master Loan Sale
              Agreements for the 2009-10 academic year with the Department. Two of these
              lenders have requested the Department purchase eligible loans in late October 2009
              totaling $14.5 million.

          Asset-Backed Commercial Paper (ABCP) Conduit. In addition to the Loan Purchase
          and Loan Participation Purchase Programs, the Department has entered into a Put
          Agreement with a newly-created ABCP conduit and agreed to enter into such
          agreements on the same terms with other conforming conduits.

          Under a Conduit program, a special purpose entity (the Conduit) issues commercial
          paper to investors to finance its acquisition of interests in federally-reinsured student
          loans made between October 2003 and September 2009. The commercial paper is
          backed by the Conduit‘s interest in these loans. The Conduit uses proceeds of these

FY 2009                                                - 14 -                     Federal Student Aid Annual Report
Management’s Discussion and Analysis                                  Performance Goals, Objectives and Results



          sales to acquire these interests from lenders. Lenders that sell interests to the conduit
          must commit to provide new loans for the coming academic years with a portion of the
          proceeds of the sale. To ensure that the Conduit will have the resources to meet investor
          demands on maturing commercial paper if it is unable to reissue that paper or meet that
          demand from its own resources, the Department entered into a forward purchase
          commitment (a Put Agreement) with the Conduit, under which the Department agreed to
          purchase pledged loans from the Conduit at a prearranged price as and when needed to
          ensure that the Conduit can meet these demands of its investors. In addition, the
          Federal Financing Bank has entered into a Liquidity Loan Agreement with the Conduit to
          provide immediate advances as needed by the Conduit.

          Results for the ABCP Conduit included:

             The Conduit first issued commercial paper in May 2009 and as of September 30,
              2009, $29.9 billion was issued.

          Establishment of a Short-Term Loan Purchase Program for the 2007–08 Academic
          Year. Until the time that the first Conduit became operational, lenders continued to
          struggle to obtain funds to make loans, in particular to make second disbursements
          when needed on loans for the 2008–09 academic year.

          To address this need, in late November 2008, the Secretary announced that the
          Department would use its loan purchase authority to purchase certain 2007–08
          academic year FFEL Program loans. This short-term use of the purchase authority was
          designed to prevent disruption in student lending prior to the ABCP Conduit Program
          becoming operational.

          Under this program, the Department offered to buy FFEL Program loans disbursed
          between May 1, 2007 and September 30, 2008, for a loan period beginning on or
          including July 1, 2007. Under this program, the Department agreed to purchase up to
          $500 million in loans each week that the program was operational, at 97 percent of the
          balance owed on the loan. Lenders were required to use a portion of the proceeds of the
          sale to make new FFEL loans.

          Results for the 2007-08 Short-term Loan Purchase Programs included:

             By February 25, 2009, the Department accepted final offers to purchase eligible
              loans under the 2007–08 Loan Purchase Commitment Program and completed
              those purchases by March 9, 2009. Under this program, the Department purchased
              loans totaling approximately $1 billion.

          Direct Loan Capacity. As a result of the state of the credit markets and subsequent
          passage of the ECASLA, the Department prepared to acquire a large volume of federally
          guaranteed student loans. In addition, schools began to enroll and participate in the
          Direct Loan Program to ensure a stable source of loans for their students. In fact, the
          number of schools originating loans in the Direct Loan Program increased 42 percent
          between June 30, 2008 and June 30, 2009. Finally, the President's FY 2010 budget
          proposes originating all new federal student loans through the Direct Loan Program
          starting in FY 2010.


FY 2009                                             - 15 -                    Federal Student Aid Annual Report
Management’s Discussion and Analysis                                   Performance Goals, Objectives and Results



          The Department invested considerable resources over the past 18 months to increase
          both the Direct Loan origination and servicing capacity. This was required primarily as a
          result of the disruption in the credit markets and the impact of that disruption on the
          FFEL Program. Last year, we completed a major capacity upgrade to the Department‘s
          Common Origination and Disbursement System which manages the origination and
          disbursement process for the Direct Loan Program as well as many federal grant
          programs. In June 2009, several servicing contracts were awarded to private sector
          servicing firms to increase the Department‘s student loan servicing capacity to improve
          service to students and reduce borrower defaults. This servicing capacity was
          operational by September 1, 2009.

          The selected contractors will service Direct Loans and FFEL loans being acquired by the
          Department under the ECASLA loan purchase programs. The award of these contracts
          provides the Department with the capacity necessary to support anticipated increases in
          the number of loans owned by the Department and ensures borrowers will receive the
          assistance they need to effectively manage their federal student loan obligations.

          FAFSA Simplification. Part of the transition to a new administration includes
          implementing the President‘s priorities, one of which includes making a college
          education more accessible for Americans. To do this, the Secretary was charged with
          simplifying the FAFSA. Federal Student Aid designed and began to implement the
          changes necessary to achieve the President‘s goal. Federal Student Aid made a series
          of improvements to the online application. Although over 95 percent of students apply
          online, much of the online form simply reproduces the paper version rather than taking
          advantage of the interactive potential. On June 24, 2009, Secretary Duncan announced
          a shorter and simpler online application that skips unnecessary questions and provides
          students with instant estimates of Pell Grant and student loan eligibility, rather than
          requiring them to wait weeks. It also provides a link to more college information such as
          graduation rates. Federal Student Aid continues to work to provide a series of additional
          improvements that will be implemented in January 2010.

          Budgetary Impact. Funding for student aid administration totaled $753 million for
          FY 2009. The FY 2009 administrative costs were significantly impacted by the
          administration‘s efforts to originate and service the increased Direct Loan volume,
          implement the loan purchase and participation initiatives authorized by the ECASLA and
          simplify the financial aid process. To fund these activities, the Department deferred
          planned projects and used a portion of the additional $60 million provided by the
          Recovery Act.




FY 2009                                              - 16 -                    Federal Student Aid Annual Report
Management’s Discussion and Analysis                                      Performance Goals, Objectives and Results




          Achievements in Support of Federal Student Aid Strategic Objectives

          Objective 1: Integrate Federal Student Aid systems and provide new technology
          solutions. In FY 2009, Federal Student Aid continued its focus on integration initiatives
          designed to improve accuracy and availability of the most critical information maintained
          throughout the financial aid lifecycle, specifically borrower, school and financial partner
          data. These initiatives are coordinated to present a more integrated and thus holistic
          view of borrower information to a variety of stakeholders within Federal Student Aid and
          the financial aid community. In FY 2009, Federal Student Aid established a
          Comprehensive Security Program to respond to the increasing need to provide
          additional protection of our data and oversight and monitoring of our systems. Federal
          Student Aid continued to establish the components of our new procurement and
          management approach to business application development.

          Objective 2: Improve program integrity to facilitate access to postsecondary
          education, while reducing the vulnerability of the federal student financial
          assistance programs to fraud, waste, abuse and mismanagement. Federal Student
          Aid improved its oversight of schools by partnering with and utilizing the data of other
          federal agencies that have monitoring responsibilities of postsecondary institutions such
          as the Federal Bureau of Investigation (FBI). For example, Federal Student Aid began
          conducting joint campus security site visits with the FBI to increase monitoring. In
          FY 2009, program review standards were enhanced to strengthen monitoring of distance
          education programs. Federal Student Aid continued process improvement for monitoring
          of the financial performance of publicly-traded schools and large school groups under
          common ownership. Referral processes between Federal Student Aid Business
          Operations and Federal Student Aid Program Compliance were also enhanced to more
          aggressively identify schools having program reconciliation problems. Additionally,
          Federal Student Aid continued to effectively monitor lenders, guaranty agencies and
          servicers that participate in the FFEL Program. During FY 2009, Federal Student Aid
          focused its efforts in the areas of 9.5 percent Special Allowance Payments (SAP),
          implementation of the ECASLA programs and other focused risk areas, such as conflict
          of interest, consolidation loan rebate fees and eligible lender trustee (ELT) relationships.

          Objective 3: Reduce program administrative costs. Federal Student Aid continued to
          focus on reducing costs through efficiency and productivity gains that can be achieved
          throughout the organization. In 2009, Federal Student Aid experienced significant
          increases in workload volumes across several Federal Student Aid programs and
          processes. This included approximately a 22 percent increase in applications processed,
          a 42 percent increase3 in the number of schools originating loans in the Direct Loan
          Program, and a 26 percent increase4 in Pell Grants disbursed. We anticipate these and
          other workload volumes will continue to increase in the coming years, driving down unit
          costs but increasing gross costs. In the future, we will look at a more balanced approach
          to cost management to ensure a ―best value‖ proposition to the government and our
          customers. This approach will consider several variables to gauge cost management
          including measurement of unit cost and the relative impact of unit cost fluctuations on
          programmatic and systemic risk as well as customer service levels, among others.

          3
              Represents the increase between the 2007-08 award year and the 2008-09 award year.
          4
              Represents the increase between the 2007-08 award year and the 2008-09 award year.
FY 2009                                                 - 17 -                    Federal Student Aid Annual Report
Management’s Discussion and Analysis                                     Performance Goals, Objectives and Results




          Objective 4: Improve human capital management. In FY 2009, Federal Student Aid
          began to develop and implement a succession strategy to ―build leaders at all levels.‖
          Federal Student Aid initiated a hiring freeze beginning July 1, 2008, and slowly began
          hiring new staff in March 2009. The organization dedicated itself to training the workforce
          in the fundamentals of its business and other mission-critical areas, building strong
          current and future leaders and aligning staff in organization structures designed for high
          performance. Some examples of training courses include:

               Cornerstones of Supervision which is a 35-hour supervisory skill-building program to
                develop individual assessments, group discussion, exercises and application to
                focus on the art and practice of supervising others.

               Conversations with Leaders Speaker Series which are leadership seminars for
                senior leadership designed to afford Federal Student Aid‘s senior leaders with a
                practical, meaningful and convenient way to engage in continuing leadership
                development.

               New Employee Orientation Program which is a half-day session for new hires that
                provides an overview of the federal student aid process, information about how we
                do business at Federal Student Aid and much more.

               Federal Student Aid Data Analysis--Understanding the Customer’s Need which is a
                two-day course focused on identifying the customer‘s question, identifying the
                appropriate systems from which to retrieve appropriate information and using reports
                from Federal Student Aid systems to retrieve appropriate information.

          In FY 2009, Federal Student Aid improved Human Capital Management by creating
          activities to address the issues raised in the 2008 Federal Human Capital Survey. Some
          examples of these activities include developing an initiative in response to the Best
          Places to Work data; working with colleagues across the Department in establishing
          measures and strategies for tracking leadership development; and coordinating our
          efforts with the Human Capital Advisory Committee; the Office of Personnel
          Management and other federal agencies.

          Objective 5: Improve products and services to provide better customer service. In
          FY 2009, the President called for all Americans to seek at least one year of
          postsecondary education5. Federal Student Aid‘s response to this charge was to improve
          access to a college education by making the FAFSA easier to complete. Improvements
          to the 2010-11 Web version of the FAFSA facilitate a simpler experience for applicants.
          Applicants are never presented some questions or allowed to skip others due to
          enhanced skip logic and the expanded use of data provided early in the application.
          Federal Student Aid also began to coordinate with the Internal Revenue Service (IRS) to
          allow some applicants to import their tax form data into the FAFSA.




          5
              http://www.whitehouse.gov/issues/education/

FY 2009                                                     - 18 -               Federal Student Aid Annual Report
Management’s Discussion and Analysis                                   Performance Goals, Objectives and Results




          To increase awareness about the availability of student financial assistance, Federal
          Student Aid established a series of public service announcements via a nationwide
          campaign, which is one of the top-rated public service announcements in the country.
          The Federal Student Aid Ombudsman continued to provide a problem resolution
          resource for student borrowers.

          Another priority of the new administration was to provide greater transparency in
          government. Federal Student Aid developed an online data center providing the public
          with access to information on loans, grants and campus-based aid.

          Quality of Performance Data

          Federal Student Aid develops and uses performance data for various purposes. Facing
          opportunities provided by the budget and performance management processes and
          activity-based management, Federal Student Aid recognizes the need to improve the
          accuracy, reliability and completeness of its data. Although immediate connections
          between specific performance and funding levels are sometimes challenging to make,
          Federal Student Aid is improving systems to yield reliable performance data to make
          informed budget and policy decisions. These systems will enhance the budget process
          and increase the accuracy and reliability of the information received from FFEL and
          Direct Loan Program participants.

          Federal Student Aid developed a matrix as guidance for data providers who have the
          responsibility for reporting data in performance measures to evaluate and identify issues
          of data integrity and credibility. The matrix provides a framework for validating and
          verifying performance data before it is collected and reported. The matrix was selectively
          implemented in FY 2008, expanded to include additional projects in FY 2009 and is used
          to evaluate data prior to publication.

          The data validation criteria require that:

             The goal and measure are appropriate to the mission of the organization and
              measured performance has a direct relation to the goal.
             The goal and measure are realistic and measurable, achievable in the time frame
              established and challenging in their targets.
             The goal and measure are understandable to the lay person, language is
              unambiguous and terminology is adequately defined.
             The goal and measure are used in decision making about the effectiveness of the
              program and its benefit to the public.

          The metrics employed to measure success are directly related to each of the objectives.
          As an example, targets for each of the metrics have been set at challenging, but realistic
          levels that are achievable within the time horizon.

          We believe that the goals for each objective and the associated performance metrics
          and targets are understandable; however there are opportunities for improving the
          explanation of these relationships in future editions of our performance plans.


FY 2009                                                - 19 -                  Federal Student Aid Annual Report
Management’s Discussion and Analysis                                     Performance Goals, Objectives and Results



          The Federal Student Aid Annual Report is published six weeks after the end of the fiscal
          year. Since a wide variety of data are submitted from diverse systems and governed by
          agreements with state guaranty agencies, lenders and servicers as well as grant and
          loan recipients, it is not possible in all cases to report complete data for the reporting
          period. In instances where fiscal year end data are not available, the most recently
          available data are presented. Effective decision making requires complete, accurate,
          timely and reliable data. Funding decisions are made and management actions are
          taken based on performance information. In addition to performance data received from
          the FFEL and Direct Loan Program participants, Federal Student Aid also deals with
          financial data. The data-quality processes for financial data are reflected in the financial
          statements and accompanying notes.




FY 2009                                               - 20 -                     Federal Student Aid Annual Report
Management’s Discussion and Analysis                            Analysis of Federal Student Aid’s Financial Statements




          Analysis of Federal Student Aid’s Financial Statements
          Federal Student Aid is committed to providing sound management, financial systems
          and controls to ensure that students receive aid and repay loans according to applicable
          laws and regulations. Federal Student Aid‘s financial statements are prepared in
          accordance with established federal accounting standards. The financial statements are
          subject to an annual independent audit to ensure that they are reliable and fairly present
          Federal Student Aid‘s financial position.

          In FY 2009, Federal Student Aid achieved an unqualified audit opinion on its financial
          statements. The Independent Auditor‘s Report cited no material weaknesses in internal
          control.

          For FY 2009 and FY 2008, the Balance Sheet, Statement of Net Cost and Statement of
          Changes in Net Position were prepared on a consolidated basis and the Statement of
          Budgetary Resources was prepared on a combined basis as required by the Office of
          Management and Budget (OMB) Circular A-136, Financial Reporting Requirements. The
          Report of Independent Auditors (opinion) on these statements and accompanying
          Reports on Internal Control and Compliance with Laws and Regulations are included in
          this report.

          Appropriations are available to cover the subsidy cost of each loan program and
          administrative expenses. Subsidy expense covers the difference between the net
          present value of expected future cash flows and the face value of each loan portfolio.
          Appropriation authority is available as needed on a permanent basis to finance costs
          resulting from loans guaranteed in the years before FY 1992. The Pell Grant Program
          receives appropriations to cover actual grant disbursements.

          A comparison between significant line items reported in Federal Student Aid‘s FY 2009
          and FY 2008 September financial statements is presented in the following table:

                              Summarized Financial Data – FY 2009 and FY 2008
                                            (Dollars in Millions)

                                   Percentage       Dollar
                                                                         FY 2009              FY 2008
                                    Change        Difference

          Total Assets                 57.3%       $110,700             $303,987              $193,287


          Total Liabilities            48.8%       $ 90,848             $276,936              $186,088


          Net Position               275.8%        $ 19,852             $ 27,051              $ 7,199


          Net Cost of Operations    (173.7)%       $ (34,328)           $ (14,569)            $ 19,759




FY 2009                                              - 21 -                          Federal Student Aid Annual Report
Management’s Discussion and Analysis                          Analysis of Federal Student Aid’s Financial Statements




          The Balance Sheet
          Composition of Federal Student Aid Assets

          The Consolidated Balance Sheet shows Federal Student Aid had total assets of $304.0
          billion, as of September 30, 2009. This represents an increase of $110.7 billion over the
          previous year‘s total assets of $193.3 billion, as of September 30, 2008. The difference
          resulted primarily from an increase in the Credit Program Receivables and an increase
          in the various programs‘ Fund Balances with Treasury.


                                 Composition of Federal Student Aid Assets
                                        as of September 30, 2009



                                                                                 Credit Program
                Fund Balance with
                                                                                  Receivables
                    Treasury
                      22%                                                             77%




                     Remaining
                      Assets
                       1%




          Fund Balance with Treasury increased by $9.9 billion from September 30, 2008 to
          September 30, 2009. The FFEL fund balance increased primarily as a result of new
          borrowings used to support loan purchasing activities including the Loan Participation
          Purchase, the Loan Purchase Commitment and the ABCP Conduit Programs. Fund
          balances of the Direct Loan and Grants Programs increased to support the additional
          loan volume and grant activity. A new fund balance, the Recovery Act, was also a
          contributing factor in the increase in Fund Balance with Treasury. The Recovery Act fund
          balance is part of new funding used to support the increased grant activity of the Pell
          Grant and FWS Programs. Treasury processes Federal Student Aid‘s cash receipts,
          such as appropriation warrants, that provide cash for operations, and also processes
          loan payment collections received from students.

          Credit Program Receivables, net of subsidy allowance, increased by $99.4 billion over
          the September 30, 2008 total. Credit Program Receivables are comprised of principal,
          interest and fees owed by students for Direct Loans, TEACH Grants, Perkins Loans, and
          FFEL loans under the Conduit, Loan Participation Purchase, Loan Purchase
          Commitment, and defaulted guaranteed loans. As of September 30, 2009, the balance
          was $234.0 billion in Credit Program Receivables – the majority of which were Direct
          Loan Program receivables, Loan Participation Purchase and Loan Purchase
          Commitment Programs and defaulted FFEL loans receivables.

FY 2009                                              - 22 -                      Federal Student Aid Annual Report
Management’s Discussion and Analysis                            Analysis of Federal Student Aid’s Financial Statements




          Receivables, net of the allowance for subsidy, increased primarily due to two factors. As
          a result of the liquidity crisis in the financial markets, there has been a large influx of
          schools and participants into the Direct Loan Program, resulting in a significant increase
          in new loan originations. Also, the implementation of the Loan Participation Purchase
          and Loan Purchase Commitment Programs in FY 2008, as well as the implementation of
          the ABCP Conduit Program in FY 2009, allowed Federal Student Aid to purchase
          existing loans from the FFEL community.

          Receivables of defaulted guaranteed FFEL Program loans, net of allowance for subsidy,
          increased as a result of continued growth in the average amount of loans, growth in
          online schools, economic hardship and the expiration of both the Exceptional Performer
          designation and the Voluntary Flexible Agreements. Receivables of defaulted Direct
          Loans, net of allowance for subsidy, increased as a result of continued growth in the
          average amount of loans, growth in online schools and economic hardship.

          Composition of Federal Student Aid Liabilities

          Federal Student Aid had total liabilities, as of September 30, 2009, of $276.9 billion, an
          increase of $90.8 billion over the previous year‘s total liabilities. The difference resulted
          primarily from an increase in Debt due to Treasury and Other Intragovernmental
          Liabilities offset by a decrease in the Liabilities for Loan Guarantees.

          Debt increased as a result of the new borrowings to support the increased loan volume
          in the Direct Loan Program and new debt for the Loan Participation Purchase, Loan
          Purchase Commitment and ABCP Conduit Programs. Other Intragovernmental Liabilities
          increased as a result of the downward FFEL re-estimates and modifications of subsidy.
          Net subsidy-related transactions resulted in a reduction of the Liability for Loan
          Guarantees.

                            Composition of Federal Student Aid Liabilities
                                     as of September 30, 2009
                                                         Remaining Liabilities
                   Liabilities for Loan                          4%
                      Guarantees
                            7%



           Other IntraGovernmental
                      4%
                                                                                  Treasury Debt
                                                                                      85%




FY 2009                                                - 23 -                      Federal Student Aid Annual Report
Management’s Discussion and Analysis                           Analysis of Federal Student Aid’s Financial Statements



          Total principal balances outstanding of guaranteed loans held by lenders were
          approximately $457 billion as of September 30, 2009, with a maximum government
          exposure of $445 billion. As illustrated below, of the insured amount, the Department
          would pay a smaller amount to the guaranty agencies in reinsurance rates, based on the
          age of the loan, which range from 100 to 95 percent.

                   Estimated Maximum Government Exposure for Guaranteed Loans
                                    as of September 30, 2009

                                     Loans disbursed before
                                     10/1/93 insured at 100%
                                           less than 1%




                                                                           Loans disbursed between 10/1/93
                                                                              and 10/1/07 insured at 98%
                                                                                         40%



             Loans disbursed after
            10/1/07 insured at 97%
                      60%




          Statement of Net Cost

          Through September 30, 2009, net costs reflected a decrease of $34.3 billion from the
          previous year‘s total net cost of $19.8 billion. This included a significant decrease in net
          costs for the Direct Loan and FFEL Programs, netted against an increase in the Grant
          Programs, the Recovery Act and Other Programs. The gross costs are primarily
          composed of subsidy expenses from re-estimates and the funding of grants, under the
          Pell Grant Program and the Recovery Act. Subsidy expenses are the estimated costs of
          funding the direct loans and loan guarantees. The amount of the subsidy expense
          equals the present value of estimated cash outflows over the life of the loans minus the
          present value of estimated cash inflows.




FY 2009                                               - 24 -                      Federal Student Aid Annual Report
Management’s Discussion and Analysis                             Analysis of Federal Student Aid’s Financial Statements




                              Composition of Federal Student Aid's Net Cost
                                for the Year Ended, September 30, 2009
                                                (Dollars in Millions)


                                                  Grant Programs
             $20,000                                 $17,262
                                                                                   Recovery Act
                                                                                      $7,572
             $10,000                   Direct Loans
                            FFEL                                  Other Programs
                          ($30,561)      ($9,603)                      $761
                  $0


             ($10,000)


             ($20,000)


             ($30,000)


             ($40,000)


          Statement of Changes in Net Position

          Federal Student Aid‘s net position as of September 30, 2009, was $27.1 billion, an
          increase of $19.9 billion over the previous year‘s total net position of $7.2 billion. The
          difference is primarily due to subsidy re-estimates and the unexpended appropriations
          for the Recovery Act.

          Statement of Budgetary Resources

          The Statement of Budgetary Resources compares the budgetary resources provided
          with the status or execution of those resources and details the composition of the
          resources and the status of the resources and shows the amount of net outlays. This
          statement shows that Federal Student Aid had $313.2 billion in combined budgetary
          resources, of which $12.3 billion remained unobligated and not available.

          Federal Student Aid had total net outlays as of September 30, 2009, of $105.7 billion.
          There was an increase in total net outlays of $60.0 billion comparing September 2009 to
          September 2008. Net outlays increased primarily due to the Secretary's authority,
          provided recently by ECASLA, to purchase FFEL Loans with a moderate increase for
          Direct Loans.

          Gross outlays for Federal Student Aid increased $97.8 billion comparing September
          2009 to September 2008 due to increased loan originations and consolidations in the
          Direct Loan Program and increased activity in the FFEL Loan Participation Purchase
          and Loan Purchase Commitment Programs. Offsetting receipts increased primarily due
          to the collection of subsidy re-estimates and modifications.


FY 2009                                                 - 25 -                       Federal Student Aid Annual Report
                                                                 Analysis of Federal Student Aid’s Systems, Controls and Legal
Management’s Discussion and Analysis
                                                                 Compliance




          Analysis of Federal Student Aid’s Systems, Controls and Legal
          Compliance

          Internal control is a major part of managing an organization. It comprises the plans,
          methods and procedures that are used to meet the missions, goals and objectives and,
          in doing so, supports performance-based management. Internal control also serves as
          the first line of defense in safeguarding assets and preventing and detecting errors and
          fraud. In short, internal control, which is synonymous with management control, helps
          government program managers achieve desired results through effective stewardship of
          public resources.

          Internal control should provide reasonable assurance that the objectives of the agency
          are being achieved in the following categories:

             Effectiveness and efficiency of operations, including the use of the entity‘s resources.
             Reliability of financial reporting, including reports on budget execution, financial
              statements and other reports for internal and external use.
             Compliance with applicable laws and regulations.6

          Federal Student Aid management is responsible for establishing and maintaining
          effective internal control and financial management systems that meet the objectives of
          Federal Managers’ Financial Integrity Act of 1982 (FMFIA). Federal Student Aid
          conducted its assessment of the effectiveness of internal control over the effectiveness
          and efficiency of its operations and compliance with applicable laws and regulations in
          accordance with OMB Circular A-123, Management’s Responsibility for Internal Control.
          Based on the results of this evaluation, Federal Student Aid reported to the
          Department‘s management that its internal control over the effectiveness and efficiency
          of its operations and compliance with applicable laws and regulations, as of September
          30, 2009, were operating effectively.

