oversight

FY 2014 Annual Report for Federal Student Aid

Published by the Department of Education, Office of Inspector General on 2014-11-14.

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

United States Department of Education
Arne Duncan
Secretary

Federal Student Aid
James W. Runcie
Chief Operating Officer

Finance Office
Jay Hurt
Chief Financial Officer

November 14, 2014

About This Report

Federal Student Aid, a principal office of the United States Department of Education, is
required by legislation to produce an Annual Report, which details Federal Student Aid’s
financial and program performance. The Federal Student Aid Annual Report FY 2014 is a
comprehensive document that provides an analysis of Federal Student Aid’s financial and
program performance results for Fiscal Year 2014. The report enables the President,
Congress, and the public to assess the organization’s performance relative to its mission, and
determine whether Federal Student Aid has demonstrated accountability for the resources
entrusted to it.

This report presents information about Federal Student Aid’s performance as a Performance-
Based Organization, its initiatives, accomplishments, and challenges, as required by Office of
Management and Budget Circular A-11, Preparation, Submission and Execution of the
Budget, Part 6, Section 260, and Circular A-136, Financial Reporting Requirements. The
report also satisfies the requirements included in the following federal statutes:

•   Federal Managers’ Financial Integrity Act of 1982
•   Chief Financial Officers Act of 1990
•   Government Performance and Results Act of 1993
•   Government Management Reform Act of 1994
•   Federal Financial Management Improvement Act of 1996
•   Higher Education Amendments of 1998
•   Reports Consolidation Act of 2000
•   Improper Payments Elimination and Recovery Act of 2010
•   Government Performance and Results Modernization Act of 2010

The United States Department of Education produces the U.S. Department of Education
FY 2014 Agency Financial Report. This report provides a comprehensive view of the
Department’s stewardship over its resources and includes a summary of the information
contained in the Federal Student Aid Annual Report FY 2014.




                               Federal Student Aid Annual Report FY 2014
                                          Letter from the Chief Operating Officer of Federal Student Aid


Letter from the Chief Operating Officer of Federal Student Aid




  Dear Federal Student Aid Colleagues, Partners, and Customers:

  It is my pleasure to present the Fiscal Year (FY) 2014
  Annual Report for Federal Student Aid. This report
  provides the results of Federal Student Aid’s
  performance over the last year and features our
  efforts to increase program integrity, improve
  customer service, and achieve operational advances
  in the management of the Title IV student financial
  assistance programs.

  Federal Student Aid achieved our primary objectives
  by managing growth in our programs and portfolio of
  loans while operating under an administrative budget
  of $1.4 billion. We delivered nearly $134 billion in aid
  to almost 13 million students attending more than
  6,100 schools this past year. In fact, the outstanding
  $1.1 trillion loan portfolio administered by Federal
  Student Aid increased by more than 8 percent in
  FY 2014. We continuously strive for the highest
                                                                     James W. Runcie
  performance in the administration and oversight of the           Chief Operating Officer
  federal financial aid programs with the responsibility of
  safeguarding taxpayer interest.

  Federal Student Aid increased our efforts in protecting the integrity of our programs and
  taxpayer investments by conducting hundreds of institutional reviews in FY 2014. We
  worked closely with our colleagues throughout the Department of Education to strengthen
  several key regulations, including implementing changes made to the Jeanne Clery
  Disclosure of Campus Security Policy and Campus Crime Statistics Act (Clery Act) by the
  Violence Against Women Reauthorization Act of 2013. That law and the new rule
  strengthen the Clery Act to more effectively address, and ultimately reduce sexual violence
  on campuses and improve overall security. We also offered multiple training opportunities
  to help ensure schools, participating in our programs, are provided with the instruction they
  need to administer appropriately funds for the federal financial aid programs. This included
  a redesigned module for the Fundamentals of Title IV Training Series, several webinars,
  and the annual FSA Training Conference.

  As part of our commitment to transparency and accountability, we augmented Federal
  Student Aid’s Data Center to include a number of reports on our outstanding portfolio,
  contracts, and program reviews to meet the growing demand for data and information.

  To improve customer service and satisfaction, Federal Student Aid introduced several new
  tools and resources to aid students and families this year including a new feature on
  StudentAid.gov called My Federal Student Aid. This enhancement enables students to

                                   Federal Student Aid Annual Report FY 2014
                                       Letter from the Chief Operating Officer of Federal Student Aid

view their federal student loan and grant history and identifies where to make loan
payments. We also launched the Financial Aid Toolkit, which consolidates information and
resources into a single searchable online database for high school counselors, financial aid
administrators, mentors, and others. This toolkit offers fact sheets, publications, videos,
infographics, presentations, and much more.

Additionally, we implemented a new loan consolidation application, which provides real-
time loan balances and a selection of repayment plans, including income-driven plans to
help borrowers manage their student loan debt. More than half a million borrowers have
taken advantage of this new loan consolidation application, and 65 percent of them entered
into an income-driven repayment plan this year alone. We also conducted targeted email
outreach and education campaigns to millions of borrowers who could potentially benefit
from income-driven repayment plans and launched new public-private partnerships with the
United States Department of the Treasury and Intuit to generate greater customer
awareness about and understanding of federal student loan repayment options. We
remain dedicated to providing borrowers with the resources necessary to make informed
financial decisions and help further mitigate the incidence of default and delinquency.