          In addition, Federal Student Aid, working with the Department‘s management, conducted
          its current year assessment of the effectiveness of internal control over financial
          reporting, which includes safeguarding of assets and compliance with applicable laws
          and regulations, in accordance with the requirements of Appendix A of OMB Circular
          A-123, Management’s Responsibility for Internal Control. The scope of Federal Student
          Aid's assessment included the following processes that impact the Department's
          financial statements:




          6
           Government Accountability Office (GAO) Standards for Internal Control in the Federal Government, GAO/AIMD-00-
          21.3.1, November 1999, p. 4-5


FY 2009                                                          - 26 -                           Federal Student Aid Annual Report
                                                      Analysis of Federal Student Aid’s Systems, Controls and Legal
Management’s Discussion and Analysis
                                                      Compliance




             ABCP Conduit Program.
             ACG Program Operations.
             Campus-Based Program Operations.
             Debt Collection.
             Direct Loans – Consolidations.
             Direct Loan Operations.
             Direct Loans – Servicing.
             FFEL Servicing.
             Financial Partner Invoicing.
             Financial Partner Oversight.
             Financial Reporting.
             IT/General Computer Controls (Financial Management System, Common Origination
              and Disbursement System, Direct Loan Consolidation System, Direct Loan Servicing
              System, DMCS, National Student Loan Data System (NSLDS), Electronic Campus
              Based System, FFEL Reinstatement System, Conditional Discharge and Disability
              Tracking System).
             Loan Participation Purchase Program.
             Loan Purchase Commitment Program.
             Pell Grant Program Operations.
             Portfolio Performance Division Operations.
             School Eligibility Channel.
             SMART Grant Program Operations.
             Student Eligibility.
             TEACH Grant Program Operations.

          Based on the results of this evaluation, Federal Student Aid provided reasonable
          assurance to the Department's management that its internal control over financial
          reporting as of June 30, 2009 was operating effectively and no material weaknesses
          were found in the design or operation of the internal control over financial reporting.

          Federal Student Aid's participation in the Department's successful implementation of the
          requirements of OMB Circular A-123, Appendix A, enables it to continue to build upon its
          internal control framework. This framework will be used in continuing efforts to monitor
          and improve internal control.

          Please refer to the Department's Agency Financial Report (AFR) for information related
          to the Department's compliance with the Federal Financial Management Improvement
          Act of 1996.




FY 2009                                               - 27 -                     Federal Student Aid Annual Report
Management’s Discussion and Analysis                            Possible Future Effects of Existing Events and Conditions




          Possible Future Effects of Existing Events and Conditions

          Federal Student Aid‘s ability to fully implement the initiatives described in this report is
          impacted by external factors, including budget and policy considerations and
          unanticipated events. Federal Student Aid works closely with the Department and OMB
          to develop the administrative budget and ensure appropriate resources are allocated to
          support our strategic objectives. Legislative and/or regulatory action may result in policy,
          resources or program changes requiring Federal Student Aid to revisit our current
          strategic plan. Specifically, staff worked to implement the changes resulting from the
          passage of the Higher Education Opportunity Act of 2008 (HEOA). As a result, Federal
          Student Aid will revise both the Annual Performance Plan and the Five-Year Plan to
          meet the new legislative and/or regulatory requirements.

          In addition to the Loan Purchase Programs of FY 2008, the Secretary announced that
          the Department would provide liquidity support to one or more conforming Conduits in
          FY 2009. These special purpose entities would be established to purchase interests in
          eligible federal student loans currently residing on lenders‘ balance sheets and originally
          awarded between October 2003 and September 2009. This would provide lenders with
          liquidity to provide new loans for the coming academic year. The Conduit first issued
          commercial paper in May 2009 and as of September 30, 2009, $29.9 billion had been
          issued.

          In February 2009, President Obama signed the Recovery Act into law. The Recovery Act
          provides an additional $17 billion for Pell Grants in FY 2009 and FY 2010; the current
          year funding is $16.2 billion, with 6.1 million students participating. In addition to
          increases in the CCRAA, the Recovery Act increased the maximum Pell Grant award to
          $5,350 in the first year and more in the second year. The Recovery Act also increased
          FWS by $200 million.

          Other external factors could also affect our ability to achieve the organization's
          objectives. With ECASLA expiring in 2010 and lenders' continued participation in FFEL
          uncertain, Federal Student Aid has shifted focus to ensure that schools are able to easily
          transition into the Direct Loan Program. If the President's FY 2010 budget proposals are
          enacted, the expansion of the Perkins Loan Program will require a commitment of
          internal resources.

          W e are unable to anticipate the full impact of Federal Student Aid‘s ability to achieve its
          strategic objectives included in the Five-Year Plan as a result of a long-term commitment
          to other similar unforeseen events.




FY 2009                                                - 28 -                         Federal Student Aid Annual Report
Management’s Discussion and Analysis                                          Limitations of Financial Statements




          Limitations of Financial Statements

          Management has prepared the accompanying financial statements to report the financial
          position and operational results for Federal Student Aid, for FY 2009 and FY 2008
          pursuant to the requirements of title 31 of the United States Code (U.S.C.), section
          3515(b).

          While these statements have been prepared from the books and records of Federal
          Student Aid in accordance with generally accepted accounting principles for federal
          entities and the formats prescribed by OMB, these statements are in addition to the
          financial reports used to monitor and control budgetary resources, which are prepared
          from the same books and records.

          The statements should be read with the realization that they are a component of the U.S.
          Government, a sovereign entity. One implication of this is that the liabilities presented
          herein cannot be liquidated without the enactment of appropriations, and ongoing
          operations are subject to the enactment of future appropriations.




FY 2009                                             - 29 -                    Federal Student Aid Annual Report
Management’s Discussion and Analysis            Limitations of Financial Statements




FY 2009                                - 30 -   Federal Student Aid Annual Report
Annual Program Performance Report


          Annual Program Performance Report




FY 2009                             - 31 -    Federal Student Aid Annual Report
Annual Program Performance Report




FY 2009                             - 32 -   Federal Student Aid Annual Report
Annual Program Performance Report                                                     Annual Program Performance



           Annual Program Performance

           During FY 2009, Federal Student Aid achieved significant accomplishments especially
           considering several unanticipated events that caused a reassessment of priorities. The
           information presented herein provides details of our achievements, by objective. Under
           each objective below, we have identified the corresponding Performance Standard, as
           well as the organization‘s progress in meeting the stated target. A matrix providing
           information on the data quality and analysis of progress is also presented under each
           objective. Unless otherwise noted, these performance standards and their respective
           ratings are based on criteria established by Federal Student Aid.

           The Performance Results for each Objective are presented in tables that provide trend
           data including the latest available reported data. The Performance Column shows the
           relationship between the new and actual values and targets as follows:

              "Met" represents that performance results met or exceeded the target.
              "Not met" represents that performance results fell short of the target.
              "Improved" represents that the performance results improved over the prior year but
               fell short of the target.
              "PM" represents that the measured performance, standards and/or targets were not
               established.
              "T" represents that the measure was replaced or discontinued.
              "NA" represents that the data is not available.

           An analysis of progress is provided as insight into Federal Student Aid's progress. Data
           quality incorporates information such as the universe included in the measure while
           target context explains the parameters or rationale or the targets.

           The Goals, Objectives and Results presented in this report terminated effective
           September 30, 2009. They will be replaced based on the new FY 2010 – 2014 Five-Year
           Strategic Plan. Some items may be similar with new targets identified.

           Objective 1: Integrate Federal Student Aid systems and provide new
           technology solutions.

           In FY 2009, Federal Student Aid continued its focus on integration initiatives designed to
           improve accuracy and availability of the most critical information maintained throughout
           the financial aid lifecycle, specifically borrower, school and financial partner data. These
           initiatives are coordinated to present a more integrated and thus holistic view of borrower
           information to a variety of stakeholders within Federal Student Aid and the financial aid
           community. In FY 2009, Federal Student Aid established a Comprehensive Security
           Program to respond to the increasing need to provide additional protection of our data
           and oversight and monitoring of our systems. Federal Student Aid continued to establish
           the components of our new procurement and management approach to business
           application development.




FY 2009                                                - 33 -                    Federal Student Aid Annual Report
Annual Program Performance Report                                                   Annual Program Performance



           Specifically, in FY 2009, Federal Student Aid:

              Completed planning to initiate the NSLDS re-engineering project, which improves the
               management and monitoring of borrowers‘ financial aid history. Federal Student Aid
               also established formal high-level requirements to begin the development of the
               NSLDS re-engineering project.
              Continued the Person Record Management System and Personal Identification
               Number Reengineering (PRMS/PIN-R) project to consolidate and manage borrower
               information in one location with a single, secure login process.
              Expanded the Enterprise Development Support Services (EDSS) Project and
               Program Management (P/PM) Model by prequalifying and approving four vendors'
               bids to receive future projects. As a result, Federal Student Aid reduces redundancy
               and disparate development and operations approaches, procedures and outputs.
              Completed project evaluation and awarded a contract to finalize project requirements
               and to develop a functional design for the IPM System, which will replace aging
               legacy systems and improve employee efficiencies and system response times.
              Implemented Enterprise Information Services which profiles, cleanses, integrates
               and delivers trusted information from heterogeneous sources to drive greater
               business insight faster, at a lower cost.
              Built out the Enterprise Portal Infrastructure and implemented the New Employee
               View on the Internet.
              Developed Federal Student Aid technology standards and technical standards for all
               Federal Student Aid IT infrastructures and made them available for key initiatives
               including the PRMS/PIN-R; NSLDS re-engineering; and Integrated Student View.
              Integrated Central Processing System (CPS)-Financial Aid Administrator (FAA)
               online application with the Enterprise Access and Identity Management system, a
               security authentication service to over 25,000 FAA users of CPS, without the need to
               use Personally Identifiable Information to access CPS-FAA online.
              Initiated a requirements solicitation project for Integrated Student View, which will
               support detailed requirements to be developed in the future.
              Improved the cyber security program through the establishment of Continuous
               Monitoring/Independent Verification and Validation program. Continued development
               of the Operational Vulnerability Management Solution used for capturing and
               managing identified information security and privacy weaknesses.




FY 2009                                               - 34 -                   Federal Student Aid Annual Report
Annual Program Performance Report                                                                                        Annual Program Performance




           Performance Standards and Results
           The following performance standards were established to measure Federal Student
           Aid’s success in achieving key integration initiatives. Success is predicated on the timely
           completion of all scheduled project deliverables in the design, development and
           implementation phases of the four main systems integration initiatives as described
           below.

           Objective 1 Performance Metrics and Results

                             FY       FY         FY             FY                  FY 2009                     FY 2009
              Metric                                                                                                                     Performance
                            2005     2006       2007           2008                 (Target)                    (Actual)
                                                                                    Complete
                                                                                 evaluation and
                                                                                  inventory to
                                                                              determine usability
                                                                                    of current
                                                                               requirements and         Completed evaluation and
                                                           Development
                                                                                development by       inventory to determine usability
                                                            terminated.
                                                  In                          1/31/09; develop a       of current requirements and
                                                                New
                IPM                 Design     develop-                           statement of          development by 1/31/09;            Not met
                             *                             approach and
                                                ment                            objectives for re-   awarded contract on 9/25/09 to
                                                              timeline
                                                                                  starting IPM         complete requirements and
                                                            developed.
                                                                                development by              functional design.
                                                                                 6/30/09; issue
                                                                                   request for
                                                                              proposal to re-start
                                                                               IPM development
                                                                                   by 9/30/09.
                                                                                                     High Level Requirements were
                                                                                                     developed for NSLDS redesign
                                                                                                     and used to make an award for
                                                               Issued
                                                                                                      design and build of phase I of
                                                            request for        Develop phase I
                                                                                                       the NSLDS reengineering
                                                            information        requirements for
                                                                                                                project.
                                                            with a draft       NSLDS redesign
            Integrate aid                                  statement of       by 8/30/09; develop
                                              Strategies                                               High level requirements were
               delivery                                       work for         requirements for                                             Met**
                             *         *      completed                                               drafted for DMCS and used to
              systems                                      person data           PRMS/PIN by
                                                                                                     issue a sources sought possible
                                                           management.         9/30/09; Develop
                                                                                                       vendors. A contract was also
                                                             High level        requirements for
                                                                                                      awarded to form more detailed
                                                              planning        DMCS by 8/30/09.
                                                                                                     requirements to issue a request
                                                            completed.
                                                                                                       for proposal in FY 2010 for a
                                                                                                       collections services contract.

                                                                                Additional loan
                                                                               servicing vendors
                                                                              established; EDSS
                                                             Developer                                  Additional loan servicing
                                                                                - P/PM vehicle
                                              Approach          pool                                   vendors established; EDSS
            Acquisition                                                       established; EDSS
                                                 and        established.                             P/PM vehicle established; EDSS
             strategy                                                            requirements                                                Met
                             *         *       timeline      Customer                                requirements vehicle solicitation
                                                                              vehicle solicitation
                                              completed       care not                               published; EDSS testing vehicle
                                                                               published; EDSS
                                                             complete.                                    solicitation published.
                                                                                testing vehicle
                                                                                   solicitation
                                                                                   published.
                                                             Deployed              Work with
                                                             enterprise          development
                                                                                                        Worked with development
                                                                portal            initiatives to
                                               Phase 1                                                  initiatives to establish plan
           Infrastructure                                  infrastructure        establish plan                                              Met
                             *         *      completed                                               for integration with portal and
                                                             Enterprise       for integration with
                                                                                                            ESB as appropriate.
                                                           Services Bus       portal and ESB as
                                                               (ESB).             appropriate.
           * Data is not available because 1) the Department was not collecting this data during the fiscal year indicated, 2) the
           project did not exist or 3) the performance standard had not been established.
           **In June 2009, the target for DMCS was updated to reflect that the procurement was changed from having a new system
           built to a procurement for a service. The original schedule to do all requirements and produce a system was estimated at
           24 months. In procuring a service, as a replacement to the default processes, we are expecting to be fully operational by
           the end of 2010.


FY 2009                                                                    - 35 -                                Federal Student Aid Annual Report
Annual Program Performance Report                                                    Annual Program Performance


           Data Quality: Deliverables were achieved upon the completion of the prescribed phases
           of the corresponding projects.

           Analysis of Progress: As we reported in the FY 2008 Annual Report, while the
           objectives of several of Federal Student Aid‘s integration projects remain the same, the
           development and procurement strategies for them changed. Federal Student Aid
           discovered that large contracts requiring multiple business capabilities and supporting a
           complex and multi-faceted business process, do not provide Federal Student Aid the
           best solution providers from the marketplace. In addition, the lack of post-award
           competition led to price, quality and innovation issues, preventing Federal Student Aid
           from being able to quickly transition services, potentially putting our business at risk.

           Target Context: In the FY 2006 – 2010 Five-Year Plan, Federal Student Aid established
           and documented strategic performance standards to measure the organization‘s
           success in meeting the stated long-term objectives. In that plan, Federal Student Aid
           generally published the FY 2006 and the FY 2010 targets. Because Federal Student Aid
           has not updated that plan, interim year targets, where developed, were not generally
           published. In this report, Federal Student Aid will report its progress primarily against
           FY 2009 targets that until now may not have been previously published. All targets
           referenced in this report, whether previously published or not, are aligned with the
           FY 2010 targets and gauge Federal Student Aid‘s incremental progress in achieving its
           objectives.


           Objective 2: Improve program integrity to facilitate access to
           postsecondary education, while reducing the vulnerability of the
           federal student financial assistance programs to fraud, waste, abuse
           and mismanagement.

           In FY 2009, Federal Student Aid improved its oversight of schools by partnering with and
           utilizing the data of other federal agencies that have monitoring responsibilities of
           postsecondary institutions such as the FBI. For example, Federal Student Aid began
           conducting joint campus security site visits with the FBI to improve monitoring of
           schools. Federal Student Aid enhanced program review standards to strengthen
           monitoring of distance education programs. We continued process improvement for
           monitoring the financial performance of publicly-traded schools and large school groups.
           Additionally, Federal Student Aid continued to effectively monitor lenders, guaranty
           agencies and servicers that participate in the FFEL Program. During FY 2009, Federal
           Student Aid focused its efforts in several areas including 9.5 percent SAP,
           implementation of the ECASLA programs and other focused risk areas, such as conflict
           of interest, consolidation loan rebate fees, existing lender and ELT relationships.




FY 2009                                               - 36 -                    Federal Student Aid Annual Report
Annual Program Performance Report                                                      Annual Program Performance



           Specifically, in FY 2009, Federal Student Aid:

              Processed 99.7 percent of school compliance audits and 99.8 percent of school
               financial statements on time.
              Completed risk assessment for postsecondary schools. The data from the
               assessment resulted in:
                    Continued process improvement for monitoring the financial performance of
                       publicly-traded schools and large school groups under common ownership;
                    Enhanced program review standards to strengthen monitoring of distance
                       education program offerings; and
                    Developed a Direct Loan work group to identify potential risks associated with
                       all new federal student loan originations going through the Direct Loan
                       Program.
              Partnered with the Federal Trade Commission to leverage use of their monitoring
               tools for postsecondary institutions.
              Established a Clery Act Oversight Team with the FBI Criminal Justice Information
               Services staff and conducted nine joint institutional Clery Act reviews.
              Developed core competencies for FFEL Program review staff and implemented a
               mandatory training program.
              Resolved and closed the FY 2008 FMFIA Reportable Condition related to FFEL
               Oversight.
              Developed and implemented financial institution (lenders, guarantors and servicers)
               audit resolution standards to ensure consistency, accuracy and timeliness of the
               audit resolution process.
              Continued the monitoring of the 9.5 percent SAP portfolio. As a result of the
               application of the audit methodology, the 9.5 percent SAP qualified ending principal
               balance is $1.3 billion, representing an 88 percent decrease from the September
               2006 ending principal balance of $11 billion.
              Conducted targeted FFEL oversight in such areas as conflict of interest,
               consolidation loan rebate fees, exiting lenders and ELT relationships.
              Processed 300 compliance audits of financial institutions and also reviewed over 100
               audits related to the ECASLA Programs.
              Worked closely with the Department‘s Office of Inspector General to develop audit
               guides to improve oversight and monitoring of financial institutions participating in the
               Loan Purchase Programs authorized under ECASLA.




FY 2009                                                - 37 -                     Federal Student Aid Annual Report
Annual Program Performance Report                                                                               Annual Program Performance


           Performance Standards and Results
           The following performance standards were established to gauge Federal Student Aid’s
           success in improving program integrity, while reducing the vulnerability of the Title IV
           programs to fraud, waste and abuse. The success relies on continuing to achieve low
           default rates and increasing the recovery rate.

           Objective 2 Performance Metrics and Results

                                      FY              FY             FY           FY           FY 2009          FY 2009
                 Metric                                                                                                       Performance
                                     2005            2006           2007         2008          (Target)         (Actual)
           PMA status score
                                                                                                                Measure
             for financial          Green           Green          Green         Green             T                                 T
                                                                                                              discontinued
            management
            PMA score for
                                                                                                                Measure
               improper              Red            Yellow         Yellow        Yellow            T                                 T
                                                                                                              discontinued
              payments

                                   FY 2003         FY 2004        FY 2005       FY 2006                         FY 2007
                                    5.5%            5.9%           5.5%          5.8%                            8.0%

                                   FY 2002         FY 2003        FY 2004       FY 2005                         FY 2006
                                    7.8%            7.3%           8.0%          7.4%                            7.6%
               CLTDR***
                                   FY 2001         FY 2002        FY 2003       FY 2004                         FY 2005
            Title IV student                                                                      PM                                PM
                                    9.9%            9.2%           8.8%          9.5%                            8.6%
             loan portfolio
                                   FY 2000         FY 2001        FY 2002       FY 2003                         FY 2004
                                    11.8%           10.9%          10.3%         10.0%                           10.6%

                                   FY 1999         FY 2000        FY 2001       FY 2002                         FY 2003
                                    12.2%           12.7%          11.9%         11.3%                           10.9%

                                   FY 2003         FY 2004        FY 2005       FY 2006        FY 2007          FY 2007
                 CDR**                                                                                                           Not met
                                    4.5%            5.1%           4.6%          5.2%           <6.0%            6.7%
               Direct Loan
             default recovery             *           19.0%          20.1%        21.0%          20.0%              18.0%          Not met
                   rate
              FFEL default
                                          *           19.4%          19.6%        23.6%         19.75%             19.70%          Not met
              recovery rate
           * Data is not available because 1) the Department was not collecting this data during the fiscal year indicated, 2) the
           project did not exist or 3) the performance standard had not been established.
           **Indicates what year the data was reported. For example, during FY 2009, Federal Student Aid calculated the FY 2007
           CDR.
           ***The CLTDR was first published in FY 2006. Since that time, Federal Student Aid has produced and published the
           FY 2005, FY 2006, FY 2007 and FY 2008 calculations for the relevant preceding five-year periods, respectively. Federal
           Student Aid will continue to analyze the impact of portfolio performance on the CLTDR before identifying future
           performance targets.


           Data Quality: Indicates what year the data was reported. For example, during FY 2009,
           Federal Student Aid calculated the FY 2007 CDR.

           Analysis of Progress: Federal Student Aid continues to make progress in improving
           program integrity as defined by the identified performance standards above. The FFEL
           target was hampered by the economic conditions and the inability of the guaranty
           agencies to sell all of their rehabilitated loans. Had they been able to sell their loans,
           they would have exceeded their goal.

           Target Context: In the FY 2006 – 2010 Five-Year Plan, Federal Student Aid established
           and documented strategic performance standards to measure the organization‘s
           success in meeting the stated long-term objectives. In that plan, Federal Student Aid

FY 2009                                                               - 38 -                              Federal Student Aid Annual Report
Annual Program Performance Report                                                        Annual Program Performance


           generally published the FY 2006 and the FY 2010 targets. Because Federal Student Aid
           has not updated that plan, interim year targets, while developed, were not generally
           published. In this report, Federal Student Aid will report its progress primarily against
           FY 2009 targets that until now may not have been previously published. All targets
           referenced in this report, whether previously published or not, are aligned with the
           FY 2010 targets and gauge Federal Student Aid‘s incremental progress in achieving its
           objectives.

           Objective 3: Reduce program administration costs.

           Federal Student Aid continued to focus on reducing costs through efficiency and
           productivity gains that can be achieved throughout the organization. In FY 2009, Federal
           Student Aid experienced significant increases in workload volumes across several
           Federal Student Aid programs and processes. This included an increase of
           approximately 22 percent in applications processed, an increase of 42 percent7 in the
           number of schools originating loans in the Direct Loan Program and an increase of 26
           percent8 in Pell Grants disbursed. We anticipate these and other workload volumes will
           continue to increase in the coming years, driving down unit costs but increasing gross
           costs. In the future, we will look at a more balanced approach to cost management to
           ensure a ―best value‖ proposition to the government and our customers. This approach
           will consider several variables to gauge cost management including measurement of unit
           cost and the relative impact of unit cost fluctuations on programmatic and systemic risk
           as well as customer service levels, among others.

           Specifically, in FY 2009, Federal Student Aid:

                Reduced the projected unit cost to service federal student loans owned by the
                 Department, as a result of the award of student loan servicing contracts to four
                 private sector servicers. The unit cost to service federal student loans will decrease if
                 the portfolio of federal student loans held by the Department increases as projected.
                Issued a new competitive contract for NSLDS Operations and Maintenance Services,
                 thereby saving Federal Student Aid approximately three percent annually beginning
                 in FY 2009. These savings will continue through FY 2013.
                Saved over $2.0 million dollars through the renegotiation of software licensing and
                 maintenance agreements in FY 2009. These same agreements will save Federal
                 Student Aid an additional $2.0 million annually through FY 2011 and $1.5 million
                 annually in FY 2012 and FY 2013.
                Re-competed a contract for operational, maintenance and development support
                 services for the Financial Management System application. The new 10-year
                 contract was awarded to a small business concern resulting in a cost savings of
                 approximately $1.3 million per annum.
                Consolidated Federal Student Aid‘s two fall training conferences to a single event,
                 saving the Department approximately $160,000 on an annual basis.
                Continued the monitoring of the 9.5 percent SAP portfolio. As a result of the
                 application of the audit methodology, the 9.5 percent SAP qualified ending principal
                 balance is $1.3 billion, representing an 88 percent decrease from the September
                 2006 ending principal balance of $11 billion.

           7
               Represents the increase between the 2007-08 award year and the 2008-09 award year.
           8
               Represents the increase between the 2007-08 award year and the 2008-09 award year.
FY 2009                                                  - 39 -                     Federal Student Aid Annual Report
Annual Program Performance Report                                                                                Annual Program Performance


               Deobligated $43.5 million as a result of contract closeout efforts in FY 2009. Of that
                amount, the majority was reapportioned for use on other priorities and the remaining
                amount was returned to Treasury.

           Performance Standards and Results
           Performance standards were established to measure Federal Student Aid’s ability to
           control costs in an environment of increasing workloads. Success relies on achieving
           economies of scale in our application, delivery, servicing and collection activities.

           Objective 3 Performance Metrics and Results

                                       FY         FY            FY              FY          FY 2009       FY 2009
                   Metric                                                                                               Performance
                                      2005       2006          2007            2008         (Target)      (Actual)
              Reduce electronic
           FAFSA direct unit cost         *       $ 5.04       $ 4.34         $ 3.91         $ 4.03          $ 3.94            Met
             Reduce origination
              and disbursement
                                          *       $ 4.42       $ 4.03         $ 3.65         $ 3.98          $ 3.60            Met
               direct unit cost
             Reduce Direct Loan
             servicing direct unit                $20.95       $21.45
                                          *                                   $19.59         $18.44         $19.25          Improved
                     cost
             Reduce collections
               direct unit cost           *       $ 0.14       $ 0.13         $ 0.14         $ 0.12          $ 0.13         Improved
           * Data is not available because 1) the Department was not collecting this data during the fiscal year indicated, 2) the
           project did not exist or 3) the performance standard had not been established.


           Data Quality: Unit costs are based on prior year data. For example, in FY 2009, the unit
           costs were based on data from FY 2008. To calculate the unit cost of Originating and
           Disbursing Direct Loans and Pell Grants, the total amount spent on originating and
           disbursing Direct Loans and Grants is divided by the total number of Direct Loan and
           Grant disbursements. For ‗Processing an Electronic FAFSA‘, ‗Servicing a Direct Loan
           Borrower‘ and ‗Collecting One Dollar in Default Status‘ the total amount spent for each
           output is divided by the number of units for the output.

           Analysis of Progress: Federal Student Aid has made significant progress in its efforts
           to reduce the administrative unit costs. All measures are equal to or below the baseline
           amounts from FY 2006. Due to the nature of the cost calculation for default collections, it
           will be difficult to meet the target of $0.12. This is due to the fact that this measure
           includes the costs for Private Collection Agency contracts, which increase in cost as the
           amount collected increases. While the unit cost of collecting one dollar in default is
           relatively steady, the actual amount collected has increased since the FY 2006 baseline.
           We plan to reevaluate this standard when we produce the next Five-Year Plan.

           Also, while Federal Student Aid did not realize any significant savings based on the
           budget request for any new major system initiative projects during FY 2009, as noted in
           the accomplishments in this objective, it did re-compete a contract for operational,
           maintenance and development support services for the Financial Management System
           application. The new 10-year contract was awarded to a small business concern
           resulting in a cost savings of approximately $1.3 million per annum. In addition, during
           FY 2008, a major capacity upgrade was made to the Department‘s Common Origination
           and Disbursement System which manages the origination and disbursement process for
           the Direct Loan Program as well as many federal grant programs. Federal Student Aid
           continued upgrades to these systems in 2009 with two additional smaller but significant
           upgrades. In June, several servicing contracts were awarded to private sector servicing
FY 2009                                                               - 40 -                              Federal Student Aid Annual Report
Annual Program Performance Report                                                       Annual Program Performance


           firms to increase the Department‘s student loan servicing capacity to improve service to
           students and reduce borrower defaults. This servicing capacity was operational by
           September 1. While no savings have been realized to date, future unit cost savings are
           expected.

           In addition, we anticipate workload volumes to continue to increase in the coming years,
           driving down unit costs but increasing gross costs.

           Target Context: In the FY 2006 – 2010 Five-Year Plan, Federal Student Aid established
           and documented strategic performance standards to measure the organization‘s
           success in meeting the stated long-term objectives. In that plan, Federal Student Aid
           generally published the FY 2006 and the FY 2010 targets. Because Federal Student Aid
           has not updated that plan, interim year targets, where developed, were not generally
           published. In this report, Federal Student Aid will report its progress primarily against
           FY 2009 targets that until now may not have been previously published. All targets
           referenced in this report, whether previously published or not, are aligned with the
           FY 2010 targets and gauge Federal Student Aid‘s incremental progress in achieving its
           objectives. Targets were set in the FY 2006 – 2010 Five-Year Plan. The targets are
           based on reductions from the baseline set in FY 2006.

           Objective 4: Improve human capital management.

           Human capital management is a critical component of Federal Student Aid‘s current
           business operations and future initiatives. Federal Student Aid continues to grow as an
           organization that empowers individuals to perform at a high level of effectiveness and
           efficiency. Federal Student Aid is utilizing innovative hiring and employee development
           techniques aimed at attracting and retaining highly qualified individuals to create a more
           productive, results-oriented workforce. Additionally, the organization is committed to
           workforce development and training to ensure a skilled and highly qualified professional
           workforce.

           In FY 2009, Federal Student Aid began to develop and implement a succession strategy
           to ―build leaders at all levels.‖ Federal Student Aid initiated a hiring freeze beginning July
           1, 2008 and slowly began hiring new staff in March 2009. The organization dedicated
           itself to training the workforce in the fundamentals of its business and other mission-
           critical areas, building strong current and future leaders and aligning staff in effective
           organization structures. Some examples of training courses include:

              Cornerstones of Supervision which is a 35-hour supervisory skill-building program to
               develop individual assessments through group discussion and exercises focusing on
               the art and practice of supervising others.

              Conversations with Leaders Speaker Series which are seminars for senior managers
               with a practical, meaningful and convenient way to engage in continuing leadership
               development.

              New Employee Orientation Program which is a half-day session for new hires that
               provides an overview of the federal student aid process, information about how we
               do business at Federal Student Aid.


FY 2009                                                 - 41 -                     Federal Student Aid Annual Report
Annual Program Performance Report                                                                                                        Annual Program Performance


                Federal Student Aid Data Analysis--Understanding the Customer’s Need which is a
                 two-day course focused on identifying the needs of the customer and identifying how
                 to best address and respond to those needs.

           In FY 2009, Federal Student Aid improved Human Capital Management by creating
           activities to address the issues raised in the 2008 Federal Human Capital Survey. Some
           examples of these activities include developing an initiative in response to the Best
           Places to Work data; working with colleagues across the Department in establishing
           measures and strategies for tracking leadership development; and coordinating our
           efforts with the Human Capital Advisory Committee; the Office of Personnel
           Management and other federal agencies.

           Performance Standards and Results
           The performance standard for improving human capital management measures Federal
           Student Aid’s ability to maintain a skilled and knowledgeable workforce. Specifically, the
           performance measures will identify our mission-critical competencies, identify where
           current or potential weaknesses exist and identify training plans for individuals to further
           develop competency/skills/knowledge.

           Objective 4 Performance Metrics and Results

                                   FY           FY                      FY                      FY                   FY 2009                 FY 2009
                Metric                                                                                                                                           Performance
                                  2005         2006                    2007                    2008                  (Target)                (Actual)
                                          Leadership: trained         Leadership:
                                                                                         Leadership: trained      Leadership: train      Leadership: trained
                                             100% of new         trained 95% of new
                                                                                          96% of new and          95% of new and          82% of new and            Not met
                                         supervisors and 52%          supervisors
                                                                                           96% of current          70% of current          99% of current
                                               of current        and 60% of current
                                                                                            supervisors             supervisors             supervisors
                                   *          supervisors             supervisors
                                            Acquisitions:            Acquisitions:          Acquisitions:           Acquisitions:           Acquisitions:
                                          trained 100% of          trained 100% of        trained 100% of          train 100% of          trained 100% of            Met
                                   *     contracting officials   contracting officials   contracting officials   contracting officials   contracting officials
                                                                        Project
                                                Project                                         Project                 Project                 Project
                                                                    management:
                                             management:                                    management:             management:             management:
                                                                 trained 75% of key                                                                                  Met
                                   *     trained 100% of key                             trained 67% of key      train 50% of key IT     trained 64% of Key
                Use training                                           IT project
                                         IT project managers                                 IT managers              managers               IT managers
               resources to                                            managers
             develop a highly                                                                                                              Federal Student
                                         Federal Student Aid      Federal Student          Federal Student         Federal Student
           skilled workforce to                                                                                                              Aid business
                                         business knowledge:        Aid business            Aid business            Aid business
           ensure competency                                                                                                                  knowledge:            Not met
                                          trained 90% of new         knowledge:              knowledge:              knowledge:
            in mission-critical                                                                                                          trained 53% of new
                                               employees          trained 100% of         train 89% of new        train 90% of new
             skills/knowledge                                                                                                                 employees
                                                                  new employees               employees               employees
                                         Federal Student Aid      Federal Student         Federal Student         Federal Student         Federal Student
                                         business knowledge:        Aid business            Aid business            Aid business            Aid business
                                           trained 100% of           knowledge:              knowledge:              knowledge:              knowledge:
                                   *                                                                                                                                Not met
                                          school compliance       Trained 100% of         Trained 76% of            Train 80% of           trained 77% of
                                                officials        school compliance       school compliance       school compliance       school compliance
                                                                       officials               officials               officials               officials
                                                                  Federal Student         Federal Student         Federal Student         Federal Student
                                         Federal Student Aid
                                                                    Aid business            Aid business            Aid business            Aid business
                                         business knowledge:
                                                                     knowledge:              knowledge:              knowledge:              knowledge:             Not met
                                            trained 40% of
                                                                  trained 100% of           train 34% of            train 40% of           trained 39% of
                                          general workforce
                                                                 general workforce       general workforce       general workforce       general workforce
           *Data is not available because 1) the Department was not collecting this data during the fiscal year indicated, 2) the
           project did not exist or 3) the performance standard had not been established.

           Data Quality: Data was obtained from training class rosters and attendance records.

           Analysis of Progress: Leadership training of new supervisors did not reach our goal of
           95 percent as two supervisors remain untrained; both untrained new supervisors were
           unable to schedule their training due to competing organizational priorities. One is
           currently scheduled for a session at the beginning of the new fiscal year. Targets for
           training current supervisors were met. Training for acquisitions and project managers
           were both met by third quarter. Results varied for the Federal Student Aid Business

FY 2009                                                                          - 42 -                                         Federal Student Aid Annual Report
Annual Program Performance Report                                                    Annual Program Performance


           Knowledge training targets. Federal Student Aid hired a large number of employees
           immediately preceding the end of the third quarter. These employees will receive new
           employee orientation training in FY 2010. The targets for school compliance officials, the
           general workforce and the data analysis workforce were not met this year. Scheduling
           and space constraints pushed the two remaining data analysis workforce regional
           offerings of the ―Introduction to Data Analysis‖ course into October 2009.

           Target Context: Federal Student Aid developed the above targets at the beginning of
           FY 2009 and immediately began tracking their progress in achieving these objectives.

           Objective 5: Improve products and services to provide better
           customer service.

           In FY 2009, the President called for all Americans to seek at least one year of
           postsecondary education9. Federal Student Aid‘s response to this charge was to improve
           access to a college education by making the FAFSA easier to complete. Improvements
           to the 2010-11 web version of the FAFSA facilitate a simpler experience for applicants.
           Applicants are never presented some questions or allowed to skip others due to
           enhanced skip logic and the expanded use of data provided early in the application.
           Federal Student Aid also began to coordinate with the IRS to allow some applicants to
           import their tax form data into the FAFSA.

           To increase greater awareness about the availability of student financial assistance,
           Federal Student Aid established a series of public service announcements via a
           nationwide campaign, resulting in one of the top-rated public service announcements in
           the country. The Federal Student Aid Ombudsman continued to provide a problem
           resolution resource for student borrowers.

           Another priority of the new administration was to provide greater transparency in
           government. Federal Student Aid developed an online data center providing the public
           with access to information on loans, grants and campus-based aid.




           9
               http://www.whitehouse.gov/issues/education/




FY 2009                                                      - 43 -             Federal Student Aid Annual Report
Annual Program Performance Report                                                                   Annual Program Performance


           Specifically, in FY 2009, Federal Student Aid:

              Simplified the aid application process by reducing the number of questions on the
               FAFSA for the current award year and reevaluated aid application procedures as
               part of a comprehensive, long-term strategy to simplify federal student aid eligibility
               determination. The differences in the prior and new versions of the FAFSA are
               illustrated below:




                  The charts above illustrate the initial results of Federal Student Aid‘s application simplification
                  efforts. Specifically, the figures demonstrate the reduction in the number of screens that would be
                  presented to an average borrower who completed the 2009-10 FAFSA and the 2010-11 FAFSA.

                  The student represented in the illustration above is a 17 year old female, a U.S. citizen,
                  unemployed and plans to attend college in the fall. She receives reduced-priced lunch and lives
                  with her parents, whose collective adjusted gross income is $45,000. In this case, she would be
                  presented with 22 fewer questions and 20 fewer Web screens.

              Augmented both the FAFSA submission confirmation page and the Student Aid
               Report with federal student loan, Pell Grant and ACG eligibility determinations as
               well as information on relevant sources of federal, state and institutional aid.
              Reduced applicant burden by beginning an effort to electronically import income data
               fields on the FAFSA by initiating a joint project with the IRS. This will increase
               customer satisfaction with the application experience and increase program integrity
               by incorporating real-time verification of financial information into the aid application
               process.
              Launched the "I'm Going®‖ public service campaign in January 2009, resulting in
               approximately 70,000 television airings generating more than 930 million
               impressions worth an estimated $30 million and over 95,000 radio airings generating
               over 250 million impressions worth more than $11.8 million.
              Developed and launched http://www.opportunity.gov, in collaboration with the
               Department of Labor (DOL), to highlight educational opportunities and financial aid
               resources available to unemployed workers.
              Decreased by 17 percent the number of research cases open by the Federal Student
               Aid Ombudsman. The improved performance is attributed to a refined response
               protocol for online assistance requests, integrated case oversight and
               implementation of a referral system to connect defaulted borrowers with a
               designated Ombudsman contact at each private collection agency. In FY 2009,
               customer satisfaction with the Federal Student Aid Ombudsman, as measured
               through independently conducted telephone surveys, was 91 percent.

FY 2009                                                       - 44 -                          Federal Student Aid Annual Report
Annual Program Performance Report                                                              Annual Program Performance


               Implemented the Income-Based Repayment Plan and developed an online calculator
                located on its student aid site to assist potential borrowers in determining their
                eligibility and to estimate if they would benefit from the plan.
               Developed several processes to improve information dissemination to our customers
                and stakeholders in accordance with the President‘s directive to increase
                transparency across the federal government. This included the launch of the Federal
                Student Aid Data Center providing a single online source for information and data on
                Federal Student Aid Programs and enhancement of Freedom of Information Act and
                Privacy Act of 1974 operational processes, increasing the number of cases closed by
                approximately 40 percent and decreasing the average Freedom of Information Act
                case age by approximately 70 percent.
               Produced two new publications for students and their parents:
                     My Future, My Way: How to Go, How to Pay—an early awareness workbook
                          http://studentaid.ed.gov/students/publications/my_future_my_way/index.html
                          for middle and junior high school students; and
                     Your Federal Student Loans: Learn the Basics and Manage Your Debt—a
                          booklet http://studentaid.ed.gov/repayingpub for student loan borrowers with
                          information on the types of federal student loans, the difference between
                          private and federal student loans, how much to borrow, tips on repaying loans
                          successfully, the consequences of default and other helpful hints on how to
                          manage student loan debt.

           Performance Standards and Results
           The following performance standards were established to measure Federal Student
           Aid’s success in meeting and exceeding customer service goals. Specifically, success is
           realized with continuous improvement in customer satisfaction scores for the three main
           systems.

           Objective 5 Performance Metrics and Results

                                    FY     FY     FY     FY         FY 2009    FY 2009
                  Metric                                                                    Performance
                                   2005   2006   2007   2008       (Target*)   (Actual)
                 Student aid
                                   81     80     80     83            84         84             Met
                 application
              Lender payment
                                   72     71     75     77           PM          74             PM
                 processing
            Direct Loan borrower
                                   76     79     80     80           PM          78             PM
                  servicing



           Data Quality: The American Customer Satisfaction Index (ACSI) survey is conducted
           annually on Federal Student Aid‘s major programs. The index provides a national, cross-
           industry, cross-public and private sector economic indicator, using widely accepted
           methodologies to obtain standardized customer satisfaction information. Survey scores
           are indexed on a 100-point scale. This index has been tracked annually since FY 1999,
           with the exception of FY 2002.




FY 2009                                                   - 45 -                          Federal Student Aid Annual Report
Annual Program Performance Report                                                     Annual Program Performance


           Analysis of Progress: The FY 2009 ACSI ratings for Federal Student‘s highest volume
           products and services – including, FAFSA on the Web (FOTW ®), Direct Loan Servicing
           and the Lender Reporting System – score in the ―Excellent‖ or ―Good‖ range in
           comparison to other entities that appear in the ACSI index. According to Claes Fornell
           International Group who partners with National Quality Research Center and the
           American Society for Quality in conducting the survey, companies with ―business to
           business‖ customers scoring between 80 and 90 are considered ―Excellent‖ and
           businesses with "business to consumer‖ customers scoring between 66 and 74 points on
           the index are considered ―Good." Under the ASCI index, student aid application rated in
           the "Excellent" range while lender payment processing and direct loan servicing rated in
           the "Good" range.

           Target Context: In the FY 2006 – 2010 Five-Year Plan, Federal Student Aid established
           and documented strategic performance standards to measure the organization‘s
           success in meeting the stated long-term objectives. In that plan, Federal Student Aid
           generally published the FY 2006 and the FY 2010 targets. Because Federal Student Aid
           has not updated that plan, interim year targets, where developed, were not generally
           published. In this report, Federal Student Aid will report its progress primarily against
           FY 2009 targets that until now may not have been previously published. All targets
           referenced in this report, whether previously published or not, are aligned with the
           FY 2010 targets and gauge Federal Student Aid‘s incremental progress in achieving its
           objectives.

           Major Obstacles

           During FY 2009, Federal Student Aid was faced with many challenges as the
           organization worked to fulfill its mission and meet its strategic objectives. Most notably
           was the disruption to the credit markets and its impact on FFEL Program lenders.
           However, there were several other planned and unplanned obstacles that diverted
           much-needed human and capital resources from our central mission. The following is a
           brief summary of the major obstacles faced by Federal Student Aid in FY 2009.

           Loan Purchase Programs. On May 7, 2008, President Bush signed the ECASLA. The
           legislation provided the Department with the authority to address concerns about the
           availability of FFEL Program loans for the upcoming academic year. ECASLA also
           increased annual and aggregate loan amounts in the FFEL and Direct Loan programs
           and provided relief for certain PLUS Loan borrowers whose adverse credit history is
           related to payments on home mortgages or medical bills.

           In May 2008, based on the authority granted by ECASLA, the Secretary announced a
           comprehensive plan to ensure that all eligible students (and their parents) had access to
           federal student loans for the 2008–09 academic year. That plan included four key
           components:

              1. An offer to purchase FFEL Program loans made for the 2008–09 academic year
                 from lenders in order to offer lenders access to short-term liquidity;

              2. A pledge to work with the student lending community on forward-looking
                 solutions to ensure the FFEL Program and other student lending programs serve
                 the best interests of students and taxpayers for years to come;

FY 2009                                                - 46 -                    Federal Student Aid Annual Report
Annual Program Performance Report                                                      Annual Program Performance



              3. An enhanced lender-of-last-resort program designed to provide access to FFEL
                 Program loans for those students who face difficulty obtaining conventional
                 loans; and

              4. A more efficient Direct Loan Program with increased capacity.

           A key component of this plan was the development and implementation of two loan
           purchase programs to provide immediate liquidity to FFEL lenders.

              1. Loan Participation Purchase Program – Under the Loan Participation Purchase
                 Program, the Department offered to purchase through September 30, 2009,
                 ―participation interests‖ in pools of FFEL loans made for the 2008–09 academic
                 year. By October 15, 2009, lenders must have either redeemed those loans or
                 sold them outright to the Department.

                     Under this program, the lender pays the Department a yield on its
                      participation interest calculated as the three-month commercial paper rate
                      reported by the Federal Reserve in Publication H-15 plus 50 basis points on
                      the principal amount of loans in which the Department purchased a
                      participation interest.

              2. Loan Purchase Commitment Program – Under the Loan Purchase Commitment
                 Program, the Department offered to purchase eligible FFEL loans made for the
                 2008–09 academic year through October 15, 2009.

                     The Department‘s purchase price is equal to the total of the (1) outstanding
                      principal balance of the loan, plus (2) accrued interest, plus (3) a refund of the
                      one percent lender origination fee paid to the Department on the amount
                      disbursed, plus (4) $75 per loan.

           The Department announced the extension of the final purchase date for loans originated
           in award year 2008-09 from September 30, 2009, to October 15, 2009. The obligation to
           purchase these loans was recorded in FY 2009. As of September 30, 2009, the
           Department had received $21.9 billion of notices of intent to purchase award year 2008-
           09 loans by October 15, 2009. As of October 15, 2009, lenders had requested and the
           Department purchased participation interests in pools of loans totaling $33.4 billion to
           date. In addition, lenders had requested the Department purchase outright
           approximately $48.5 billion in eligible 2008–09 loans through the 2008–09 Loan
           Purchase Commitment Program. Of these, approximately $31.3 billion or 64 percent of
           these loans were initially funded from the 2008–09 Participation Program. The $48.5
           billion represents the gross amount the Department paid for the loans and includes
           accrued interest, $75 per loan and the rebate of the 1 percent origination fee. The
           corresponding net principal balance of loans sold to the Department was approximately
           $46.1 billion. This represents approximately 75 percent of the total 2008–09 FFEL
           disbursement volume.

           Replication of the Loan Purchase Programs for the 2009–10 Academic Year. Under
           the initial programs, the Department purchased loans that had already been made by
           lenders, or participation interests in those loans on which the lenders had made at least
           a first disbursement. This required lenders to obtain short-term financing from private
FY 2009                                                - 47 -                     Federal Student Aid Annual Report
Annual Program Performance Report                                                    Annual Program Performance


           sources in order to make the loans. In addition, only 2008–09 loans would be eligible to
           be sold to the Department through these programs.

           With more than $65 billion in 2007–08 loans and approximately $130 billion in eligible
           2003–07 student loans on bank balance sheets and auction rate securitizations, the
           capital markets were unable to generate adequate funds at prices that would ensure
           2009–10 loans could be made. As conditions in the credit markets continued to
           deteriorate, lenders were faced with a decision whether to commit to providing loans to
           schools for the coming academic year. The Department began hearing concerns from
           both the school and lender communities that assistance was needed to ensure 2009–10
           loans would be available.

           In October 2008, the President signed a one-year extension of authorities contained in
           ECASLA. In early November 2008, the Secretary announced a plan to ensure availability
           of federal student loans for the 2009–10 academic year by replicating the 2008–09 loan
           purchase programs for the 2009–10 academic year. Under the plan, the 2008–09 loan
           purchase programs would conclude as designed and the Department would offer the
           same programs, on substantially the same terms, for loans made for the 2009–10
           academic year.

           Results for the 2009-10 Loan Purchase Programs included:

              As of September 30, 2009, 28 lenders had entered into Master Participation
               Agreements with the Department for the 2009-10 academic year. The Department
               has, to date, purchased participation interests under these agreements totaling $7.9
               billion.

              As of September 30, 2009, 36 lenders had entered into Master Loan Sale
               Agreements for the 2009-10 academic year with the Department. Two of these
               lenders have requested the Department purchase eligible loans in late October 2009
               totaling $14.5 million dollars.

           Asset-Backed Commercial Paper Conduit. In addition to the Loan Purchase and Loan
           Participation Purchase Programs, the Department has entered into a Put Agreement
           with a newly-created ABCP Conduit and agreed to enter into such agreements on the
           same terms with other conforming conduits.

           Under a Conduit program, a special purpose entity (the Conduit) issues commercial
           paper to investors to finance its acquisition of interests in federally-reinsured student
           loans made between October 2003 and September 2009. The commercial paper is
           backed by the Conduit‘s interest in these loans. The Conduit uses proceeds of these
           sales to acquire these interests from lenders. Lenders that sell interests to the conduit
           must commit to provide new loans for the coming academic years with a portion of the
           proceeds of the sale. To ensure that the Conduit will have the resources to meet investor
           demands on maturing commercial paper if it is unable to reissue that paper or meet that
           demand from its own resources, the Department entered into a forward purchase
           commitment (a Put Agreement) with the Conduit, under which the Department agreed to
           purchase pledged loans from the Conduit at a prearranged price as and when needed to
           ensure that the Conduit can meet these demands of its investors. In addition, the
           Federal Financing Bank has entered into a Liquidity Loan Agreement with the Conduit to
           provide immediate advances as needed by the Conduit.
FY 2009                                               - 48 -                    Federal Student Aid Annual Report
Annual Program Performance Report                                                    Annual Program Performance



           Results for the ABCP Conduit included:

              The Conduit first issued commercial paper in May 2009 and as of September 30,
               2009, $29.9 billion was issued.

           Establishment of a Short-Term Loan Purchase Program for the 2007–08 Academic
           Year. Until the time that the first Conduit became operational, lenders continued to
           struggle to obtain funds to make loans, in particular to make second disbursements
           when needed on loans for the 2008–09 academic year.

           To address this need, in late November 2008, the Secretary announced that the
           Department would use its loan purchase authority to purchase certain 2007–08
           academic year FFEL Program loans. This short-term use of the purchase authority was
           designed to prevent disruption in student lending prior to the ABCP Conduit becoming
           operational.

           Under this program, the Department offered to buy FFEL Program loans disbursed
           between May 2007 and September 2008 for a loan period beginning on or including
           July 1, 2007. Under this program, the Department agreed to purchase up to $500 million
           in loans each week that the program was operational, at 97 percent of the balance owed
           on the loan. Lenders were required to use a portion of the proceeds of the sale to make
           new FFEL loans.

           Results for the 2007-08 Short-term Loan Purchase Programs included:

              By February 25, 2009 the Department accepted final offers to purchase eligible loans
               under the 2007–08 Loan Purchase Commitment Program and by March 9, 2009 had
               completed those purchases. Under this program, the Department purchased loans
               totaling approximately $1 billion.

           Direct Loan Capacity. As a result of the state of the credit markets and subsequent
           passage of the ECASLA, the Department prepared to acquire a large volume of federally
           guaranteed student loans. In addition, schools began to enroll and participate in the
           Direct Loan Program to ensure a stable source of loans for their students. In fact, the
           number of schools originating loans in the Direct Loan Program increased 42 percent
           between June 30, 2008 and June 30, 2009. Finally, the President's FY 2010 budget
           proposes originating all new federal student loans through the Direct Loan Program
           starting in FY 2010.

           The Department invested considerable resources over the past 18 months to increase
           both the Direct Loan origination and servicing capacity. This was required primarily as a
           result of the disruption in the credit markets and the impact of that disruption on the
           FFEL Program. Last year, we completed a major capacity upgrade to the Department‘s
           Common Origination and Disbursement System which manages the origination and
           disbursement process for the Direct Loan Program as well as many federal grant
           programs. In June, several servicing contracts were awarded to private sector servicing
           firms to increase the Department‘s student loan servicing capacity to improve service to
           students and reduce borrower defaults. This servicing capacity was operational by
           September 1.

FY 2009                                               - 49 -                    Federal Student Aid Annual Report
Annual Program Performance Report                                                     Annual Program Performance


           The selected contractors will service Direct Loans and FFEL loans being acquired by the
           Department under the ECSLA loan purchase programs. The award of these contracts
           provides the Department with the capacity necessary to support anticipated increases in
           the number of loans owned by the Department and ensures borrowers will receive the
           assistance they need to effectively manage their federal student loan obligations.

           FAFSA Simplification. Part of the transition to a new administration includes
           implementing the President‘s priorities, one of which includes making a college
           education more accessible for Americans. To do this, the Secretary was charged with
           simplifying the FAFSA. Federal Student Aid designed and began to implement the
           changes necessary to achieve the President‘s goal. Federal Student Aid made a series
           of improvements to the online application. Although over 95 percent of students apply
           online, much of the online form simply reproduces the paper version rather than taking
           advantage of the interactive potential. On June 24, 2009, Secretary Duncan announced
           a shorter and simpler online application that skips unnecessary questions and provides
           students with instant estimates of Pell Grant and student loan eligibility, rather than
           requiring them to wait weeks. It also provides a link to more college information such as
           graduation rates. Federal Student Aid continues to work to provide a series of additional
           improvements that will be implemented in January 2010.

           Budgetary Impact. Funding for student aid administration totaled $753 million for
           FY 2009. The FY 2009 administrative costs were significantly impacted by the
           administration‘s efforts to originate and service the increased Direct Loan volume,
           implement the loan purchase and participation initiatives authorized by the ECASLA and
           simplify the financial aid process. To fund these activities, the Department deferred
           planned projects and used a portion of the additional $60 million provided by the
           Recovery Act.

           Due to the impact of ECASLA on Federal Student Aid's programs and major systems, no
           significant cost savings were realized in FY 2009 on major new system initiatives. As a
           result of the state of the credit markets and subsequent passage of the ECASLA, the
           Department prepared to acquire a large volume of federally guaranteed student loans. In
           addition, schools began to enroll and participate in the Direct Loan Program to ensure a
           stable source of loan capital for their students. In fact, schools originating loans in the
           Direct Loan Program increased 42 percent between June 30, 2008 and June 30, 2009.
           Finally, the President's FY 2010 budget proposes originating all new federal student
           loans through the Direct Loan Program starting in 2010.

           In the wake of disruption in the credit markets, Federal Student Aid began increasing its
           origination and servicing capacity to ensure reliable access to federal student loans.
           During the year, Federal Student Aid increased tiers that provided reduced unit pricing in
           the Common Origination and Disbursement contract. On June 17, 2009, Secretary
           Duncan announced that four companies were awarded contracts to service loans for the
           Department. The award of these contracts provides the Department with the capacity
           necessary to support anticipated increases in the number of loans owned by the
           Department and ensures borrowers will receive the assistance they need to effectively
           manage their federal student loan obligations.

           Given the structure of subsidies in the FFEL program, shifting more loans to the Direct
           Loan Program brings substantial budgetary savings to taxpayers.

FY 2009                                               - 50 -                     Federal Student Aid Annual Report
Annual Program Performance Report                                                     Annual Program Performance


           Performance Plan Items Reported as Incomplete or Canceled

           Following is a summary of the items on the FY 2009 Performance Plan reported as
           incomplete or canceled as of September 30, 2009.

                                       FY 2009 Performance Plan
                        Projects Incomplete or Canceled as of September 30, 2009

                Project Name and Number                                       Description
           Complete Reorganization of Program         Canceled. The organizational changes that were
           Compliance (Project 9.0)                   approved in the first quarter of FY 2008 for Program
                                                      Compliance were not feasible due to the delays with
                                                      the development of the IPM Project. However, the
                                                      primary objectives of the reorganization were achieved
                                                      in alternative ways, (e.g. a focus on Clery reviews,
                                                      publicly-traded schools, etc.)
           Recompete IPM Solution (Project 10.0)      Incomplete. This project was designated with a Red
                                                      status at the end of FY 2009 due to the need for
                                                      decisions regarding the re-start of the IPM Project. An
                                                      evaluation and inventory were completed to determine
                                                      the usability of the current requirements and
                                                      development. A contract was awarded on September
                                                      25, 2009 to complete the requirements and a functional
                                                      design. The acquisition and Request for Proposal for
                                                      development is scheduled for issuance in FY 2010.

           In addition, Federal Student Aid did not realize projected savings in the annual cost of
           the Virtual Data Center contract. This was due to the following:

              The transition to the new contractor took 11 months longer than proposed requiring
               Federal Student Aid to operate two data centers simultaneously, thus increasing the
               cost.
              Additional infrastructure was added to support new initiatives and systems that had
               not been included in the initial contract. These new initiatives included College.gov,
               Federal Student Aid's enterprise portal, the Access and Identity Management
               System, Enterprise Information Services, IPM System and the transition of the Direct
               Loan Servicing System into the Virtual Data Center.
              There was a significant increase in the computing resources used at the data center
               to support unanticipated increases in program volumes and services.




FY 2009                                               - 51 -                     Federal Student Aid Annual Report
Annual Program Performance Report                                     Legislative and Regulatory Recommendations


           Legislative and Regulatory Recommendations

           Key among Federal Student Aid‘s mission responsibilities is the task of developing
           legislative recommendations. These recommendations customarily center on improving
           and simplifying the Title IV programs, minimizing administrative costs and improving
           program integrity. Our recommendations inform the Department‘s policymaking process,
           including its activities and decisions related to the reauthorization of the HEA and its
           reaction to the financing difficulties for the FFEL student lending programs. These
           activities are usually accomplished by direct contact with colleagues in the Department‘s
           Office of Postsecondary Education and the Office of the Under Secretary at both the
           senior policy level and at a staff level. These efforts, while primarily carried out by
           Federal Student Aid‘s Policy Liaison and Implementation Staff, also involve other
           Federal Student Aid offices and senior managers. While a portion of this policy advising
           is accomplished on an ongoing, informal daily basis, Federal Student Aid staff
           contributed to policy decision making in a more formalized way related to, among other
           things, legislation to address student loan financing issues and development of a
           simplified federal student aid process as requested by the Secretary.




FY 2009                                               - 52 -                    Federal Student Aid Annual Report
Annual Program Performance Report                                                          Annual Bonus Awards



           Annual Bonus Awards

           As of the end of FY 2009, there were 49 Federal Student Aid senior managers. In
           addition, there were 12 Senior Executive Service staff. Three of the 49 senior managers
           and four of the 12 Senior Executive Service staff served on the Federal Student Aid
           Executive Leadership Team and reported directly to the Chief Operating Officer. The
           remaining 46 senior managers and eight Senior Executive Service staff served in a
           variety of senior positions and capacities within Federal Student Aid.

           FY 2009 performance ratings and awards for Federal Student Aid senior managers and
           Senior Executive Service staff were not finalized at the time this report was prepared.

           In FY 2008, the then Acting Chief Operating Officer achieved a performance rating of
           Outstanding. While the Acting COO received a salary for his role as the Department's
           Chief Financial Officer, he did not receive any additional compensation for the
           responsibilities he assumed as Federal Student Aid's Acting COO and he did not receive
           a bonus for his work at Federal Student Aid.

           At the end of FY 2008, there were 49 Federal Student Aid senior managers. In addition,
           there were 12 Senior Executive Service staff. Three of the 49 senior managers and three
           of the 12 Senior Executive Service staff served on the Federal Student Aid Executive
           Leadership Team and reported directly to the Chief Operating Officer. The remaining 46
           senior managers and nine Senior Executive Service staff served in a variety of senior
           positions and capacities within Federal Student Aid.

           For FY 2008, ratings and awards for 46 of the 49 senior managers who did not serve on
           the Executive Leadership Team last year were as follows: 22 achieved a performance
           rating of Outstanding, 14 achieved a performance rating of Highly Successful and 10
           achieved a performance rating of Fully Successful. All senior managers were eligible for
           a rating.

           Award amounts for those achieving an Outstanding rating ranged from a low of $3,907
           to a high of $10,000, with a median award of $8,550. Award amounts for those achieving
           a Highly Successful rating ranged from a low of $2,688 to a high of $9,008, with a
           median award of $4,500. Those receiving a rating of Fully Successful were not eligible
           for an award.

           FY 2008 approved ratings and awards for the six members of the Executive Leadership
           Team and the remaining nine Senior Executive Service staff were as follows: five
           achieved a performance rating of Outstanding, nine achieved a performance rating of
           Highly Successful and one received a performance rating of Fully Successful.

           Award amounts for those achieving an Outstanding rating ranged from a low of $15,351
           to a high of $34,300, with a median award of $25,982. Award amounts for those
           achieving a Highly Successful rating ranged from a low of $7,495 to a high of $19,322,
           with a median award of $7,943. Those receiving a rating of Fully Successful were not
           eligible for an award.

           For additional information, please refer to:
           http://www.ed.gov/policy/highered/leg/hea98/sec101D.html.
FY 2009                                              - 53 -                    Federal Student Aid Annual Report
Annual Program Performance Report                                     Report of the Federal Student Aid Ombudsman




           Report of the Federal Student Aid Ombudsman

           FY 2009 marked the tenth anniversary of the Office of the Ombudsman in Federal
           Student Aid (Ombudsman Office). Established by the 1998 Amendments to the HEA, the
           Office began operations on September 30, 1999.

           Consistent with its statutory mission, the Ombudsman Office uses informal dispute
           resolution processes to address complaints about Title IV financial aid programs. The
           office applies a collaborative approach in working with institutions of higher education,
           lenders, guaranty agencies, loan servicers and other participants in student aid
           programs. Individual complaint data is compiled into the Ombudsman Case Tracking
           System (OCTS). Information is summarized for internal and external reports for Federal
           Student Aid and the industry in general and to identify systemic issues affecting Title IV
           programs. Implementation of systemic solutions can at times prevent problems, an
           approach preferable to resolving individual problems as they occur.

           Since its inception, the Ombudsman Office has handled more than 162,200 complaints,
           including 23,765 in FY 2009, a 25 percent increase over FY 2008. The greatest increase
           was in the "General Assistance" classification. General assistance cases, approximately
           78 percent of all cases received, are addressed within one to three days. Research
           cases represented about 22 percent of all cases received in FY 2009.

           Cases classified as "Research" are more complex, historically they require more
           intensive resolution activity to close and may carry over as open cases from one fiscal
           year to the next.

           FY 2009 began with 1,610 open research cases; it ended with 1,339 open. At the same
           time, the number of new research cases increased by 6.5 percent.

           Loan Cancellation/Discharge issues represented the top research problem area for
           FY 2009 and case analysis shows that more customers escalate Loan
           Cancellation/Discharge issues to Executive or Legislative offices than any other type of
           Ombudsman issue. The most common problem within the Loan Cancellation/Discharge
           category relates to Total and Permanent Disability (TPD). TPD has been the
           predominant individual research case issue for several years, with consistent complaints
           of undue process complexity, lack of transparency, inadequacy of communication and
           applicant burden. Continuing an emphasis on TPD cases begun in FY 2007, which
           identified systemic problems and needed process improvements, Ombudsman
           representatives participated in a task force convened in FY 2008 to evaluate and
           improve disability discharge procedures. Despite implementation of some task force
           improvements in 2009 and changes resulting from the HEOA, the problem with TPD
           applications persists, making those the most time-consuming and problematic cases to
           resolve. Risk associated with elements of the TPD process was confirmed when one
           court case in 2009 found that correspondence denying TPD for "medical review failure"
           does not meet constitutional due process requirements. The Ombudsman Office will
           continue to work with program and policy officials to identify potential improvements that
           can prevent problems with the TPD process.



FY 2009                                                - 54 -                    Federal Student Aid Annual Report
Annual Program Performance Report                                      Report of the Federal Student Aid Ombudsman



           Significant increases in Federal Student Aid Ombudsman cases in three other issue
           areas suggest that adverse economic conditions continue to affect student loan
           borrowers. When compared to FY 2008, FY 2009 numbers reveal increases in cases
           relating to default, repayment plans/amounts and general Federal Student Aid
           assistance questions.

           After July 1, 2009, inquiries about the newly implemented Income Based Repayment
           Plan, its relationship to the Public Service Loan Forgiveness Plan and a new HEOA-
           enacted in-state tuition provision for military personnel and their dependents generated
           additional calls. The Office will continue to work with program and policy officials, as well
           as loan holders, to use questions about Income Based Repayment and Public Service
           Loan Forgiveness as effective feedback mechanisms for improved program information
           and impact analysis.

           Throughout FY 2009, the Ombudsman responded to numerous inquiries received from
           Executive (i.e., White House, Secretary, Chief Operating Officer, etc.) and Legislative
           offices. Problems with TPD discharge represented the most frequent issue in those
           inquiries.

           The Office emphasized its ongoing work with the Student Loan Ombudsman Caucus
           (Caucus) in part through the May 2009 Ombudsman Training Conference in
           Washington, D.C. Caucus members from across the country joined ombudsman
           specialists from Kansas, Iowa, Chicago and Washington, D.C. for ―A Capital Event‖ to
           focus on lessons learned through ten years of effective case experiences and to plan for
           the next decade.

           Established in 2007, the Caucus brings interested parties together to discuss emerging
           federal student aid industry trends, provide training and develop aggregated information
           on systemic issues. In addition to meeting with Caucus member agencies and others to
           identify and address issues common to the industry, the Office prepares tailored reports
           for individual agency use. There were three primary emphases in working with the
           Caucus in 2009. One was to increase the number of Caucus members contributing data
           about case issues that do not come to the Department of Education so that ombudsmen
           can more accurately identify areas where problems can be prevented. A second
           emphasis was on interactive training to promote consistency in ombudsman practices;
           Federal Student Aid participated in monthly conference calls, training programs in
           Indiana, Florida and hosted the May 2009 conference in Washington, DC, as part of the
           ―best practices‖ interest. Another focus was on referring more complainants to the
           ombudsman designee at the agencies for their direct intervention. While the customer
           can return to the Federal Student Aid Ombudsman if the problem persists, having the
           ombudsman designee at the responsible agency focus on the problem and its root
           causes can be an effective intervention strategy. With the agency ombudsman reporting
           the case types as part of the Caucus initiative, industry-wide preventive measures can
           be formulated.

           Information about the Ombudsman Office is disseminated to the industry and borrowers
           throughout the student aid life cycle. The Office‘s Web site
           (http://www.ombudsman.ed.gov) helps individuals resolve loan problems independently,
           learn about student aid information and resources and submit issues or complaints
           electronically. The Office of the Ombudsman brochure is available in print or

FY 2009                                                 - 55 -                     Federal Student Aid Annual Report
Annual Program Performance Report                                     Report of the Federal Student Aid Ombudsman



           electronically and is used by colleges and universities to inform students that the Office
           is a final resource after other service avenues are unsuccessful. The monthly
           Ombudsman Newsletter focuses on Ombudsman case activity and industry news.
           Although these efforts help inform many populations of the Office‘s role, reports about
           new legislation, technology changes and case details identify areas where
           improvements can be made. In FY 2009, the OCTS was transitioned to an improved,
           supportable-technology platform; the web site was updated with new program details;
           the integrated voice response unit messaging was revised; and internal case
           management processes were enhanced to ensure consistency in use of Ombudsman
           principles of impartiality, independence, confidentiality and informality.

           Customer satisfaction with the Ombudsman Office is measured, in part, through
           independently conducted telephone surveys. Closed cases are chosen at random and
           customers are asked to rate service accessibility, Ombudsman representatives‘
           knowledge, timeliness of case resolution, level of satisfaction with the resolution and
           overall service. On a scale of 1 – 5, with 5 the highest rating, survey results are
           calculated weekly and cumulatively for the fiscal year. Only ratings of 4.0 or higher meet
           the Ombudsman customer satisfaction performance goal. The average
           FY 2009 customer satisfaction rating was 4.57. Customers also write or call
           independently to express appreciation for assistance from the Office.

           As the Federal Student Aid Ombudsman Office ends one decade and begins another,
           key efforts will be to maintain individual case efficiencies while improving root cause
           analysis, systemic issue identification and preventive outreach.




FY 2009                                                - 56 -                    Federal Student Aid Annual Report
Financial Section



            Financial Section




FY 2009                         - 57 -   Federal Student Aid Annual Report
Financial Section




FY 2009             - 58 -   Federal Student Aid Annual Report
Financial Section                                                        Message from the Chief Financial Officer MM




            Message from the Chief Financial Officer

            In FY 2009, Federal Student Aid faced many new
            challenges. With these new challenges came
            enormous financial risks. Thanks to the dedication
            of very talented staff throughout the Department of
            Education, we were able to successfully meet these
            new challenges while effectively managing the risk
            that they imposed upon us. Below is a list of some
            of the challenges we faced in FY 2009:

                   Continued implementation of the ECASLA,
                    an aggressive plan that injected $57 billion
                    of capital into the student loan market
                    between August 2008 and September 2009
                    to ensure all eligible students and families
                    received Federal loan aid.

                   Expanded Federal Student Aid loan
                    origination and servicing capacity to handle
                    a 54 percent increase in federally-held                 John W. Hurt, III
                    loans, from $157 billion on September 30,             Chief Financial Officer
                    2008 to $241 billion on September 30, 2009.

                   Implementation of the Recovery Act, which provided an additional $17 billion for
                    Pell Grants in FY 2009 and FY 2010 and $200 million for FWS in academic year
                    2009.

            Meanwhile, we continued to deliver aid through our normal operations, with limited
            additional administrative funding and a declining staff base. In total, we delivered $113
            billion in grant, work-study and loan assistance to over 13 million postsecondary
            students and their families in FY 2009. We accomplished all of this while experiencing a
            five percent reduction in staffing.

            Federal Student Aid‘s new initiatives significantly impacted not only policy decisions,
            program systems and performance reporting, but also financial management and
            internal control. In the context of our internal control framework, new processes and
            controls were documented and assessed for each of these new initiatives. In addition,
            Federal Student Aid continued to address previously reported problems. As a result of
            this focus on internal control, Federal Student Aid was able to achieve the following:

                   An unqualified opinion was received on the principal financial statements for the
                    eighth consecutive year, demonstrating a clear pattern of financial accountability.
                   No material weaknesses were identified as part of our Report on Internal Control
                    for the seventh consecutive year.




FY 2009                                                 - 59 -                    Federal Student Aid Annual Report
Financial Section                                                       Message from the Chief Financial Officer MM



                   Reasonable assurance was provided of our internal control over financial
                    reporting. The successful results of this assessment effort are described further
                    in the ―Analysis of Federal Student Aid‘s Systems, Controls and Legal
                    Compliance‖ section.
                   Continuous successful implementation of the ECASLA initiatives, with no
                    significant problems.
                   Successful implementation of additional servicers to handle the enormous
                    increase in loan servicing volume from ECASLA, with no significant problems.

            Also, through cooperative efforts among the Department‘s Office of the Chief Financial
            Officer, Budget Service and Federal Student Aid, the Department continued to correct
            two significant deficiencies in credit reform estimation and information systems controls
            that were identified in the FY 2008 Internal Control Report. The complexity of these two
            issues has required an ongoing multi-year effort. As a result of these concerted efforts,
            in the FY 2009 Internal Control Report the auditors recognized improvements in both
            areas as well as acknowledged the challenges presented by the implementation,
            accounting and maintenance of the ECASLA activities.

            FY 2009 has brought many financial management and internal control challenges. I am
            proud to be working with a group of professionals throughout the Department who so
            successfully met these challenges.


            Sincerely,




            John W. Hurt, III
            Chief Financial Officer
            November 16, 2009




FY 2009                                                 - 60 -                    Federal Student Aid Annual Report
                                             Principal Financial Statements and Notes to Principal Financial
Financial Section
                                             Statements




            Principal Financial Statements and Notes to Principal Financial
            Statements




FY 2009                                      - 61 -                      Federal Student Aid Annual Report
                    Principal Financial Statements and Notes to Principal Financial
Financial Section
                    Statements




FY 2009             - 62 -                      Federal Student Aid Annual Report
Financial Section                                                                                      Consolidated Balance Sheet




                                                 United States Department of Education
                                                          Federal Student Aid
                                                      Consolidated Balance Sheet
                                                         As of September 30, 2009 and 2008
                                                                    (Dollars in Millions)


                                                                                                  FY 2009             FY 2008
            Assets:
              Intragovernmental:
                  Fund Balance with Treasury (Note 3)                                        $        66,807      $       56,915
                  Accounts Receivable (Note 4)                                                            (3)
              Total Intragovernmental                                                                 66,804              56,915

              Cash and Other Monetary Assets (Note 5)                                                  2,414               1,663
              Accounts Receivable, Net (Note 4)                                                          504                  83
              Credit Program Receivables, Net (Note 6)                                               233,959             134,546
              General Property, Plant and Equipment, Net (Note 7)                                         34                  43
              Other Assets (Note 8)                                                                      272                  37

            Total Assets (Note 2)                                                            $       303,987      $      193,287


            Liabilities:
              Intragovernmental:
                  Accounts Payable                                                           $                    $            2
                  Debt (Note 9)                                                                      234,858             128,256
                  Guaranty Agency Federal and Restricted Funds Due to Treasury (Note 5)                2,414               1,663
                  Payable to Treasury (Note 6)                                                         3,569               3,766
                  Other Intragovernmental Liabilities (Note 10)                                       11,395               7,022
              Total Intragovernmental                                                                252,236             140,709

              Accounts Payable                                                                         1,734               1,128
              Accrued Grant Liability (Note 11)                                                        1,929                 862
              Liabilities for Loan Guarantees (Note 6)                                                20,543              43,322
              Other Liabilities (Note 10)                                                                494                  67

            Total Liabilities                                                                $       276,936      $      186,088

              Commitments and Contingencies (Note 18)

            Net Position:

              Unexpended Appropriations                                                      $        27,328      $       13,472
              Cumulative Results of Operations                                                          (277)             (6,273)

            Total Net Position (Note 12)                                                     $        27,051      $        7,199

            Total Liabilities and Net Position                                               $       303,987      $      193,287




            The accompanying notes are an integral part of these statements.


FY 2009                                                             - 63 -                       Federal Student Aid Annual Report
Financial Section                                                                             Consolidated Statement of Net Cost



                                        United States Department of Education
                                                 Federal Student Aid
                                         Consolidated Statement of Net Cost
                                    For the Years Ended September 30, 2009 and 2008
                                                          (Dollars in Millions)



                                                                                            FY 2009            FY 2008
     Program Costs

          Ensure Accessibility, Affordability, and Accountability of Higher Education
          and Career and Technical Advancement
             Gross Costs                                                                $      (11,062)    $       28,788
             Less: Earned Revenue                                                               11,079              9,029
             Net Program Costs                                                                 (22,141)            19,759

          Total Program Costs                                                           $      (22,141)    $       19,759


          American Recovery and Reinvestment Act
            Gross Costs                                                                 $        7,572     $             0
            Less: Earned Revenue
            Net Program Costs                                                                    7,572

          Total Program Costs                                                           $        7,572     $             0


     Net Cost of Operations (Notes 13 &16)                                              $      (14,569)    $       19,759




     The accompanying notes are an integral part of these statements.




FY 2009                                                            - 64 -                      Federal Student Aid Annual Report
Financial Section                                                                 Consolidated Statement of Changes in Net Position


                                             United States Department of Education
                                                       Federal Student Aid
                                        Consolidated Statement of Changes in Net Position
                                            For the Years Ended September 30, 2009 and 2008
                                                                    (Dollars in Millions)


                                                                              FY 2009                                    FY 2008
                                                                    Cumulative                                 Cumulative
                                                                    Results of      Unexpended                 Results of      Unexpended
                                                                    Operations     Appropriations              Operations     Appropriations




            Beginning Balance                                   $           (6,273) $           13,472     $         (2,574) $       14,420

            Budgetary Financing Sources:
              Appropriations Received                           $                           $    41,951    $                   $      28,549
              Other Adjustments (rescissions, etc)                               1                  (26)                 (3)          (1,300)
              Appropriations Used                                           28,069              (28,069)             28,197          (28,197)
              Nonexpenditure Financing Sources-Transfers-Out                                                           (190)

            Other Financing Sources:
              Imputed Financing from Costs Absorbed by Others                    9                                        8
              Others                                                       (36,652)                                 (11,952)

            Total Financing Source                              $           (8,573) $           13,856     $         16,060    $        (948)

            Net Cost of Operations                              $           14,569      $                  $        (19,759) $

            Net Change                                          $            5,996          $   13,856     $         (3,699) $          (948)

            Ending Balances (Note 12)                           $              (277) $          27,328     $         (6,273) $       13,472




            The accompanying notes are an integral part of these statements.




FY 2009                                                         - 65 -                               Federal Student Aid Annual Report
Financial Section                                                                           Combined Statement of Budgetary Resources


                                       United States Department of Education
                                                Federal Student Aid
                                     Combined Statement of Budgetary Resources
                                      For the Years Ended September 30, 2009 and 2008
                                                              (Dollars in Millions)
                                                                                 FY 2009                        FY 2008
                                                                                   Non-Budgetary                  Non-Budgetary
                                                                                    Credit Reform                  Credit Reform
                                                                                      Financing                      Financing
                                                                        Budgetary     Accounts          Budgetary    Accounts
    Budgetary Resources:
    Unobligated balance, brought forward, October 1                     $      3,620    $    26,517      $    4,449     $    36,792
    Recoveries of prior year Unpaid Obligations                                  398          8,035           1,447           3,115
    Budgetary Authority:
        Appropriations                                                        41,960            130          28,562             151
        Borrowing Authority (Note 15)                                                       200,214                          57,743
        Spending authority from offsetting collections (gross):
          Earned
             Collected                                                         1,569         45,512           1,638          33,510
             Change in Receivables from Federal Sources                                          (3)
    Subtotal                                                            $     43,529    $   245,853     $    30,200     $    91,404
    Temporarily not available pursuant to Public Law                            (887)              0               0               0
    Permanently not available                                                   (688)       (13,130)         (2,058)        (16,835)
    Total Budgetary Resources (Note 15)                                 $     45,972    $   267,275     $     34,038    $   114,476

    Status of Budgetary Resources:
    Obligations incurred: Direct (Note 15)                              $     32,496    $   257,585     $    30,418     $    87,959
    Unobligated Balances: Apportioned                                         10,376            474           1,166             396
    Unobligated Balance not available                                          3,100          9,216           2,454          26,121
    Total Status of Budgetary Resources                                 $     45,972    $   267,275     $    34,038     $   114,476

    Change in Obligated Balance:
    Obligated balance, net: Unpaid obligations, brought forward,
    October 1                                                           $     12,927    $     41,157    $     12,485    $    14,425
    Obligation Incurred, net (+/-)                                            32,496         257,585          30,418         87,959
    Gross Outlays                                                            (27,295)       (157,132)        (28,529)       (58,112)
    Recoveries of prior year unpaid obligations, actual                         (398)         (8,035)         (1,447)        (3,115)
    Change in uncollected customer payments from Federal
    Sources (+/-)                                                                                 3                              (0)
                                                                        $     17,730    $   133,578     $    12,927     $    41,157
    Obligated Balance, net, end of period:
        Unpaid Obligations                                              $     17,730    $   133,575     $    12,927     $    41,157
        Uncollected customer payments from Federal Sources                                        3                              (0)
    Total, unpaid obligated balance, net, end of period                 $     17,730    $   133,578     $    12,927     $    41,157

    Net Outlays:
        Gross Outlays                                                   $     27,295    $   157,132     $    28,529     $    58,112
        Offsetting collections                                                (1,569)       (45,512)         (1,638)        (33,510)
        Distributed Offsetting receipts                                      (31,646)              0            (28)         (5,750)
    Net Outlays (Note 15)                                               $     (5,920)   $   111,620     $    26,863     $    18,852




    The accompanying notes are an integral part of these statements.


FY 2009                                                                  - 66 -                         Federal Student Aid Annual Report
Financial Section                                                                 Notes to Principal Financial Statements



          Notes to Principal Financial Statements
          For the Years Ended September 30, 2009 and September 30, 2008

          Note 1.       Summary of Significant Accounting Policies
             Reporting Entity…
          Federal Student Aid was created as a PBO within the Department under the HEA from
          previously existing Department student financial assistance programs. Federal Student Aid
          operates under the PBO mandate to develop a management structure driven by strong
          incentives to manage for results. Federal Student Aid‘s primary goal is to assist lower-income
          and middle-income students in overcoming the financial barriers that make it difficult to attend
          and complete postsecondary education. Federal Student Aid is responsible for administering
          direct loans, guaranteed loans and grant programs.

          The Direct Loan Program, added to the HEA by the Student Loan Reform Act of 1993, enables
          Federal Student Aid to make loans directly to eligible undergraduate and graduate students and
          their parents through participating schools. Federal Student Aid borrows money from the
          Treasury to fund the loans. The program provides interest subsidies for eligible borrowers.

          The FFEL Program, initially authorized by the HEA, operates through state and private nonprofit
          guaranty agency agencies to provide loan guarantees and interest subsidies on loans made by
          lenders to eligible students.

          Under the Direct Loan and FFEL Programs, loans are made to individuals who meet statutorily
          set eligibility criteria and attend eligible institutions of higher education—public or private two-
          and four-year institutions, graduate schools and vocational training schools. Students and their
          parents, based on eligibility criteria, receive loans regardless of income or credit rating. Student
          borrowers who demonstrate financial need also receive federal interest subsidies.

          The ECASLA amended the FFEL Program to authorize the Secretary to purchase or enter into
          forward commitments to purchase FFEL loans. This temporary loan purchase authority was to
          expire on September 30, 2009; however, P.L. 110-350 extended the authority through
          September 30, 2010. The Department has implemented three activities under this temporary
          loan purchase authority. These activities are: (1) loan purchase commitments under which the
          Department purchases loans directly from FFEL lenders; (2) loan participation purchases in
          which the Department purchases participation interests in FFEL loans; and (3) an ABCP
          Conduit in which the Department enters into a forward commitment to purchase FFEL loans
          from a conduit, as needed, to allow the conduit to repay short-term liquidity loans used to re-
          finance maturing commercial paper.

          The TEACH Program was implemented beginning July 1, 2008. This program, added to the
          HEA by the CCRAA, awards annual grants to students who agree to teach in a high-need
          subject area in a public or private elementary or secondary school that serves low-income
          students.


FY 2009                                                   - 67 -                  Federal Student Aid Annual Report
Financial Section                                                             Notes to Principal Financial Statements


          Grant appropriations funding the Pell Grant Program and campus-based student aid programs
          enable Federal Student Aid to provide educational grants and other financial assistance to
          eligible applicants. Grants are not repaid to the federal government. The Pell Grant Program
          provides grant aid to low-income and middle-income undergraduate students. Awards vary in
          proportion to the financial circumstances of students and their families. The campus-based
          student aid programs provide educational grants and other financial assistance to eligible
          applicants. These programs include the Supplemental Educational Opportunity Grant, FWS and
          Federal Perkins Loan Programs. Campus-based programs are not material to these statements
          and have been included with other programs reported under grant programs.

          The Recovery Act, enacted on February 17, 2009 as P.L. 111-5, provides funding for improving
          schools, raising students‘ achievement, driving reform and producing better results for children
          and young people for the long term health of the nation. The Recovery Act funds provided to the
          Department include additional funding for student aid administration and student financial
          assistance grant programs managed and administered by Federal Student Aid. These activities
          are accounted for separately from non-Recovery Act funds. (See Note 17)

             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 Federal Student Aid
          reporting group, 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 Federal Student Aid, in accordance with accounting principles generally accepted in
          the United States of America for federal entities, issued by the Federal Accounting Standards
          Advisory Board, and OMB Circular No. A-136 Financial Reporting Requirements, as revised
          June 2009. These financial statements are different from the financial reports prepared by the
          Department pursuant to OMB directives that are used to monitor and control Federal Student
          Aid‘s use of budgetary resources.

          Federal Student Aid‘s financial statements represent the reporting organization, Federal Student
          Aid, within the Department of Education, which is itself a component of the U.S. Government, a
          sovereign entity. One implication 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.

          Transactions and balances among Federal Student Aid funds have been eliminated from the
          consolidated financial statements.




FY 2009                                                 - 68 -                Federal Student Aid Annual Report
Financial Section                                                               Notes to Principal Financial Statements


             Use of Estimates
          The preparation of the financial statements in accordance with accounting principles generally
          accepted in the United States of America requires management to make assumptions and
          estimates that directly affect the amounts reported in the financial statements. Actual results
          may differ from those estimates.

          The Federal Credit Reform Act of 1990 (Credit Reform Act) underlies the proprietary and
          budgetary accounting treatment of direct and guaranteed loans. The long-term cost to the
          government for direct loans or loan guarantees, other than for general administration of the
          programs, is referred to as ―subsidy cost.‖ Under the Credit Reform Act, subsidy costs for loans
          obligated beginning in FY 1992 are estimated at the net present value of projected lifetime costs
          in the year the loan is obligated. Subsidy costs are re-estimated annually.

          Estimates for credit program receivables and liabilities contain assumptions that have a
          significant impact on the financial statements. The primary components of this assumption set
          include, but are not limited to, collections (including loan consolidations), repayments, default
          rates, prevailing interest rates and loan volume. Actual loan volume, interest rates, cash flows
          and other critical components used in the estimation process may differ significantly from the
          assumptions made at the time the financial statements were prepared. Minor adjustments to
          any of these components may create significant changes to the estimate.

          Federal Student Aid and the Department estimate all future cash flows associated with the
          Direct Loan, FFEL and TEACH Programs. Projected cash flows are used to develop subsidy
          estimates. Subsidy cost can be positive or negative; negative subsidies occur when expected
          program inflows of cash (e.g., repayments and fees) exceed expected outflows. Subsidy cost is
          recorded as the initial amount of the loan guarantee liability when guarantees are made or as a
          valuation allowance to government-owned loans and interest receivable (i.e., direct and
          defaulted guaranteed loans).

          Federal Student Aid and the Department use a computerized cash flow projection Student Loan
          Model to calculate subsidy estimates for the Direct Loan, FFEL and TEACH Programs. Each
          year, the Department re-evaluates the estimation methods related to changing conditions.
          Federal Student Aid and the Department use a probabilistic technique to forecast interest rates
          based on different methods to establish the relationship between an event‘s occurrence and the
          magnitude of its probability. The Department‘s approach estimates interest rates under
          numerous scenarios and then bases interest rates on the average interest rates weighted by the
          assumed probability of each scenario occurring. Probabilistic methodology facilitates the
          modeling of the Department‘s unique loan programs.

          For each program, cash flows are projected over the life of the loans, aggregated by loan type,
          cohort year and risk category. The loan‘s cohort year represents the year a direct loan was
          obligated or a loan was guaranteed, regardless of the timing of disbursements. Risk categories
          include two-year colleges, freshmen and sophomores at four-year colleges, juniors and seniors
          at four-year colleges, graduate schools and proprietary (for-profit) schools.


FY 2009                                                   - 69 -                 Federal Student Aid Annual Report
Financial Section                                                               Notes to Principal Financial Statements


          Estimates reflected in these statements were prepared using assumptions developed for the
          FY 2010 Mid-Session Review, a government-wide exercise required annually by OMB. These
          estimates are based on the most current information available to Federal Student Aid and the
          Department at the time the financial statements were prepared. Assumptions and their impact
          are updated after the Mid-Session Review to account for significant subsequent changes in
          activity. Management has a process to review these estimates in the context of subsequent
          changes in activity and assumptions, and to reflect the impact of changes, as appropriate.

          Federal Student Aid and the Department recognize that cash flow projections and the sensitivity
          of changes in assumptions can have a significant impact on estimates. Management has
          attempted to mitigate fluctuations in the estimates by using trend analysis to project future cash
          flows. Changes in assumptions could significantly affect the amounts reflected in these financial
          statements. For example, a minimal change in the projected long-term interest rate charged to
          borrowers could change the current subsidy re-estimate by a significant amount. (See Note 6)

             Budget Authority
          Budget authority is the authorization provided by law for the Department and Federal Student
          Aid to incur financial obligations that will result in outlays. Federal Student Aid‘s budgetary
          resources include (1) unobligated balances of resources from prior years, (2) recoveries of prior-
          year obligations and (3) new resources, which include appropriations, authority to borrow from
          Treasury and spending authority from collections.

          Unobligated balances associated with resources expiring at the end of the fiscal year remain
          available for five years after expiration only for upward adjustments of prior year obligations,
          after which they are canceled and may not be used. Unobligated balances of resources that
          have not expired at year-end are available for new obligations placed against them, as well as
          upward adjustments of prior year obligations.

          Authority to borrow from Treasury provides most of the funding for disbursements made under
          the Direct Loan Program, the TEACH Program and activities under the temporary loan purchase
          authority. Subsidy and administrative costs of the programs are funded by appropriations.
          Budgetary resources from collections are used primarily to repay Federal Student Aid‘s debt to
          Treasury. Major sources of collections include (1) principal and interest collections from
          borrowers, (2) related fees and (3) interest from Treasury on balances in certain credit financing
          accounts that make and administer loans and guarantees.

          Borrowing authority is an indefinite budgetary resource authorized under the Credit Reform Act.
          This resource, when realized, finances the unsubsidized portion of the Direct Loan Program, the
          TEACH Program and activities under the temporary loan purchase authority. In addition,
          borrowing authority is requested in advance of expected collections to cover negative subsidy.
          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. The
          Department may carry forward borrowing authority to future fiscal years provided that cohorts

FY 2009                                                  - 70 -                 Federal Student Aid Annual Report
Financial Section                                                                 Notes to Principal Financial Statements


          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.

             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. 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
          The Fund Balance with Treasury includes general, revolving, special and other funds available
          to pay current liabilities and finance authorized purchases, as well as funds restricted until future
          appropriations are received. Treasury processes cash receipts and cash disbursements for
          Federal Student Aid. Federal Student Aid‘s records are reconciled with those of Treasury.

          A portion of the general fund is funded in advance by multi-year appropriations for obligations
          anticipated during the current and future fiscal years. Revolving funds conduct continuing cycles
          of business-like activity and do not require annual appropriations. Their fund balance is derived
          from borrowings, as well as collections from the public and other federal agencies. Other funds,
          which are non-budgetary, primarily consist of deposit and receipt 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. Obligated balances not yet disbursed include receivables for
          undelivered orders and unpaid expended authority.

          The Fund Balance with Treasury also includes funds received for grants during FY 2009, which
          are statutorily not available for obligation until FY 2010. Since this is a deferral made in law, it
          reduces total budgetary resources during FY 2009. (See Notes 3 and 12)

             Accounts Receivable
          Accounts Receivable are amounts due to Federal Student Aid from the public and other federal
          agencies. Receivables from the public result from overpayments to recipients of grants and
          other financial assistance programs, and disputed costs resulting from audits of educational
          assistance programs. Amounts due from other federal agencies result from reimbursable
          agreements entered into by Federal Student Aid with these agencies to provide various goods
          and services. Accounts receivable are reduced to net realizable value by an allowance for
          uncollectible amounts. Estimates for the allowance for loss on uncollectible accounts are based
          on historical data. (See Note 4)




FY 2009                                                   - 71 -                  Federal Student Aid Annual Report
Financial Section                                                                 Notes to Principal Financial Statements


             Cash and Other Monetary Assets
          Cash and Other Monetary Assets consist of guaranty agency reserves that represent the federal
          government‘s interest in the net assets of state and nonprofit FFEL Program guaranty agencies.
          Guaranty agency reserves are classified as non-entity assets with the public (See Notes 2
          and 5) and are offset by a corresponding liability due to Treasury. Guaranty agency reserves
          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.

          Section 422A of the HEA required FFEL guaranty agencies to establish a Federal Student Loan
          Reserve Fund (Federal Fund) and an Operating Fund by December 6, 1998. The Federal Fund
          and the non-liquid assets developed or purchased by a guaranty agency, in whole or in part with
          federal funds, are the property of the United States and reflected in the Budget of the United
          States Government. However, such ownership by the federal government is independent of the
          actual control of the assets. Payments to the Department from guaranty agency Federal Funds,
          which increase Fund Balance with Treasury, are remitted to Treasury.

          Federal Student Aid and the Department disburse funds to a guaranty agency. A guaranty
          agency, through its Federal Fund, pays lender claims and default aversion fees. The Operating
          Fund is the property of the guaranty agency except for amounts an agency borrows from the
          Federal Fund (as authorized under Section 422A of the HEA). The Operating Fund is used by
          the guaranty agency to fulfill responsibilities that include repaying money borrowed from the
          Federal Fund, and performing default aversion and collection activities.

             Credit Program Receivables and Liabilities for Loan Guarantees
          The financial statements reflect the Department‘s estimate of the long-term cost of direct and
          guaranteed loans in accordance with the Credit Reform Act. 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 ―allowance for subsidy‖. The
          difference is the present value of the cash flows to and from Federal Student Aid that are
          expected from the receivables over their projected lives. Similarly, liabilities for loan guarantees
          are valued at the present value of the cash outflows from Federal Student Aid less the present
          value of related inflows. The estimated present value of net long-term cash outflows of Federal
          Student Aid for subsidized costs is net of recoveries, interest supplements and offsetting fees.
          Federal Student Aid records all credit program loans and loan guarantees at their present
          values.

          Credit program receivables for activities under the temporary loan purchase authority include
          the present value of future cash flows related to the participation agreements or purchased
          loans. Subsidy is transferred, which may be prior to purchasing loans, and is recognized as
          subsidy expense in the Statement of Net Cost. 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.



FY 2009                                                   - 72 -                  Federal Student Aid Annual Report
Financial Section                                                                          Notes to Principal Financial Statements


          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 and Federal Student Aid on its
          borrowings from Treasury and interest rates charged to target groups is also subsidized (or may
          provide an offset to subsidy if the Department‘s rate is less). The corresponding interest subsidy
          in loan guarantee programs is the payment of interest supplements to third-party lenders in
          order to pay down the interest rates on loans made by those lenders. Subsidy costs are
          recognized when direct loans or guaranteed loans are disbursed to borrowers and re-estimated
          each year. (See Note 6)

             General Property, Plant and Equipment
          In accordance with the Department‘s policy, Federal Student Aid capitalizes single items of
          property and equipment with a cost of $50,000 or more that have an estimated useful life
          greater than two years. Additionally, Federal Student Aid capitalizes bulk purchases of property
          and equipment with an aggregate cost of $500,000 or more. A bulk purchase is defined as the
          purchase of like items related to a specific project or the purchase of like items occurring within
          the same fiscal year that have an estimated useful life greater than two years. Property and
          equipment are depreciated over their estimated useful lives using the straight-line method of
          depreciation. Internal Use Software meeting the above cost and useful life criteria is also
          capitalized. Internal Use Software is either purchased off the shelf, internally developed or
          contractor developed solely to meet the agency‘s needs. (See Note 7)

          The Department adopted the following useful lives for its major classes of depreciable property
          and equipment:

                                           Depreciable Property and Equipment
                                                               (In Years)

                                                 Major Class                                           Useful Life
               Information Technology, Internal Use Software and Telecommunications Equipment               3
               Furniture and Fixtures                                                                       5


             Other Assets
          Other assets include assets not reported separately on the balance sheet. Federal Student Aid‘s
          other assets (with the public) consist of payments made to grant recipients in advance of their
          expenditures and in-process disbursements for the FFEL Program. (See Note 8)
             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 Federal Student Aid or
          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


FY 2009                                                          - 73 -                     Federal Student Aid Annual Report
Financial Section                                                               Notes to Principal Financial Statements


          Program liabilities are entitlements covered by permanent indefinite budget authority.
          (See Note 10)

             Debt
          The Department borrows to provide funding for the Direct Loan Program, the TEACH Program
          and activities under the temporary loan purchase authority. The liability to Treasury from
          borrowings represents unpaid principal at year-end. Federal Student Aid repays the principal
          based on available fund balances. Interest on the debt is calculated at fiscal year-end using
          rates set by Treasury, with such rates generally fixed based on the rate for 10-year Treasury
          securities. As discussed in Note 6, the interest received by Federal Student Aid from borrowers
          will vary from the rate paid to Treasury. Principal and interest payments to Treasury are made
          annually. (See Note 9)

             Accrued Grant Liability
          Disbursements of grant funds are recognized as expenses at the time of disbursement.
          However, some grant recipients incur expenditures prior to initiating a request for disbursement
          based on the nature of the expenditures. A liability is accrued by Federal Student Aid for
          expenditures incurred by grantees prior to their receiving grant funds to cover the expenditures.
          The amount is estimated using statistical sampling. (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
          federal credit financing and liquidating funds. Cumulative results of operations represent the net
          difference since inception between (1) expenses and (2) revenues and financing sources. (See
          Note 12)

             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. Annual leave earned but not
          taken, within established limits, is funded from future financing sources. (See Note 10) Sick
          leave and other types of non-vested leave are expensed as taken.

          Retirement Plans and Other Retirement Benefits. Employees participate either in the Civil
          Service Retirement System (CSRS), a defined benefit plan or in 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
          and to match voluntary employee contributions up to 3 percent of the employee‘s basic pay, and

FY 2009                                                  - 74 -                 Federal Student Aid Annual Report
Financial Section                                                              Notes to Principal Financial Statements


          one-half of contributions between 3 percent and 5 percent of 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 fully fund the
          programs, 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, to employees who have incurred work-related occupational diseases, and to
          beneficiaries of employees whose deaths are attributable to job-related injuries or occupational
          diseases. The FECA Program is administered by the 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 Note 10)

             Intragovernmental Transactions
          Federal Student Aid‘s financial activities interact with and are dependent upon the financial
          activities of the centralized management functions of the federal government. Due to financial
          regulation and management control by OMB and Treasury, operations may not be conducted
          and financial positions may not be reported as they would if Federal Student Aid were a
          separate, unrelated entity.




FY 2009                                                  - 75 -                Federal Student Aid Annual Report
Financial Section                                                                                  Notes to Principal Financial Statements



          Note 2.        Non-Entity Assets
          As of September 30, 2009 and 2008, non-entity assets consisted of the following:
                                                         Non-Entity Assets
                                                            (Dollars in Millions)

                                                                                            2009                      2008
                 Non-Entity Assets
                   Intragovernmental
                       Fund Balance with Treasury                                   $                  7      $                  8
                          Total Intragovernmental                                                      7                         8
                   With the Public
                       Cash and Other Monetary Assets                                              2,414                      1,663
                       Accounts Receivable, Net                                                        -                          4
                       Credit Program Receivables, Net                                               184                        186
                          Total With the Public                                                  2,598                     1,853
                 Total Non-Entity Assets                                                         2,605                     1,861
                 Entity Assets                                                                 301,382                   191,426
                 Total Assets                                                       $          303,987        $          193,287


          Non-entity intragovernmental assets primarily consist of deposit fund balances. Non-entity
          assets with the public primarily consist of guaranty agency reserves and Federal Perkins
          Program Loan Receivables. (See Notes 5 and 6)

          Note 3.        Fund Balance with Treasury
          The Fund Balance with Treasury, by fund type, as of September 30, 2009 and 2008, consisted
          of the following:
                                                          Fund Balances
                                                            (Dollars in Millions)

                                                                                               2009                    2008
                 General Funds                                                          $           29,662        $          14,874
                 Revolving Funds                                                                    37,124                   42,024
                 Special Funds                                                                          14                        9
                 Other Funds                                                                             7                        8
                 Fund Balance with Treasury                                             $           66,807        $          56,915




FY 2009                                                        - 76 -                              Federal Student Aid Annual Report
Financial Section                                                                                     Notes to Principal Financial Statements


          The Status of Fund Balance with Treasury, as of September 30, 2009 and 2008, consisted of
          the following:
                                              Status of Fund Balance with Treasury
                                                               (Dollars in Millions)

                                                                                                  2009                   2008
                 Unobligated Balance
                   Available                                                               $            10,850       $       1,562
                   Unavailable                                                                           9,902              26,912
                 Obligated Balance, Not Yet Disbursed                                                   45,161              28,433
                 Authority Temporarily Precluded from Obligation                                           887                   -
                 Non-Budgetary Fund Balance with Treasury                                                    7                   8
                 Fund Balance with Treasury                                                $            66,807       $      56,915




          Note 4.        Accounts Receivable
          Accounts Receivable, as of September 30, 2009 and 2008, consisted of the following:
                                                           Accounts Receivable
                                                               (Dollars in Millions)

                                                                                               2009
                                                             Gross
                                                           Receivables                     Allowance             Net Receivables

                 Intragovernmental                     $                 (3)           $                 -       $              (3)
                 With the Public                                        536                            (32)                     504

                 Accounts Receivable                   $                533            $               (32)      $              501


                                                                                               2008
                                                             Gross
                                                           Receivables                     Allowance             Net Receivables

                 Intragovernmental                     $                    -          $                 -       $                 -
                 With the Public                                        118                            (35)                     83

                 Accounts Receivable                   $                118            $               (35)      $              83




FY 2009                                                            - 77 -                             Federal Student Aid Annual Report
Financial Section                                                                        Notes to Principal Financial Statements




          Note 5.       Cash and Other Monetary Assets
          Cash and Other Monetary Assets consist of reserves held in the FFEL Guaranty Agency
          Federal Funds. Changes in the valuation of the Federal Fund increase or decrease the
          Department‘s Cash and Other Monetary Assets with a corresponding change in the Payable to
          Treasury. The table below presents Cash and Other Monetary Assets for the Years ended
          September 30, 2009 and 2008.
                                               Cash and Other Monetary Assets
                                                             (Dollars in Millions)

                                                                                         2009              2008
                 Beginning Balance, Cash and Other Monetary Assets                   $       1,663     $       1,103
                   Valuation Increase in Guaranty Agency Federal Funds                         751               722
                   Less: Collections from Guaranty Agency Federal Funds
                          Excess Collections                                                     -                162
                          Collections Remitted to Treasury                                       -                162

                 Ending Balance, Cash and Other Monetary Assets                      $       2,414     $       1,663



          The $751 million net increase in the Federal Fund in FY 2009 reflects the impact of guaranty
          agencies‘ ongoing operations. During FY 2008, $162 million was remitted to the Department by
          a guaranty agency whose agreement with the Department requires the agency to remit funds in
          excess of agreed-upon working capital levels. Remitted funds were returned to Treasury.

          Note 6.       Credit Programs for Higher Education
          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 disbursed approximately $37.6 billion in Direct Loans to eligible borrowers in
          FY 2009 and approximately $21.1 billion in FY 2008. Loans typically are disbursed in multiple
          installments over an academic period; as a result, loan disbursements for an origination cohort
          year often cross fiscal years. Half of all loan volume is obligated in the fourth quarter of a fiscal
          year. Regardless of the fiscal year in which they occur, disbursements are tracked by cohort as
          determined by the date of obligation rather than disbursement.
          Approximately 7 percent of Direct Loan obligations made in an individual fiscal year are never
          disbursed. Loan obligations are established at a summary level based on estimates of schools‘
          receipt of aid applications. The loan obligation may occur before a student has been accepted
          by a school or begins classes. For Direct Loans obligated in the 2009 cohort, an estimated
          $2.8 billion will never be disbursed. Eligible schools may originate direct loans through a cash
          advance from the Department or by advancing their own funds in anticipation of reimbursement
          from the Department.
          The Department accrues interest receivable and records interest revenue on performing Direct
          Loans and, given the Department‘s substantial collection rates, on defaulted Direct Loans.



FY 2009                                                         - 78 -                   Federal Student Aid Annual Report
Financial Section                                                                 Notes to Principal Financial Statements


          Federal Family Education Loan Program. Prior to FY 2008, the FFEL Program included only
          private lender loans to students and parents insured against default by the federal government.
          In FY 2008, the Department began administering activities under the temporary loan purchase
          authority by purchasing FFEL loans and participation interests in those directly from lenders. As
          a result, the FFEL Program also includes approximately $52 billion and $5.1 billion in direct
          federal assets as of September 30, 2009 and 2008, respectively.
          Beginning with FFEL loans first disbursed on or after October 1, 1993, FFEL lender financial
          institutions became responsible for 2 percent of the cost of each default. Guaranty agencies
          also began paying a portion of the cost (in most cases, 5 percent) of each defaulted loan from
          their Federal Fund, which consists of Federal resources held in trust by the agency. FFEL
          lenders receive statutorily set federal interest and special allowance subsidies. Guaranty
          agencies receive fee payments as set by statute. In most cases, loan terms and conditions
          under the Direct Loan and FFEL Programs are identical.
          ECASLA gave the Department temporary authority to purchase FFEL loans and interest in
          those loans. This authority was to expire on September 30, 2009; however, P.L. 110-350
          extended the authority through September 30, 2010. The Department has implemented three
          activities under this authority: loan purchase commitments; purchases of loan participation
          interests; and a put, or forward purchase commitment, with an ABCP Conduit. A credit program
          receivable is established for loans and participation interests in loans purchased through these
          activities.
          Under the loan purchase commitment activity, lenders have the option to sell directly to the
          Department fully disbursed loans originated for academic years 2007-08, 2008-09 or 2009-10.
          As of September 30, 2009, only loans originated for the 2009-10 academic year remain eligible
          for future purchase.
          In loan participation transactions, lenders transfer to a custodian FFEL loans originated in
          academic years 2008-09 or 2009-10 on which at least one disbursement has been made. The
          custodian issues participation certificates to the lender that convey a participation interest in the
          loans. The lender sells the participation interest in the loans to the Department at the par value
          of these loans. The Department remits the proceeds through the custodian to the lenders.
          Participation interests earn a yield payable from the lender to the Department at the rate of the
          91-day commercial paper rate plus 50 basis points and reset quarterly. Funds to redeem these
          loans from the Department's participation interest may be obtained by selling the underlying
          loans to the Department or by other means.
          The terms of these two purchase activities permit lenders to sell loans and participation interests
          in loans to the Department and require them to redeem the participated loans. Lenders must
          commit to redeem the certificates and sell loans by September 30; the Department must finalize
          all related transactions by October 15. As of September 30, 2009, the Department had $26.6
          billion in Notices of Intent to Sell from lenders in the purchase commitment and loan
          participation purchase activities.
          During FY 2009, the Department, Treasury and OMB established the terms on which the
          Department would support an ABCP Conduit to provide liquidity to the student loan market. An
          ABCP Conduit under this activity issues short-term commercial paper to investors; this paper is
          backed by student loans pledged to the conduit. The conduit uses the proceeds of sales of its

FY 2009                                                    - 79 -                 Federal Student Aid Annual Report
Financial Section                                                              Notes to Principal Financial Statements


          commercial paper to acquire from lenders interests in student loans. Lenders must use a portion
          of conduit payments to make new loans. Though the intent is for the conduit to meet demands
          on maturing paper by reissuing commercial paper, the Department, using its ECASLA authority,
          will purchase loans from the conduit as needed to ensure the conduit will be able to meet the
          demands on its paper if it is unable to refinance maturing commercial paper. The Department
          will purchase those pledged loans that become more than 210 days delinquent. The conduit has
          sold to the Department approximately $50 million of these delinquent loans as of September 30,
          2009, recorded as credit program receivables. Under the terms of the Put Agreement with the
          conduit, the Department may also purchase pledged loans at the date that is 45 days prior to
          the Put Agreement expiration on January 19, 2014. As required by the Credit Reform Act, all
          cash flows to and from the Government resulting from its transactions with the ABCP Conduit
          are recorded in a non-budgetary credit financing account. Amounts in this account are a means
          of financing and are not included in the budget totals. Loans originated in academic years 2004-
          05 through 2007-08 are eligible to be purchased through the ABCP Conduit activity.
          As of September 30, 2009, the Department has $70 billion in obligations to cover any buyer-of-
          last-resort activities and potential purchases of the underlying student loans under the ABCP
          Conduit authority. These obligations are covered by available borrowing authority. In addition,
          the Department has estimated approximately $4 billion in negative subsidy. The conduit, a
          separate legal entity, has approximately $30 billion in commercial paper outstanding.
          The estimated FFEL liability for loan guarantees is reported as the present value of estimated
          net cash outflows. Defaulted FFEL loans are reported net of an allowance for subsidy computed
          using net present value methodology, including defaults, collections and loan cancellations. The
          same methodology is used to estimate the allowance on Direct Loan receivables.
          The Department guaranteed $80.4 billion and $67.9 billion in gross non-consolidation loans to
          FFEL recipients during FY 2009 and FY 2008, respectively. In 2009, lenders disbursed $62.7
          billion in FFEL loans from the 2008 and 2009 cohorts; in 2008, $68.8 billion were disbursed from
          the 2007 and 2008 cohorts. As of September 30, 2009 and 2008, total principal balances
          outstanding of guaranteed loans held by lenders were approximately $457 billion and $415
          billion, respectively. As of September 30, 2009 and 2008, the estimated maximum government
          exposure on outstanding guaranteed loans held by lenders was approximately $445 billion and
          $405 billion, respectively. Of the insured amount, the Department would pay a smaller amount
          to the guaranty agencies, based on the appropriate reinsurance rates, which range from 100 to
          95 percent. Any remaining insurance not paid as reinsurance would be paid to lenders by the
          guaranty agencies from their Federal Fund. Payments by guaranty agencies do not reduce
          government exposure because they are made from the Federal Fund administered by the
          agencies but owned by the federal government.
          Approximately 15 percent of guaranteed loan commitments made in an individual fiscal year are
          never disbursed due to the nature of the loan commitment process. For guaranteed loans
          committed in the 2009 cohort, an estimated $12.5 billion will never be disbursed.
          Guaranteed loans that default are initially turned over to guaranty agencies for collection, and
          interest receivable is accrued and recorded on the loans as the collection rate is substantial.
          After approximately four years, defaulted guaranteed loans not in repayment are turned over to
          the Department for collection. Accrued interest on the subrogated loan is calculated, but only
          realized upon collection.
FY 2009                                                  - 80 -                Federal Student Aid Annual Report
Financial Section                                                                 Notes to Principal Financial Statements


          Federal Perkins Loan Program. The Federal Perkins Loan Program is a campus-based
          program providing financial assistance 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 Program. Beginning July 1, 2008, the Department awards annual grants up to $4,000
          to eligible undergraduate and graduate students agreeing 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. For students failing to fulfill the
          service requirement, grants are converted to Direct Unsubsidized Stafford Loans. Because
          grants could be converted to loans, for budget and accounting purposes the program is
          operated under the requirements of the Credit Reform Act.
          Loan Consolidations
          Borrowers may prepay existing loans without penalty through a new consolidation loan. Under
          the Credit Reform Act and requirements provided by OMB Circular No. A-11, Preparation,
          Submission, and Execution of the Budget, the retirement of Direct Loans being consolidated is
          considered a receipt 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 consolidated 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 costs. The loan
          liability and net receivables include estimates of future prepayments of existing loans through
          consolidations; they do not reflect costs associated with anticipated future consolidation loans.
          Direct Loan Program consolidations increased from $5.8 billion to $12.5 billion reversing the
          previous declining consolidation trend. FFEL to FFEL Loan consolidations continue, but at a
          rate that did not significantly influence FFEL re-estimated subsidy cost; performing FFEL to
          FFEL consolidations would not affect the Department‘s actual costs. FFEL to Direct Loan
          consolidations are part of the $12.5 billion recorded. Direct loan consolidation activity into the
          FFEL Program is insignificant.
          Modification of Subsidy Cost
          The 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 current discount rates used to calculate modification costs and the
          discount rates used to calculate cohort interest expense and revenue. Separate amounts are
          calculated for modification costs and modification adjustment transfers.
          FY 2009 Modification. ECASLA and its subsequent extension contained provisions authorizing
          the Secretary to purchase certain categories of outstanding FFEL loans. Two programs were
          implemented under ECASLA during FY 2008 and FY 2009, both for loans from academic years
FY 2009                                                    - 81 -                 Federal Student Aid Annual Report
Financial Section                                                              Notes to Principal Financial Statements


          2008-09 and 2009-10: 1) a standard put program in which the Department purchases loans
          directly from lenders, and 2) a loan participation purchase program, under which the
          Department purchases participation interests in loans that holders must redeem and which they
          may do by sale to the Department of the underlying loans. In FY 2009, the standard put
          program was expanded to allow the sale of loans originated for the 2007-08 academic year. In
          FY 2009, the Department also implemented the ABCP Conduit program under which the
          Department issued a five-year commitment to purchase from the conduit loans it acquires from
          lenders. This program allows lenders to secure private financing from the conduit at favorable
          rates. The Department‘s purchase commitment to the ABCP Conduit applies to loans acquired
          by the conduit and made from October 2003 through academic year 2008-09. Additionally, in
          response to disruptions in the commercial paper market, the Secretary used authority to
          approve a temporary change in the basis for calculating special allowance payments to and
          from loan holders for the first quarter of FY 2009.
          The net effect of changes related to loan modifications executed in FY 2009 was a downward
          cost of $2.6 billion in the FFEL Program with a corresponding effect on the Liability for Loan
          Guarantees. Of this amount, $526 million related to the standard loan put authority for award
          year 2007-08, $778 million related to the ABCP Conduit and $1.3 billion related to the temporary
          change in the special allowance payment basis. The FFEL Program also recognized a net
          modification adjustment transfer loss of $130 million.
          FY 2008 Modification. The CCRAA included a number of provisions affecting the cost of
          existing loans. New income-based repayment and public service loan forgiveness programs
          were created; income-based repayment is available to existing FFEL and Direct Loan
          borrowers, while public service loan forgiveness is available to existing Direct Loan borrowers.
          (Existing FFEL borrowers may consolidate into Direct Loans to obtain the benefit.) The Act also
          made retroactive changes to loan deferment provisions for certain military personnel.
          The Act also eliminated the provision under which FFEL lenders designated as ―exceptional
          performers‖ received a higher insurance rate on defaulted loans, reduced FFEL guaranty
          agencies‘ account maintenance fees, and lowered the percentage guaranty agencies may retain
          on collections of certain defaulted loans.
          Loan modification savings of $2.5 billion were recorded in the FFEL Program and $4.1 billion in
          modification costs were recorded in the Direct Loan Program. The FFEL Program also
          recognized a net modification adjustment transfer saving of $30 million and the Direct Loan
          Program recognized a net savings of $9 million.




FY 2009                                                 - 82 -                 Federal Student Aid Annual Report
Financial Section                                                                             Notes to Principal Financial Statements


          Credit Program Receivables
          Credit Program Receivables as of September 30, 2009 and 2008, consisted of the following:
                                                    Credit Program Receivables
                                                              (Dollars in Millions)


                                                                                              2009               2008
                 Direct Loan Program Loan Receivables, Net                                $     152,771      $    109,850
                 FFEL Program
                    Guaranteed Loan Program, Net (Pre-1992)                                          3,480          3,591
                    FFEL Program (Post-1991):
                      FFEL Guaranteed Loan Program, Net                                          20,399            15,624
                      Temporary Loan Purchase Authority:
                        Loan Purchase Commitment, Net                                            17,032                 64
                        Loan Participation Purchase, Net                                         39,996             5,230
                        ABCP Conduit, Net                                                              47                 -
                 Federal Perkins Program Loan Receivables, Net                                        184               186
                 TEACH Program Receivables, Net                                                        50                 1

                 Credit Program Receivables, Net                                          $     233,959      $    134,546


          William D. Ford Federal Direct Loan Program. The following schedule summarizes the
          principal and related interest receivables, net of the allowance for subsidy.
                                          Direct Loan Program Loan Receivables, Net
                                                              (Dollars in Millions)

                                                                                              2009               2008
                 Principal Receivable                                                 $        149,437       $    117,610
                 Interest Receivable                                                             7,370              5,983
                 Receivables                                                                   156,807            123,593
                    Less: Allowance for Subsidy                                                  4,036             13,743

                 Direct Loan Program Loan Receivables, Net                            $        152,771       $    109,850



          Of the $156.8 billion in receivables as of September 30, 2009, $11.5 billion in loan principal was
          in default, compared to $10.3 billion a year earlier. Defaulted Direct Loans are held in the
          Department‘s Business Operations Default Division.




FY 2009                                                          - 83 -                       Federal Student Aid Annual Report
Financial Section                                                                      Notes to Principal Financial Statements


          Federal Family Education Loan Program. The following schedule summarizes the principal
          and related interest receivables, net of the allowance for subsidy.
                                             FFEL Program Loan Receivables, Net
                                                           (Dollars in Millions)

                                                                                       2009               2008

                 FFEL Guaranteed Loan Program (Pre-1992)
                 Principal Receivable                                              $          7,100   $      7,587
                 Interest Receivable                                                            223            182
                 Receivables                                                                  7,323          7,769
                   Less: Allowance for Subsidy                                                3,843          4,178
                 FFEL Guaranteed Loan Program Receivables, Net (Pre-1992)          $          3,480   $      3,591

                 FFEL Program (Post-1991)

                 Principal Receivable
                   FFEL Guaranteed Loan Program                                           22,403             17,641
                   Temporary Loan Purchase Authority:
                      Loan Purchase Commitment                                            14,293                59
                      Loan Participation Purchase                                         37,020             5,036
                      ABCP Conduit                                                            50                 -

                 Interest Receivable
                    FFEL Guaranteed Loan Program                                              2,305          2,143
                    Temporary Loan Purchase Authority:
                      Loan Purchase Commitment                                                 379                 -
                      Loan Participation Purchase                                              259                11
                      ABCP Conduit                                                               2                 -
                 Receivables                                                       $     76,711       $     24,890

                 Less: Allowance for Subsidy
                   FFEL Guaranteed Loan Program                                               4,309          4,160
                   Temporary Loan Purchase Authority:
                     Loan Purchase Commitment                                            (2,360)                   (5)
                     Loan Participation Purchase                                         (2,717)                 (183)
                     ABCP Conduit                                                              5                    -

                 FFEL Guaranteed Loan Program, Net                                        20,399            15,624
                 Temporary Loan Purchase Authority:
                   Loan Purchase Commitment, Net                                          17,032                64
                   Loan Participation Purchase, Net                                       39,996             5,230
                   ABCP Conduit, Net                                                          47                 -

                 FFEL Program Loan Receivables, Net                                $      80,954      $     24,509


          All loans and participation interests in loans purchased by the Department under the temporary
          loan purchase authority are federal assets; the loan receivable represents all outstanding loans
          and participation interests. Loan participation interests were first purchased by the Department
          in August 2008. Approximately $9 billion in participation interests were redeemed in FY 2009 by
          selling the underlying loans to the Department. No participation interests were redeemed in
          FY 2008.

FY 2009                                                       - 84 -                    Federal Student Aid Annual Report
Financial Section                                                                                          Notes to Principal Financial Statements


          Federal Perkins Loan Program. At September 30, 2009 and 2008, loans receivable, net of an
          allowance for loss, were $184 million and $186 million, respectively. These loans are valued at
          historical cost.
          TEACH Program. At September 30, 2009 and 2008, loans receivable, net of an allowance for
          subsidy, were $50 million and $1 million, respectively.


          Reconciliation of Allowance for Subsidy and Liability for Loan Guarantees
          William D. Ford Federal 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)

                                                                                                    2009                     2008
                 Beginning Balance, Allowance for Subsidy                                       $        13,743          $          8,245
                 Components of Subsidy Transfers
                   Interest Rate Differential                                                              (7,785)                  (1,540)
                   Defaults, Net of Recoveries                                                              1,070                      454
                   Fees                                                                                      (551)                    (487)
                   Other                                                                                    2,863                    1,498
                 Current Year Subsidy Transfers                                                            (4,403)                     (75)
                 Components of Subsidy Re-estimates
                   Interest Rate Re-estimates1                                                            (322)                       222
                   Technical and Default Re-estimates                                                   (4,878)                       946
                 Subsidy Re-estimates                                                                   (5,200)                     1,168
                 Components of Loan Modifications
                   Loan Modification Costs                                                                      -                   4,143
                   Modification Adjustment Transfers                                                            -                       (9)
                 Loan Modifications                                                                             -                   4,134
                 Activity
                   Fee Collections                                                                           628                      482
                   Loan Cancellations2                                                                      (432)                    (240)
                   Subsidy Allowance Amortization                                                             40                      456
                   Other                                                                                    (340)                    (427)
                 Total Activity                                                                             (104)                     271
                 Ending Balance, Allowance for Subsidy                                          $          4,036         $      13,743
                    1
                        The interest rate re-estimate relates to subsidy associated with establishing a fixed rate for the
                        Department‘s borrowing from Treasury.
                    2
                        Loan cancellations include write-offs of loans because the primary borrower died, became disabled or
                        declared bankruptcy.




FY 2009                                                                    - 85 -                          Federal Student Aid Annual Report
Financial Section                                                                                          Notes to Principal Financial Statements


          Federal Family Education Loan Program. The following schedule provides a
          reconciliation between the beginning and ending balances of the liability for loan
          guarantee for the insurance portion of the FFEL Program:

                             FFEL Program Reconciliation of Liabilities for Loan Guarantees
                                                                      (Dollars in Millions)

                                                                                                        2009                      2008
                 Beginning Balance, FFEL Financing Accounts Liability for
                 Loan Guarantees                                                                 $          43,185          $        50,731
                 Components of Subsidy Transfers
                   Interest Supplement Costs                                                                   (632)                     1,212
                   Defaults, Net of Recoveries                                                                  494                         43
                   Fees                                                                                      (3,495)                      (449)
                   Other1                                                                                     2,108                        436
                 Current Year Subsidy Transfers                                                             (1,525)                      1,242
                 Components of Subsidy Re-estimates
                   Interest Rate Re-estimates                                                                   (147)                     (700)
                   Technical and Default Re-estimates                                                      (21,542)                       (760)
                 Subsidy Re-estimates                                                                       (21,689)                 (1,460)
                 Components of Loan Modifications
                   Loan Modification Costs                                                                   (2,641)                 (2,464)
                   Modification Adjustment Transfers                                                             130                    (30)
                 Loan Modifications                                                                          (2,511)                 (2,494)
                 Activity
                   Interest Supplement Payments                                                              (5,389)                 (8,744)
                   Claim Payments                                                                            (8,634)                 (8,029)
                   Fee Collections                                                                            4,115                   4,107
                   Interest on Liability Balance                                                                337                   1,372
                   Other2                                                                                   12,559                    6,460
                 Total Activity                                                                                2,988                 (4,834)
                 Ending Balance, FFEL Financing Account Liability for Loan
                 Guarantees                                                                                 20,448                   43,185
                 FFEL Liquidating Account Liability for Loan Guarantees                                          95                       137
                 Liabilities for Loan Guarantees                                                 $          20,543          $        43,322
                     1
                         Subsidy primarily associated with debt collections and loan cancellations due to death, disability and
                         bankruptcy.
                     2
                         Activity primarily associated with the transfer of subsidy for defaults; loan consolidation activity;
                         negative special allowance payments; and loan cancellations due to death, disability and
                         bankruptcy.


          Financing Account Interest Expense and Interest Revenue
          The Department borrows from Treasury to fund the unsubsidized portion of lending activities.
          The Department calculates and pays Treasury interest on its borrowing at the end of each year.
          During the year, interest is earned on outstanding direct loans, outstanding FFEL loans
          purchased by the Department, participation interests and the Fund Balance with Treasury.
          Subsidy amortization is calculated, in accordance with Statement of Federal Financial
          Accounting Standards No. 2, Accounting for Direct Loans and Loan Guarantees, as the
          difference between interest revenue and interest expense. For direct loans, the allowance for

FY 2009                                                                    - 86 -                           Federal Student Aid Annual Report
Financial Section                                                                                      Notes to Principal Financial Statements


          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.
          William D. Ford Federal Direct Loan Program. The following schedule summarizes the Direct
          Loan financing account interest expense and interest revenue:

                                                          Direct Loan Program
                                                                (Dollars in Millions)

                                                                                                2009                      2008
                    Interest Expense on Treasury Borrowing                              $              7,094      $              6,190
                 Interest Expense                                                       $              7,094      $              6,190


                    Interest Revenue from the Public                                    $              5,669      $              5,277
                    Amortization of Subsidy                                                               (40)                    (456)
                    Interest Revenue on Uninvested Funds                                               1,465                     1,369
                 Interest Revenue                                                       $              7,094      $              6,190



          Payable to Treasury
          Payable to Treasury for the years ended September 30, 2009 and 2008 consisted of the
          following:
                                                         Payable to Treasury
                                                               (Dollars in Millions)

                                                                                                  2009                    2008
                 Future Liquidating Account Collections, Beginning Balance                  $           3,766         $          4,108
                    Valuation of Pre-1992 Loan Liability and Allowance                                    465                     250
                    Capital Transfers to Treasury                                                        (662)                    (592)
                 Future Liquidating Account Collections, Ending Balance                                 3,569                    3,766
                 Payable to Treasury                                                        $           3,569         $          3,766


          The liquidating account, based on available fund balance, periodically transfers Fund Balance to
          Treasury‘s account.




FY 2009                                                             - 87 -                             Federal Student Aid Annual Report
Financial Section                                                                     Notes to Principal Financial Statements


          Subsidy Expense

          William D. Ford Federal Direct Loan Program

                                         Direct Loan Program Subsidy Expense
                                                         (Dollars in Millions)

                                                                                     2009              2008
                 Components of Current Year Subsidy Transfers
                   Interest Rate Differential                                    $      (7,785)    $       (1,540)
                   Defaults, Net of Recoveries                                           1,070                454
                   Fees                                                                   (551)              (487)
                   Other                                                                 2,863              1,498
                 Current Year Subsidy Transfers                                         (4,403)                  (75)
                   Subsidy Re-estimates                                                 (5,200)               1,168
                   Loan Modification Costs                                                   -                4,143
                 Direct Loan Subsidy Expense                                     $      (9,603)    $          5,236



          For 2009 re-estimated subsidy cost, Direct Loan subsidy cost was decreased by $5.2 billion.
          Changes in the assumption for income-based repayments decreased subsidy cost by
          $3.7 billion. Rising default rates increased subsidy cost by $374 million, interest rate changes
          increased costs by $350 million, and changes in deferments and forbearance rates increased
          costs by $313 million. Other assumption updates produced offsetting costs with the remainder
          attributable to interest on the re-estimate. The subsidy rate is sensitive to interest rate
          fluctuations, for example, a 1 percent increase in projected borrower base rates would reduce
          projected Direct Loan subsidy cost by $455 million.

          In the 2008 re-estimates, Direct Loan subsidy cost was increased by $1.2 billion. Changes in
          interest rates increased subsidy cost by $859 million, updated data on teacher loan forgiveness
          led to an additional increase of $481 million, and rising default rates increased subsidy cost by
          $194 million. These increases were partially offset by decreases due to reduced prepayments of
          $(606) million and changes in the rate at which loans enter repayment of $(261) million. The
          subsidy rate is sensitive to interest rate fluctuations. For example, a 1 percent increase in
          projected borrower base rates would reduce projected Direct Loan subsidy cost by $465 million.




FY 2009                                                       - 88 -                   Federal Student Aid Annual Report
Financial Section                                                                      Notes to Principal Financial Statements


          Federal Family Education Loan Program

                                              FFEL Program Subsidy Expense
                                                          (Dollars in Millions)



                                                                                      2009               2008
                FFEL Guaranteed Loan Program
                    Components of Current Year Subsidy Transfers
                      Interest Supplement Costs                                   $        (632)    $        1,212
                      Defaults, Net of Recoveries                                          494                  43
                      Fees                                                               (3,495)              (449)
                      Other                                                              2,108                 436
                    Current Year Subsidy Transfers                                       (1,525)            1,242
                      Subsidy Re-estimates                                              (21,689)            (1,460)
                      Loan Modification Costs                                            (2,641)            (2,464)
                FFEL Guaranteed Loan Program Subsidy Expense                            (25,855)            (2,682)

                Temporary Loan Purchase Authority
                Loan Purchase Commitment
                    Components of Current Year Subsidy Transfers
                      Interest Supplement Costs                                          (3,157)                  (9)
                      Defaults, Net of Recoveries                                          102                     -
                      Fees                                                                 268                     2
                      Other                                                              1,179                     5
                    Current Year Subsidy Transfers                                       (1,608)                  (2)
                      Subsidy Re-estimates                                                 (245)                   -
                Loan Purchase Commitment Subsidy Expense                                 (1,853)                  (2)

                Loan Participation Purchase
                    Components of Current Year Subsidy Transfers
                      Interest Supplement Costs                                          (2,976)                (292)
                      Defaults, Net of Recoveries                                          (108)                   5
                      Fees                                                                 (811)                (476)
                      Other                                                                735                  595
                    Current Year Subsidy Transfers                                       (3,160)                (168)
                      Subsidy Re-estimates                                                 930                     -
                Loan Participation Purchase Subsidy Expense                              (2,230)                (168)


                ABCP Conduit
                    Components of Current Year Subsidy Transfers
                      Interest Supplement Costs                                              (6)                   -
                      Defaults, Net of Recoveries                                             1                    -
                      Fees                                                                   (3)                   -
                      Other                                                                   6                    -
                ABCP Conduit Subsidy Expense                                                 (2)                   -


                FFEL Program Subsidy Expense                                      $     (29,940)    $       (2,852)




FY 2009                                                       - 89 -                   Federal Student Aid Annual Report
Financial Section                                                                    Notes to Principal Financial Statements


          For 2009 re-estimated subsidy cost, FFEL Guaranteed subsidy cost was decreased by
          $21.7 billion. Interest rate changes related to updated economic assumptions accounted for
          approximately $18 billion in decreased subsidy cost. A $1.5 billion increase in subsidy cost
          related to changes in deferment and forbearance rates was offset by other changes in
          assumptions such as $966 million decreased cost for changes in repayment rates; loan volume
          changes produced a decreased subsidy cost of $790 million. Other assumption updates
          produced offsetting costs with the remainder attributable to interest on the re-estimate. The
          subsidy rate is 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
          costs by $16.4 billion.

          In the 2008 re-estimates, FFEL subsidy cost was decreased by $1.5 billion. Changes in interest
          rate forecasts decreased subsidy cost by $8.7 billion. This decrease was partially offset by
          increases of $4.4 billion due to reduced prepayments, $2.5 billion due to changes in projected
          guaranty agency retention of collections on defaulted loans, and $1.3 billion due to greater use
          of teacher loan forgiveness benefits. The subsidy rate is 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 costs by $16.3 billion.

          Subsidy Rates
          The subsidy rates applicable to the 2009 loan cohort year follow:
                                              Subsidy Rates—Cohort 2009
                                                           Interest
                                                         Differential/
                                                        Supplements      Defaults    Fees     Other       Total

                 Direct Loan Program                      (24.82%)        2.90%     (1.42%)   8.38%     (14.96%)
                 TEACH Program                            (15.44%)        0.56%     (0.00%)   11.24%     (3.64%)
                 FFEL Program (Post-1991):
                   Guaranteed Loan Program                 (2.47%)        0.24%     (2.12%)   1.36%      (2.99%)
                   Temporary Loan Purchase Authority:
                     Loan Purchase Commitment             (28.35%)        0.98%      2.33%    10.01%    (15.03%)
                     Loan Participation Purchase          (23.98%)        0.97%      0.94%    10.34%    (11.73%)
                     ABCP Conduit                          (6.92%)        0.00%     (5.30%)   6.78%      (5.44%)


          The subsidy rate represents the subsidy expense of the program in relation to the obligations or
          commitments made during the fiscal year. The subsidy expense for new direct or guaranteed
          loans reported in the current year relate to disbursements of loans from both current and prior
          years‘ cohorts. Subsidy expense is recognized when the Department disburses direct loans or
          third-party lenders disburse guaranteed loans. The subsidy expense reported in the current year
          also includes modifications and re-estimates. The subsidy rates shown above, which reflect
          aggregate negative subsidy in the FY 2009 cohort, cannot be applied to direct or guaranteed
          loans disbursed during the current reporting year to yield the subsidy expense, nor are these
          rates applicable to the portfolio as a whole.
          The 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

FY 2009                                                      - 90 -                  Federal Student Aid Annual Report
Financial Section                                                                                      Notes to Principal Financial Statements


          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.
          Administrative Expenses
          Administrative Expense for the years ended September 30, 2009 and 2008, consisted of the
          following:
                                                       Administrative Expense
                                                                  (Dollars in Millions)

                                                                2009                                               2008
                                                  Direct Loan                 FFEL                 Direct Loan
                                                   Program                  Program                 Program                   FFEL Program
                 Operating Expense            $            458          $            269       $            343           $            222
                 Other Expense                              23                            13                 14                             9

                 Administrative Expenses      $            481          $            282       $            357           $            231



          Note 7.        General Property, Plant and Equipment
          General Property, Plant and Equipment, as of September 30, 2009 and 2008, consisted of the
          following:
                                            General Property, Plant and Equipment
                                                                  (Dollars in Millions)

                                                                                                  2009
                                                                                               Accumulated                     Net Asset
                                                                             Cost              Depreciation                     Value

                 Information Technology, Internal Use Software
                 and Telecommunications Equipment                      $              112      $            (78)          $                34
                 Furniture and Fixtures                                                    2                 (2)                            -
                 General Property,
                 Plant and Equipment                                   $              114      $            (80)          $                34


                                                                                                      2008
                                                                                                   Accumulated                 Net Asset
                                                                             Cost                  Depreciation                 Value

                 Information Technology, Internal Use Software
                 and Telecommunications Equipment                      $              104      $            (61)          $                43
                 Furniture and Fixtures                                                    2                 (2)                            -
                 General Property,
                 Plant and Equipment                                   $              106      $            (63)          $                43


          The majority of the asset costs relate to financial management systems and other information
          technology and communications improvements.
          Leases
          Federal Student Aid leases information technology and telecommunications equipment as part
          of a contractor-owned contractor-operated services contract. Lease payments associated with
FY 2009                                                                - 91 -                          Federal Student Aid Annual Report
Financial Section                                                                                 Notes to Principal Financial Statements


          the equipment are classified as operating leases and as such are expensed as incurred. The
          non-cancelable lease term is one year, with the right to extend the lease term by exercising
          additional one-year options.

          Note 8.        Other Assets
          Other Assets (with the public) consist of payments made to grant recipients in advance of their
          expenditures and in-process invoices for interest benefits and special allowances for the FFEL
          Program. Other Assets (with the public) were $272 million and $37 million as of
          September 30, 2009 and 2008, respectively.


          Note 9.        Debt
          Debt as of September 30, 2009 and 2008 consisted of the following:

                                                                  Debt
                                                             (Dollars in Millions)

                                                                                         2009
                                                 Beginning    Accrued                  New                                Ending
                                                  Balance     Interest               Borrowing        Repayments          Balance
                 Treasury Debt
                 Direct Loan Program             $ 117,419   $           -       $       47,179       $   (10,380)    $    154,218
                 FFEL Program
                   Guaranteed Loan Program               -             12                 1,462                  -           1,474
                   Loan Purchase Commitment             69              -                24,811                (3)          24,877
                   Loan Participation Purchase      10,754              -                43,223                  -          53,977
                   ABCP Conduit                          -              -                   250                (6)             244
                 TEACH Program                          14              -                    56                (2)              68
                 Total                           $ 128,256   $         12        $      116,981       $   (10,391)    $    234,858


                                                                  Debt
                                                             (Dollars in Millions)

                                                                                         2008
                                                 Beginning    Accrued                  New                                Ending
                                                  Balance     Interest               Borrowing        Repayments          Balance
                 Treasury Debt
                 Direct Loan Program             $ 103,893   $           -       $       28,172       $   (14,646)    $ 117,419
                 FFEL Program
                   Guaranteed Loan Program               -               -                    -                 -             -
                   Loan Purchase Commitment              -               -                   69                  -           69
                   Loan Participation Purchase           -               -               10,754                 -        10,754
                   ABCP Conduit                          -               -                    -                  -            -
                 TEACH Program                           -               -                   26               (12)           14
                 Total                           $ 103,893   $           -       $       39,021       $   (14,658)    $ 128,256



          The amount available for repayments on borrowings to Treasury is derived from many factors.
          For instance, beginning of the year cash balances, collections and new borrowings have an
          impact on the cash available to repay Treasury. Cash is also held to cover future liabilities, such
          as contract collection costs and disbursements in transit.

FY 2009                                                       - 92 -                              Federal Student Aid Annual Report
Financial Section                                                                                                Notes to Principal Financial Statements




          Note 10.        Other Liabilities
          Other liabilities include current and non-current liabilities. The non-current liabilities primarily
          relate to the student loan receivables of the Federal Perkins Loan Program, which when
          collected, will be returned to the General Fund of Treasury.
          The current liabilities covered by budgetary resources primarily consist of negative subsidy
          transfers and downward subsidy re-estimates, which when executed will be paid to Treasury.
          Other Liabilities as of September 30, 2009 and 2008 consisted of the following:
                                                                 Other Liabilities
                                                                      (Dollars in Millions)

                                                                                              2009                             2008
                                                                            Intragovern-              With the        Intragovern-       With the
                                                                               mental                  Public            mental          Public
                 Liabilities Covered by Budgetary Resources
                    Current
                      Employer Contributions and Payroll Taxes               $            1          $           -    $        1      $             -
                      Liability for Deposit Funds                                             -                  8              -               8
                      Accrued Payroll and Benefits                                            -                  6              -               5
                      Deferred Revenue                                                        -            467                  -              42
                      Liabilities in Miscellaneous Receipt Accounts                11,209                        -         6,834                    -
                 Total Other Liabilities Covered by Budgetary
                 Resources                                                         11,210                  481             6,835               55
                 Liabilities Not Covered by Budgetary Resources
                    Current
                      Accrued Unfunded Annual Leave                                           -                  8              -               8
                    Non-current
                      Accrued Unfunded FECA Liability                                     1                      -             1                    -
                      Liabilities in Miscellaneous Receipt Accounts                    184                       -           186                    -
                      Accrued FECA Actuarial Liability                                        -                  5              -               4
                 Total Other Liabilities Not Covered by Budgetary
                 Resources                                                             185                  13               187               12

                 Other Liabilities                                           $     11,395         $        494        $    7,022     $         67



          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 totaled $198 million and $199 million as
          of September 30, 2009 and 2008, respectively.
          As of September 30, 2009 and 2008, liabilities on the Balance Sheet totaled $276.9 billion and
          $186.1 billion respectively. Of this amount, liabilities covered by budgetary resources totaled
          $276.7 billion as of September 30, 2009, and $185.9 billion as of September 30, 2008.




FY 2009                                                                  - 93 -                                  Federal Student Aid Annual Report
Financial Section                                                                            Notes to Principal Financial Statements


          Note 11.       Accrued Grant Liability
          Federal Student Aid‘s accrued grant liability was $1,929 million and $862 million as of
          September 30, 2009 and 2008, respectively. The $1,067 million increase from FY 2008 to
          FY 2009 includes $634 million accrued grant liability for Recovery Act funds administered by
          Federal Student Aid.

          Note 12.       Net Position
          Unexpended appropriations as of September 30, 2009 and 2008 consisted of the following:

                                                    Unexpended Appropriations
                                                               (Dollars in Millions)

                                                                                           2009               2008
                 Unobligated Balances
                   Available                                                           $      10,360     $         1,153
                   Not Available                                                                 533                 505
                 Undelivered Orders                                                           15,548              11,814
                 Authority Temporarily Precluded from Obligation                                 887                   -

                 Unexpended Appropriations                                             $      27,328     $        13,472


          Federal Student Aid had Cumulative Results of Operations of $(277) million as of September
          30, 2009, and $(6,273) million as of September 30, 2008. Cumulative Results of Operations
          consists mostly of unfunded upward subsidy re-estimates, other unfunded expenses, and net
          investments of capitalized assets.

          Note 13.       Intragovernmental Cost and Exchange Revenue by Program
          As required by the Government Performance and Results Act of 1993, Federal Student Aid‘s
          reporting organization has been aligned with Strategic Goal 3 presented in the U.S. Department
          of Education‘s Strategic Plan 2007—2012. Strategic Goal 3, Ensure the Accessibility,
          Affordability, and Accountability of Higher Education, and Better Prepare Students and Adults
          for Employment and Future Learning, is a sharply defined directive that guides divisions to carry
          out the vision and programmatic mission of Federal Student Aid.
          The goals of the Recovery Act are consistent with the Department‘s current Strategic Goals and
          programs. For reporting purposes, a new American Recovery and Reinvestment Act net cost
          program has been created.
          The following table presents Federal Student Aid's gross cost and exchange revenue by
          program for FY 2009 and FY 2008. Gross costs and earned revenue are classified as
          intragovernmental (exchange transactions between Federal Student Aid and other entities
          within the federal government) or with the public (exchange transactions between Federal
          Student Aid and non-federal entities).




FY 2009                                                            - 94 -                    Federal Student Aid Annual Report
Financial Section                                                                                      Notes to Principal Financial Statements



                                      Gross Cost and Exchange Revenue by Program
                                                               (Dollars in Millions)

                                                                                                      2009                      2008

                Ensure Accessibility, Affordability and Accountability of Higher Education and Career and Technical
                Advancement
                Intragovernmental Gross Cost                                                   $          10,079            $           6,903
                Public Gross Cost                                                                         (21,141)                     21,885
                    Total Gross Program Costs                                                             (11,062)                     28,788
                Intragovernmental Earned Revenue                                                           4,644                        4,128
                Public Earned Revenue                                                                      6,435                        4,901
                    Total Program Earned Revenue                                                          11,079                        9,029
                Total Program Cost                                                                        (22,141)                     19,759


                American Recovery and Reinvestment Act
                Intragovernmental Gross Cost                                                                    -                           -
                Public Gross Cost                                                                          7,572                            -
                    Total Gross Program Costs                                                              7,572                            -
                Intragovernmental Earned Revenue                                                                -                           -
                Public Earned Revenue                                                                           -                           -
                    Total Program Earned Revenue                                                                -                           -
                Total Program Cost                                                                         7,572                            -


                Net Cost of Operations                                                         $          (14,569)      $              19,759




          Note 14.       Interest Expense and Interest Revenue
          For FY 2009 and FY 2008, interest expense and interest revenue by program consisted of the
          following:
                                           Interest Expense and Interest Revenue
                                                             (Dollars in Millions)
                                                                                               2009
                                                                Expenses                                             Revenue
                                                                  Non-                                                 Non-
                                                   Federal                             Total           Federal                    Total
                                                                 federal                                              federal

                Direct Loan Program                $   7,094      $          -       $ 7,094          $      1,465   $ 5,629     $ 7,094
                FFEL Program
                  Guaranteed Loan Program                 32             337             369                   369          -        369
                  Loan Purchase Commitment               861               -             861                   563        298        861
                  Loan Participation Purchase          1,876               -           1,876                 1,410        466      1,876
                  ABCP Conduit                             6               -               6                     5          1          6
                TEACH Program                              2               -               2                     1          1          2
                Total                              $   9,871      $      337         $10,208          $      3,813    $ 6,395    $10,208




FY 2009                                                           - 95 -                               Federal Student Aid Annual Report
Financial Section                                                                         Notes to Principal Financial Statements


                                                                                   2008
                                                            Expenses                                  Revenue
                                                              Non-                                      Non-
                                                Federal                  Total            Federal                Total
                                                             federal                                   federal

                Direct Loan Program             $   6,190   $        -   $ 6,190          $   1,369   $ 4,821    $ 6,190
                FFEL Program
                  Guaranteed Loan Program               -      1,372       1,372              1,372          -     1,372
                  Loan Purchase Commitment              3          -           3                  3          -         3
                  Loan Participation Purchase         492          -         492                465         27       492
                  ABCP Conduit                          -          -           -                  -          -         -
                TEACH Program                           1          -           1                  1          -         1
                Total                           $   6,686    $ 1,372     $ 8,058          $   3,210    $ 4,848   $ 8,058


          Federal interest expense is recognized on the Department‘s outstanding debt. Non-federal
          interest revenue is earned on the individual loans and participation interests in FFEL loans.
          Federal interest revenue is earned on the uninvested fund balance with Treasury.

          Note 15.      Statement of Budgetary Resources
          The Statement of Budgetary Resources compares budgetary resources with the status of those
          resources. As of September 30, 2009, budgetary resources were $313,247 million and net
          outlays were $105,700 million. As of September 30, 2008, budgetary resources were $148,514
          million and net outlays were $45,715 million.
             Permanent Indefinite Budget Authority
          The Direct Loan, FFEL and TEACH Programs have permanent indefinite budget authority
          through legislation. Part D of the Direct Loan Program and Part B of the FFEL Program,
          pursuant to the HEA pertain to the existence, purpose and availability of this permanent
          indefinite budget authority.
             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 per congressional budgeting rules.




FY 2009                                                     - 96 -                        Federal Student Aid Annual Report
Financial Section                                                                             Notes to Principal Financial Statements


             Obligations Incurred by Apportionment Category
          Obligations incurred by apportionment category, as of September 30, 2009 and 2008, consisted
          of the following:


                                    Obligations Incurred by Apportionment Category
                                                           (Dollars in Millions)

                                                                                       2009                    2008
                 Direct
                   Category A                                                      $              766     $              707
                   Category B                                                                 289,236                117,665
                   Exempt from Apportionment                                                       79                      5

                 Obligations Incurred                                              $          290,081     $          118,377


          Category A apportionments are those resources that can be obligated 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, as of September 30, 2009 and 2008, consisted of the following:


                                               Unused Borrowing Authority
                                                       (Dollars in Millions)

                                                                                       2009                   2008
              Beginning Balance, Unused Borrowing Authority                        $     25,650           $      8,915
              Current Year Borrowing Authority                                          200,214                 57,743
              Funds Drawn From Treasury                                                (116,981)               (39,021)
              Borrowing Authority Withdrawn                                              (2,736)                (1,987)

              Ending Balance, Unused Borrowing Authority                           $    106,147           $     25,650


          Federal Student Aid is given authority to draw funds from Treasury to finance the Direct Loan
          Program, the TEACH Program and activities under the temporary loan purchase authority.
          Unused Borrowing Authority is a budgetary resource and is available to support obligations.
          Federal Student Aid periodically reviews its borrowing authority balances in relation to its
          obligations and may cancel unused amounts.




FY 2009                                                       - 97 -                           Federal Student Aid Annual Report
Financial Section                                                                        Notes to Principal Financial Statements


             Undelivered Orders at the End of the Period
          Undelivered orders, as of September 30, 2009 and 2008, consisted of the following:


                                                  Undelivered Orders
                                                      (Dollars in Millions)

                                                                                  2009                    2008
                 Budgetary                                                    $       15,513        $            11,839
                 Non-Budgetary                                                       132,278                     40,338

                 Undelivered Orders (Unpaid)                                  $      147,791        $            52,177


          Undelivered orders at the end of the period, as presented above, will differ from the undelivered
          orders included in the Net Position, Unexpended Appropriations. Undelivered orders for federal
          credit financing and liquidating funds are not funded through appropriations and are not included
          in Net Position. (See Note 12)

             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 general fund
          receipt accounts for downward re-estimates and negative subsidies. In FY 2008 and prior,
          Federal Student Aid reported these collections as non-budgetary on the SBR. Beginning
          FY 2009, Federal Student Aid reclassified these collections as budgetary on the SBR. Although
          practice varies, this change was made to better align the Federal Student Aid‘s presentation of
          its credit activities with guidance provided by OMB and Treasury.

             Explanation of Differences Between the Statement of Budgetary Resources and the
             Budget of the United States Government
          Budgetary accounting as shown in 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 Funds 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 are
          estimated and disclosed in the President‘s Budget to approximate the gross activities of the
          combined Federal Funds. Amounts reported on the FY 2008 Statement of Budgetary Resources
          for the Federal Fund are compiled through combining all guaranty agencies‘ annual reports to
          determine a net valuation amount for the Federal Fund.

          Note 16.      Reconciliation of Net Cost of Operations to Budget
          The Reconciliation of Net Cost of Operations (proprietary) to Budget provides information on
          how budgetary resources obligated during the period relate to the net cost of operations. The
          schedule presented in this note reconciles budgetary resources with the net cost of operations
          by (1) removing resources that do not fund net cost of operations and (2) including components
          of net cost of operations that did not generate or use resources during the year.


FY 2009                                                  - 98 -                          Federal Student Aid Annual Report
Financial Section                                                                            Notes to Principal Financial Statements


          Components Requiring or Generating Resources in Future Periods primarily result from subsidy
          re-estimates that will be executed in future periods. The Reconciliation of Net Cost of
          Operations to Budget as of September 30, 2009 and 2008, are presented below:


                                     Reconciliation of Net Cost of Operations to Budget
                                                                (Dollars in Millions)

                Resources Used to Finance Activities                                             2009            2008
                   Obligations Incurred                                                      $   (290,081)   $   (118,377)
                   Spending Authority from Offsetting Collections and Recoveries                   55,511          39,710
                   Offsetting Receipts                                                             31,646           5,778
                   Imputed Financing from Costs Absorbed by Others                                     (9)             (8)
                 Total Resources Used to Finance Activities                                      (202,933)        (72,897)
                 Resources Used to Finance Items Not Part of Net Cost of Operations
                   Change in Budgetary Resources Obligated for Goods, Services and
                   Benefits Ordered but Not Yet Provided (+/-)                                    (95,775)        (27,062)
                   Resources that Fund Expenses Recognized in Prior Period                          1,091          (1,104)
                   Credit Program Collections which Increase/Decrease Liabilities for Loan
                   Guarantees, or Credit Program Receivables, Net including Allowances
                   for Subsidy                                                                    39,460          29,692
                   Resources Used to Finance the Acquisition of Fixed Assets, or
                   Increase/Decrease Liabilities for Loan Guarantees or Credit Program
                   Receivables, Net in the Current or Prior Period                               (147,641)        (51,678)
                 Total Resources Used to Finance Items Not Part of the Net Cost of
                 Operations                                                                      (202,865)        (50,152)
                 Components Not Requiring or Generating Resources
                   Depreciation and Amortization                                                     330             (451)
                   Other (+/-)                                                                       448              290
                 Total Components of the Net Cost of Operations that Will Not Require
                 or Generate Resources                                                               778            (161)
                 Components Requiring or Generating Resources in Future Periods
                   Upward/Downward Re-estimates of Credit Subsidy Expense                         10,883             513
                   Increase in Exchange Revenue Receivable from the Public                         2,957           2,607
                   Other (+/-)                                                                        19              27
                 Total Components of the Net Cost of Operations that Will Require or
                 Generate Resources in Future Periods                                             13,859           3,147

                 Net Cost of Operations                                                      $    14,569     $    (19,759)




FY 2009                                                            - 99 -                    Federal Student Aid Annual Report
Financial Section                                                                                      Notes to Principal Financial Statements



          Note 17.        American Recovery and Reinvestment Act of 2009
          The Recovery Act provided $17,374 million for student aid administration and student financial
          assistance programs managed and administered by Federal Student Aid. Of this amount, $831
          million will be available in FY 2010. As of September 30, 2009, Recovery Act funding
          administered by Federal Student Aid consisted of the following:

                                       American Recovery and Reinvestment Act of 2009
                                                                     (Dollars in Millions)


                                                                         Appropriations              Obligations                Outlays
                 Student Financial Assistance*                           $       16,483          $          8,697         $          6,904
                 Student Aid Administration                                          60                        29                        1
                 Total                                                   $           16,543      $         8,726          $          6,905


                 *$831 million will be made available in FY 2010, resulting in total Recovery Act funding of $17,374 million.


          Student Financial Assistance. The Recovery Act continues the Department‘s goal of making
          college affordable by providing $16,483 million for student financial assistance programs. This
          funding included $15,640 million in additional Pell Grant authority for low and middle-income
          undergraduate students and an additional $643 million was provided to increase the per grant
          amount by $490 to $5,350 per year. Also, $200 million was made available in the federal work
          study program for grants to eligible students to help finance their education through part-time
          employment. As of September 30, 2009, Recovery Act funding for student financial assistance
          consisted of the following:

                                                       Student Financial Assistance
                                                                     (Dollars in Millions)


                                                                         Appropriations            Obligations             Outlays
                 Federal Pell Grants                                     $       15,640          $        7,854          $      6,300
                 Mandatory Add-on to Pell Grant                                     643                     643                   549
                 Federal Work-Study Grants                                          200                     200                    55
                 Total                                                   $       16,483          $        8,697          $      6,904


          Student Aid Administration. The Recovery Act funding provided $60 million towards
          increasing the number of Title IV student loan servicing vehicles and improving operational
          performance to collect and deliver loan and grant data between program participants and the
          system. As of September 30, 2009, there were $29 million in obligations and $1 million in
          outlays.

          Note 18.        Contingencies
             Guaranty Agencies
          Federal Student Aid can assist guaranty agencies experiencing financial difficulties by various
          means. No provision has been made in the principal statements for potential liabilities related to
          financial difficulties of guaranty agencies because the likelihood of such occurrences cannot be
          estimated with sufficient reliability.

FY 2009                                                               - 100 -                           Federal Student Aid Annual Report
Financial Section                                                                Notes to Principal Financial Statements


             Federal Perkins Loan Program Reserve Funds
          The Federal Perkins Loan Program is a campus-based program providing financial assistance
          to eligible postsecondary school students. In FY 2009, the Department provided funding of
          82.4 percent of the capital used to make loans to eligible students through participating schools
          at 5 percent interest. The schools provided the remaining 17.6 percent of program funding. For
          the latest academic year ended June 30, 2009, approximately 494 thousand loans were made,
          totaling approximately $954.8 million at 1,607 institutions, averaging $1,934 per loan. The
          Department‘s share of the Federal Perkins Loan Program was approximately $6.5 billion as of
          June 30, 2009.
          In FY 2008, the Department provided funding of 83.01 percent of the capital used to make loans
          to eligible students through participating schools at 5 percent interest. The schools provided the
          remaining 16.99 percent of program funding. For the academic year ended June 30, 2008,
          approximately 648 thousand loans were made, totaling approximately $1.4 billion at 1,625
          institutions, averaging $2,121 per loan. The Department‘s share of the Federal Perkins Loan
          Program was approximately $6.5 billion as of June 30, 2008.
          Federal Perkins Loan Program borrowers who meet statutory eligibility requirements—such as
          service as a teacher in low-income areas, as a Peace Corps or VISTA volunteer, in the military
          or in law enforcement, in nursing or in family services—may receive partial loan forgiveness for
          each year of qualifying service. In these circumstances, a contingency is deemed to exist.
          Federal Student Aid may be required to compensate Federal Perkins Loan Program institutions
          for the cost of the partial loan forgiveness. Payments required under the Federal Perkins Loan
          partial forgiveness statutes do not have a material effect on Federal Student Aid‘s financial
          statements.
             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
          Federal Student Aid‘s financial position.
             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 Federal Student Aid‘s financial position.




FY 2009                                                  - 101 -                 Federal Student Aid Annual Report
Financial Section                                                          Required Supplementary Stewardship Information




              Required Supplementary Stewardship Information

              Investment in Human Capital
              Human Capital investments are those expenses included in net cost for general public
              education and training programs that are intended to increase or maintain national
              economic productive capacity.

              Expenses incurred for human capital investments consisted of the following for FY 2009
              and the preceding four years:

                                          Summary of Human Capital Expenses
                                                  (Dollars in Millions)
                                             2009           2008        2007                   2006          2005
           Federal Student Aid
           Expense
            Direct Loan Subsidy            $ (9,603)    $    5,236     $        (499)   $       6,655   $     5,211
            FFEL Program Subsidy             (29,940)       (2,852)            4,884           28,062         9,863
            Recovery Act                       7,571
            Grant Programs                    17,302        17,464            15,092           15,447        15,070
            Salaries and Administrative          186           189               173              172           164
           Total                           $ (14,484)   $   20,037     $      19,650    $     $50,336   $   $30,308


              The Direct Loan Program is a direct-lending program in which loan capital is provided to
              students by the federal government through borrowings from Treasury.

              The FFEL Loan Program operates with state and private nonprofit guarantee agencies
              to provide loan guarantees and interest supplements through permanent budget
              authority on loans by private lenders to eligible students and parents of students. The
              FFEL Loan Program expenses include the Loan Participation Purchase and Loan
              Purchase Commitment expenses of $(2,230) million and $(1,853) million respectively.

              In 2008 the ECASLA was enacted to ensure credit market disruptions did not deny
              eligible students and parents access to federal student loans for the 2008–09 academic
              year. The ECASLA authority, which originally expired on September 30, 2009, was
              subsequently extended through September 30, 2010, to continue to ensure unfettered
              access to loans through the 2009–10 academic year. The programs authorized under
              ECASLA are:

                 Loan Participation and Loan Purchase Programs. Under these programs, lenders
                  may access capital by either selling eligible FFEL loans directly to the Department or
                  by selling the Department participation interests in eligible FFEL loans. Participating
                  lenders represent to the Department that they will continue to participate in the FFEL
                  Program and that when funds become reasonably available from private sources on
                  affordable terms, they will originate new loans or acquire new loans made by other
                  lenders. Under the Loan Participation Purchase Program, the Department offered to
                  purchase through September 30, 2009, ―participation interests‖ in pools of FFEL
                  loans made for the 2008–09 academic year. By October 15, 2009, lenders must
                  have either redeemed those loans or sold them outright to the Department. For

    FY 2009                                                  - 102 -                        Federal Student Aid Annual Report
Financial Section                                                      Required Supplementary Stewardship Information


                  participation interests on loans made for the 2009–10 academic year, the deadline
                  for redemption is September 30, 2010.

                 Short-Term Loan Purchase Program. From December 2008 through March 2009,
                  the Department offered to purchase loans made for the 2007–08 academic year.

                 Asset-Backed Commercial Paper Conduit Program. The Asset-Backed
                  Commercial Paper Conduit Program was developed to provide additional liquidity to
                  support new lending. Under this program, which began operations mid 2009, the
                  Department entered into forward purchase commitments with a conduit. The conduit
                  issues commercial paper backed by qualifying student loans made between October
                  2003 and September 2009. If the conduit is unable to retire this paper as it matures,
                  the Department commits to provide the needed funds by purchasing the underlying
                  student loans.

              The TEACH program, authorized by the CCRAA, awards annual grants to students who
              agree to teach in a high-need subject area in a public or private elementary or secondary
              school that serves low-income students. If the students do not satisfy their agreement to
              serve, the grants are converted to Direct Unsubsidized Loans.

              The Recovery Act provides funding for improving schools, raising students‘
              achievement, driving reform and producing better results for children and young people
              for the long term health of the nation. The Recovery Act continues the Department‘s goal
              of making college affordable by providing additional Pell Grant authority for low and
              middle-income undergraduate students and increasing the amount of grants available as
              part of the FWS program.

              Grant programs include the Pell Grant Program that awards direct grants through
              participating institutions to undergraduate students with financial need. Participating
              institutions either credit the appropriated funds to the student‘s school account or pay the
              student directly once per term. Signed into law in 2006, the ACG and the SMART
              Programs are available to encourage eligible students to take more challenging courses
              in high school and to pursue college majors in high demand in the global economy.

              Federal Student Aid‘s programs link with the overall initiatives of the Department in
              enhancing education – a fundamental stepping-stone to higher living standards for
              American citizens. While education is vital to national economic growth, education‘s
              contribution is more than increased productivity and incomes. Education improves
              health, promotes social change and opens doors to a better future for children and
              adults.

              In the past, economic outcomes, such as wage and salary levels, historically have been
              determined by the educational attainment of individuals and the skills employers expect
              of those entering the labor force. Both individuals and society as a whole continue to
              place increased emphasis on educational attainment as the workplace has become
              increasingly technological and employers now seek employees with the highest level of
              skills. For prospective employees, the focus on higher-level skills means investing in
              learning or developing skills through education. Like all investments, developing higher-
              level skills involves costs and benefits.


    FY 2009                                                  - 103 -                 Federal Student Aid Annual Report
Financial Section                                                     Required Supplementary Stewardship Information


              Returns, or benefits, of investing in education come in many forms. While some returns
              accrue for the individual, others benefit society and the nation in general. Returns related
              to the individual include higher earnings, better job opportunities and jobs that are less
              sensitive to general economic conditions. Returns related to the economy and society
              includes reduced reliance on welfare subsidies, increased participation in civic activities
              and greater productivity.

              Over time, the returns of developing skills through education have become evident.
              Statistics illustrate the rewards of investing in postsecondary education.




    FY 2009                                                 - 104 -                  Federal Student Aid Annual Report
Financial Section                                                                                           Required Supplementary Information



              Required Supplementary Information

                                                    United States Department of Education
                                                           Federal Student Aid
                                               Combining Statement of Budgetary Resources
                                                       For the Year Ended September 30, 2009
                                                                        (Dollars in Millions)


                                                                                                                           American Recovery and
                                                                                                Combined                     Reinvestment Act

                                                                                                   Non-Budgetary                 Non-Budgetary
                                                                                                   Credit Reform                 Credit Reform
                                                                                                     Financing                     Financing
                                                                                  Budgetary          Accounts          Budgetary   Accounts
              Budgetary Resources:
              Unobligated balance, brought forward, October 1                     $      3,620        $     26,517     $               $
              Recoveries of prior year Unpaid Obligations                                  398               8,035
              Budgetary Authority:
                  Appropriations                                                        41,960                 130          16,543
                  Borrowing Authority (Note 15)                                                            200,214
                  Spending authority from offsetting collections (gross):
                    Earned
                      Collected                                                          1,569              45,512
                      Change in Receivables from Federal Sources                                                (3)
                  Subtotal                                                        $     43,529        $    245,853     $    16,543     $
              Temporarily not available pursuant to Public Law                            (887)                   0               0                0
              Permanently not available                                                   (688)            (13,130)
              Total Budgetary Resources (Note 15)                                 $     45,972        $    267,275     $     16,543    $           0

              Status of Budgetary Resources:
              Obligations incurred: Direct (Note 15)                              $     32,496        $    257,585     $     8,726     $
              Unobligated Balances: Apportioned                                         10,376                 474           7,817
              Unobligated Balance not available                                          3,100               9,216
              Total Status of Budgetary Resources                                 $     45,972        $    267,275     $    16,543     $           0

              Change in Obligated Balance:
              Obligated balance, net: Unpaid obligations, brought forward,
              October 1                                                           $     12,927        $      41,157    $               $
              Obligation Incurred, net (+/-)                                            32,496              257,585           8,726
              Gross Outlays                                                            (27,295)            (157,132)         (6,905)
              Recoveries of prior year unpaid obligations, actual                         (398)              (8,035)
              Change in uncollected customer payments from Federal
              Sources (+/-)                                                                                      3                             (0)
                                                                                  $     17,730        $    133,578     $     1,821     $        0
              Obligated Balance, net, end of period:
                  Unpaid Obligations                                              $     17,730        $    133,575     $     1,821     $
                  Uncollected customer payments from Federal Sources                                             3                             (0)
              Total, unpaid obligated balance, net, end of period                 $     17,730        $    133,578     $     1,821     $        0

              Net Outlays:
                  Gross Outlays                                                   $     27,295        $    157,132     $     6,905     $
                  Offsetting collections                                                (1,569)            (45,512)
                  Distributed Offsetting receipts                                      (31,646)                   0
              Net Outlays (Note 15)                                               $     (5,920)       $    111,620     $     6,905     $           0




    FY 2009                                                                 - 105 -                           Federal Student Aid Annual Report
Financial Section                                                                                          Required Supplementary Information



                                          United States Department of Education
                                                 Federal Student Aid
                                     Combining Statement of Budgetary Resources
                                             For the Year Ended September 30, 2009
                                                              (Dollars in Millions)


                                                                                                                Direct Student Loan
                                                                            Non ARRA Combined                         Program

                                                                                        Non-Budgetary                  Non-Budgetary
                                                                                        Credit Reform                  Credit Reform
                                                                                          Financing                      Financing
                                                                        Budgetary         Accounts           Budgetary   Accounts
    Budgetary Resources:
    Unobligated balance, brought forward, October 1                     $      3,620       $    26,517      $       36     $       672
    Recoveries of prior year Unpaid Obligations                                  398             8,035                           7,528
    Budgetary Authority:
        Appropriations                                                        25,417               130           1,386
        Borrowing Authority (Note 15)                                                          200,214                          46,082
        Spending authority from offsetting collections (gross):
          Earned
            Collected                                                          1,569            45,512                          13,710
            Change in Receivables from Federal Sources                                              (3)
        Subtotal                                                        $     26,986       $   245,853      $    1,386     $    59,792
    Temporarily not available pursuant to Public Law                            (887)                 0               0               0
    Permanently not available                                                   (688)          (13,130)                        (13,119)
    Total Budgetary Resources (Note 15)                                 $     29,429       $   267,275      $    1,422     $    54,873

    Status of Budgetary Resources:
    Obligations incurred: Direct (Note 15)                              $     23,770       $   257,585      $    1,386     $    53,750
    Unobligated Balances: Apportioned                                          2,559               474                              92
    Unobligated Balance not available                                          3,100             9,216              36           1,031
    Total Status of Budgetary Resources                                 $     29,429       $   267,275      $    1,422     $    54,873

    Change in Obligated Balance:
    Obligated balance, net: Unpaid obligations, brought forward,
    October 1                                                           $     12,927       $     41,157     $              $    20,433
    Obligation Incurred, net (+/-)                                            23,770            257,585          1,386          53,750
    Gross Outlays                                                            (20,390)          (157,132)        (1,386)        (51,037)
    Recoveries of prior year unpaid obligations, actual                         (398)            (8,035)                        (7,528)
    Change in uncollected customer payments from Federal
    Sources (+/-)                                                                                    3                              (0)
                                                                        $     15,909       $   133,578      $       0      $    15,618
    Obligated Balance, net, end of period:
        Unpaid Obligations                                              $     15,909       $   133,575      $              $    15,618
        Uncollected customer payments from Federal Sources                                           3                              (0)
    Total, unpaid obligated balance, net, end of period                 $     15,909       $   133,578      $       0      $    15,618

    Net Outlays:
        Gross Outlays                                                   $     20,390       $   157,132      $    1,386     $    51,037
        Offsetting collections                                                (1,569)          (45,512)                        (13,710)
        Distributed Offsetting receipts                                      (31,646)                 0         (5,670)
    Net Outlays (Note 15)                                               $    (12,825)      $   111,620      $   (4,284)    $    37,327




    FY 2009                                                                  - 106 -                        Federal Student Aid Annual Report
Financial Section                                                                                            Required Supplementary Information



                                                    United States Department of Education
                                                           Federal Student Aid
                                               Combining Statement of Budgetary Resources
                                                       For the Year Ended September 30, 2009
                                                                        (Dollars in Millions)


                                                                                                                           Federal Family Education
                                                                                       Teach Grant Program                      Loan Program

                                                                                                      Non-Budgetary              Non-Budgetary
                                                                                                      Credit Reform              Credit Reform
                                                                                                        Financing                  Financing
                                                                                  Budgetary             Accounts       Budgetary   Accounts
              Budgetary Resources:
              Unobligated balance, brought forward, October 1                     $                      $        2    $      1,955      $    25,843
              Recoveries of prior year Unpaid Obligations                                       7                 8               7              499
              Budgetary Authority:
                  Appropriations                                                                                              1,062              130
                  Borrowing Authority (Note 15)                                                                  84                          154,048
                  Spending authority from offsetting collections (gross):
                    Earned
                      Collected                                                                                   2           1,569           31,800
                      Change in Receivables from Federal Sources                                                                                  (3)
                  Subtotal                                                        $             0        $       86    $      2,631      $   185,975
              Temporarily not available pursuant to Public Law                                                     0               0                0
              Permanently not available                                                                          (2)           (662)              (9)
              Total Budgetary Resources (Note 15)                                 $             7        $       94    $       3,931     $   212,308

              Status of Budgetary Resources:
              Obligations incurred: Direct (Note 15)                              $                      $       94    $      1,351      $   203,741
              Unobligated Balances: Apportioned                                                                                  16              382
              Unobligated Balance not available                                                 7                             2,564            8,185
              Total Status of Budgetary Resources                                 $             7        $       94    $      3,931      $   212,308

              Change in Obligated Balance:
              Obligated balance, net: Unpaid obligations, brought forward,
              October 1                                                           $             7        $       13    $          24     $     20,711
              Obligation Incurred, net (+/-)                                                                     94            1,351          203,741
              Gross Outlays                                                                                     (52)          (1,345)        (106,043)
              Recoveries of prior year unpaid obligations, actual                               (7)              (8)              (7)            (499)
              Change in uncollected customer payments from Federal
              Sources (+/-)                                                                                                                         3
                                                                                  $             0        $       47    $         23      $   117,913
              Obligated Balance, net, end of period:
                  Unpaid Obligations                                              $                      $       47    $         23      $   117,910
                  Uncollected customer payments from Federal Sources                                                                             (03)
              Total, unpaid obligated balance, net, end of period                 $             0        $       47    $         23      $   117,913

              Net Outlays:
                  Gross Outlays                                                   $                      $       52    $       1,345     $   106,043
                  Offsetting collections                                                                         (2)          (1,569)        (31,800)
                  Distributed Offsetting receipts                                               (2)                0         (25,950)
              Net Outlays (Note 15)                                               $             (2)      $       50    $     (26,174)    $    74,243




    FY 2009                                                                 - 107 -                           Federal Student Aid Annual Report
Financial Section                                                                                       Required Supplementary Information



                                          United States Department of Education
                                                 Federal Student Aid
                                     Combining Statement of Budgetary Resources
                                             For the Year Ended September 30, 2009
                                                              (Dollars in Millions)



                                                                                 Grant Programs              Administrative Funds

                                                                                        Non-Budgetary               Non-Budgetary
                                                                                        Credit Reform               Credit Reform
                                                                                          Financing                   Financing
                                                                        Budgetary         Accounts        Budgetary   Accounts
    Budgetary Resources:
    Unobligated balance, brought forward, October 1                     $      1,626       $             $        3      $
    Recoveries of prior year Unpaid Obligations                                  338                             46
    Budgetary Authority:
        Appropriations                                                        22,216                            753
        Borrowing Authority (Note 15)
        Spending authority from offsetting collections (gross):
          Earned
            Collected
            Change in Receivables from Federal Sources
        Subtotal                                                        $     22,216       $             $      753      $
    Temporarily not available pursuant to Public Law                            (887)               0               0                0
    Permanently not available                                                    (25)                             (1)
    Total Budgetary Resources (Note 15)                                 $     23,268       $       0     $       801     $          0

    Status of Budgetary Resources:
    Obligations incurred: Direct (Note 15)                              $     20,296       $             $      737      $
    Unobligated Balances: Apportioned                                          2,480                             63
    Unobligated Balance not available                                            492                              1
    Total Status of Budgetary Resources                                 $     23,268       $       0     $      801      $          0

    Change in Obligated Balance:
    Obligated balance, net: Unpaid obligations, brought forward,
    October 1                                                           $     12,500       $             $      396      $
    Obligation Incurred, net (+/-)                                            20,296                            737
    Gross Outlays                                                            (16,891)                          (768)
    Recoveries of prior year unpaid obligations, actual                         (338)                           (46)
    Change in uncollected customer payments from Federal
    Sources (+/-)
                                                                        $     15,567       $       0     $      319      $          0
    Obligated Balance, net, end of period:
        Unpaid Obligations                                              $     15,567       $             $      319      $
        Uncollected customer payments from Federal Sources                                                                          (0)
    Total, unpaid obligated balance, net, end of period                 $     15,567       $       0     $      319      $           0

    Net Outlays:
        Gross Outlays                                                   $     16,891       $             $      768      $
        Offsetting collections
        Distributed Offsetting receipts                                          (24)               0
    Net Outlays (Note 15)                                               $     16,867       $       0     $      768      $          0




    FY 2009                                                                  - 108 -                     Federal Student Aid Annual Report
Financial Section                                                                    Other Accompanying Information




              Other Accompanying Information

              Management Challenges

              For details on Federal Student Aid Management Challenges, please refer to relevant
              items included in the Management Challenges for FY 2010 narrative in the Management
              Discussion and Analysis section in the Department‘s AFR located at
              http://www.ed.gov/about/reports/annual/index.html.

              Summary of Financial Statement Audit and Management Assurances

              For details on Federal Student Aid programs, please refer to the Management‘s
              Assurance in the Management Discussion and Analysis "Analysis of Federal Student
              Aid's Systems, Controls and Legal Compliance" section of this document as well as the
              Summary of Financial Statement Audit and Management Assurance narrative in the
              Other Accompanying Information section in the Department‘s AFR located at
              http://www.ed.gov/about/reports/annual/index.html.


              Improper Payment Information Act of 2002 Reporting Details

              For improper payments information, Federal Student Aid‘s activities are part of an overall
              Department integrated reporting effort. Please refer to the Improper Payment Information
              Act of 2002 narrative in the Other Accompanying Information section in the Department's
              AFR located at http://www.ed.gov/about/reports/annual/index.html.




    FY 2009                                                - 109 -                 Federal Student Aid Annual Report
Financial Section              Other Accompanying Information




    FY 2009         - 110 -   Federal Student Aid Annual Report
Office of Inspector General Transmittal Letter



              Office of Inspector General Transmittal Letter




    FY 2009                                      - 111 -       Federal Student Aid Annual Report
Office of Inspector General Transmittal Letter




    FY 2009                                      - 112 -   Federal Student Aid Annual Report
Office of Inspector General Transmittal Letter




    FY 2009                                      - 113 -   Federal Student Aid Annual Report
Office of Inspector General Transmittal Letter




    FY 2009                                      - 114 -   Federal Student Aid Annual Report
Report of Independent Auditors



             Report of Independent Auditors




   FY 2009                                - 115 -   Federal Student Aid Annual Report
Report of Independent Auditors




   FY 2009                       - 116 -   Federal Student Aid Annual Report
Report of Independent Auditors




   FY 2009                       - 117 -   Federal Student Aid Annual Report
Report of Independent Auditors




   FY 2009                       - 118 -   Federal Student Aid Annual Report
Report on Internal Control



              Report on Internal Control




    FY 2009                                - 119 -   Federal Student Aid Annual Report
Report on Internal Control




    FY 2009                  - 120 -   Federal Student Aid Annual Report
Report on Internal Control




    FY 2009                  - 121 -   Federal Student Aid Annual Report
Report on Internal Control




    FY 2009                  - 122 -   Federal Student Aid Annual Report
Report on Internal Control




    FY 2009                  - 123 -   Federal Student Aid Annual Report
Report on Internal Control




    FY 2009                  - 124 -   Federal Student Aid Annual Report
Report on Internal Control




    FY 2009                  - 125 -   Federal Student Aid Annual Report
Report on Internal Control




    FY 2009                  - 126 -   Federal Student Aid Annual Report
Report on Internal Control




    FY 2009                  - 127 -   Federal Student Aid Annual Report
Report on Internal Control




    FY 2009                  - 128 -   Federal Student Aid Annual Report
Report on Internal Control




    FY 2009                  - 129 -   Federal Student Aid Annual Report
Report on Internal Control




    FY 2009                  - 130 -   Federal Student Aid Annual Report
Report on Compliance with Laws and Regulations



              Report on Compliance with Laws and Regulations




    FY 2009                                      - 131 -   Federal Student Aid Annual Report
Report on Compliance with Laws and Regulations




    FY 2009                                      - 132 -   Federal Student Aid Annual Report
Report on Compliance with Laws and Regulations




    FY 2009                                      - 133 -   Federal Student Aid Annual Report
Report on Compliance with Laws and Regulations




    FY 2009                                      - 134 -   Federal Student Aid Annual Report
Report on Compliance with Laws and Regulations




    FY 2009                                      - 135 -   Federal Student Aid Annual Report
Report on Compliance with Laws and Regulations




    FY 2009                                      - 136 -   Federal Student Aid Annual Report
Management’s Response



            Management’s Response




  FY 2009                           - 137 -   Federal Student Aid Annual Report
Management’s Response




  FY 2009               - 138 -   Federal Student Aid Annual Report
Management’s Response




  FY 2009               - 139 -   Federal Student Aid Annual Report
Management’s Response




  FY 2009               - 140 -   Federal Student Aid Annual Report
Glossary of Acronyms and Terms



             Glossary of Acronyms and Terms




   FY 2009                               - 141 -   Federal Student Aid Annual Report
Glossary of Acronyms and Terms




   FY 2009                       - 142 -   Federal Student Aid Annual Report
Glossary of Acronyms and Terms



                   Acronym                         Description

                 ABCP                Asset-Backed Commercial Paper
                 ACG                 Academic Competitiveness Grant
                 ACSI                American Customer Satisfaction Index
                 AFR                 Agency Financial Report
                 Caucus              Student Loan Ombudsman Caucus
                 CCRAA               College Cost Reduction and Access Act of 2007
                 CDR                 National Cohort Default Rate
                 CLTDR               Cumulative Lifetime Default Rate
                 CPS-FAA             Central Processing System - Financial Aid Administrator
                 Credit Reform Act   Federal Credit Reform Act of 1990
                 CSRS                Civil Service Retirement System
                 DMCS                Debt Management Collection System
                 Department          U.S. Department of Education
                 Direct Loan         William D. Ford Federal Direct Loan
                 DOL                 U.S. Department of Labor
                 ECASLA              Ensuring Continued Access to Student Loans Act of 2008
                 EDSS                Enterprise Development Support Services
                 ELT                 Eligible Lender Trustee
                 ESB                 Enterprise Services Bus
                 FAFSA               Free Application for Federal Student Aid
                 FBI                 Federal Bureau of Investigation
                 FECA                Federal Employees‘ Compensation Act
                 Federal Fund        Federal Student Loan Reserve Fund
                 FERS                Federal Employees Retirement System
                 FFEL                Federal Family Education Loan
                 FMFIA               Federal Managers’ Financial Integrity Act
                 FOTW                FAFSA on the Web
                 FSEOG               Federal Supplemental Educational Opportunity Grant
                 FWS                 Federal Work-Study
                 FY                  Fiscal Year
                 GAO                 Government Accountability Office
                 HEA                 Higher Education Act of 1965, as amended
                 HEOA                Higher Education Opportunity Act of 2008
                 HERA                Higher Education Reconciliation Act of 2005
                 IPM                 Integrated Partner Management
                 IRS                 Internal Revenue Service
                 IT                  Information Technology
                 LEAP                Leveraging Educational Assistance Partnership
                 NA                  Data is not available
                 NSLDS               National Student Loan Data System




   FY 2009                                          - 143 -               Federal Student Aid Annual Report
Glossary of Acronyms and Terms



                  Acronym                      Description

                 OCTS            Ombudsman Case Tracking System
                 OMB             Office of Management and Budget
                 OPM             Office of Personnel Management
                 Opinion         Report of Independent Auditors
                 Pell Grant      Federal Pell Grant
                 P.L.            Public Law
                 P/PM            Project and Program Management
                 PLUS            Parent Loan for Undergraduate Students
                 PM              Measured performance, standards and/or targets were not
                                 established
                 PMA             President's Management Agenda
                 PBO             Performance-Based Organization
                 PRMS/PIN-R      Person Record Management System and Personal
                                 Identification Number Reengineering
                 Recovery Act    American Recovery and Reinvestment Act of 2009
                 SAP             Special Allowance Payment
                 SLEAP           Special Leveraging Educational Assistance Partnership
                 SMART           National Science and Mathematics Access to Retain
                                 Talent Grant
                 T               Measure was replaced or discontinued
                 TEACH           Teacher Education Assistance for College and Higher
                                 Education Grant
                 Title IV        Title IV of the Higher Education Act of 1965, as amended
                 TPD             Total and Permanent Disability
                 Treasury        U.S. Department of the Treasury
                 U.S.            United States
                 U.S.C.          United States Code




   FY 2009                                      - 144 -               Federal Student Aid Annual Report
Availability of Federal Student Aid’s Annual Report



             Availability of Federal Student Aid’s Annual Report




   FY 2009                                            - 145 -   Federal Student Aid Annual Report
Availability of Federal Student Aid’s Annual Report




   FY 2009                                            - 146 -   Federal Student Aid Annual Report
Availability of Federal Student Aid’s Annual Report




             The following company was contracted to assist in the preparation of Federal Student
                                      Aid's FY 2009 Annual Report:

                                           For Web design: ICF Macro




                Federal Student Aid‘s publicly available FY 2009 Annual Report is accessible on
                           Federal Student Aid‘s and the Department‘s Web sites at:

                                       http://www.federalstudentaid.ed.gov

                               http://www.ed.gov/about/reports/annual/index.html




   FY 2009                                               - 147 -               Federal Student Aid Annual Report