Federal Student Aid’s success and continued progress is accomplished by more than 1,200
talented and dedicated employees, with whom I am privileged to work, each and every day.
This report is presented on their behalf and is a reflection of their many accomplishments
as well as their passion and commitment to our mission.

Sincerely,



James W. Runcie
Chief Operating Officer
Federal Student Aid
United States Department of Education
November 14, 2014




                               Federal Student Aid Annual Report FY 2014
                                                                                 Table of Contents


                            Table of Contents
     Letter From the Chief Operating Officer of Federal Student Aid

     iii     Federal Student Aid at a Glance
     iv      How Federal Student Aid Benefits the Public
     v       Guide to Federal Student Aid Programs
     vii     Introduction to the Federal Student Aid Annual Report

1    Management’s Discussion and Analysis

      3      Mission And Organizational Structure
             7    Federal Student Financial Aid Programs
     12      Performance Management
             14   FY 2014 Strategic Goals, Objectives, and Performance Metrics
             26   Agency Priority Goal
             27   Quality of Performance Data
     28      Financial Management Discussion and Analysis
             29   Balance Sheet
             34   Statement of Net Cost
             35   Statement of Changes in Net Position
             36   Statement of Budgetary Resources
             37   Financial Management Risks
     39      Analysis of Systems, Controls, and Legal Compliance
     43      Limitations of Financial Statements

45   Annual Performance Report

     47      Introduction to the Annual Performance Report
     49      Performance Results by Strategic Goal
             50 Strategic Goal A: Provide superior service and information to students and
                                      borrowers.
             56   Strategic Goal B:   Work to ensure that all participants in the system of funding
                                      postsecondary education serve the interests of students,
                                      from policy to delivery.
             58   Strategic Goal C:   Develop efficient processes and effective capabilities that
                                      are among the best in the public and private sectors.
             60   Strategic Goal D:   Ensure program integrity and safeguard taxpayers’ interests.

             64   Strategic Goal E:   Strengthen FSA’s performance culture and become one of
                                      the best places to work in the federal government.


                     Federal Student Aid Annual Report FY 2014                                        i
                                                                      Table of Contents

      Annual Performance Report (cont’d)


      65      FY 2014 Accomplishments of Federal Student Aid
      67      Legislative and Regulatory Recommendations
      68      Annual Bonus Awards
      69      Report of the Federal Student Aid Ombudsman

79    Financial Section


       81     Message From the Chief Financial Officer
       83     Financial Statements
       87     Notes to the Financial Statements
      121     Required Supplementary Stewardship Information
      123     Required Supplementary Information
      129     Independent Auditors’ Report


149   Other Information


153   Appendices


      155     Appendix A:   Discontinued Performance Metrics
      156     Appendix B    Glossary of Acronyms and Terms
      159     Appendix C: Availability of the Federal Student Aid Annual Report




                     Federal Student Aid Annual Report FY 2014                       ii
                                                                                                Federal Student Aid at a Glance



                                Federal Student Aid at a Glance
                                                (As of September 30, 2014)



Established as a Performance-Based Organization                                     1998


Headquarters                                                                        830 First Street, NE
                                                                                    Washington, DC 20202

Website                                                                             StudentAid.gov


FY 2014 Administrative Budget                                                       $1.4 billion1


Total Employees                                                                     1,247 employees


Regional Offices                                                                    10


Total Applications Processed                                                        20.7 million


Total Postsecondary Students Receiving Aid in 2014                                  12.9 million


Total Federal Student Aid Delivered                                                 $133.8 billion


Mission                                                                             Funding America’s Future,
                                                                                    One Student at a Time




     1The Fiscal Year 2014 appropriated administrative budget for Federal Student Aid per the Consolidated Appropriations Act,
     2014, (Pub. L. 113-76).

                                              Federal Student Aid Annual Report FY 2014                                          iii
                                                      How Federal Student Aid Benefits the Public



           How Federal Student Aid Benefits the Public

Designated as a Performance-Based Organization in 1998, Federal Student Aid (FSA) performs
a vital service within the system of funding postsecondary education in the United States. As a
principal office of the United States Department of Education (the Department), FSA ensures
that all eligible Americans have access to federal financial assistance for education or training
beyond high school. In Fiscal Year (FY) 2014, FSA supported the funding of billions of dollars
in federal financial aid, which enabled millions of students to attend college or career school.
The list below details some of the ways in which the organization serves the public. FSA
ensures that students and their families benefit from its programs by:

•   Informing students and families of the availability of the federal student aid programs and on
    the process of applying for and receiving aid from those programs;

•   Developing the Free Application for Federal Student Aid (FAFSA®) and processing FAFSA
    submissions;

•   Offering free assistance to students, parents, and borrowers throughout the entire financial
    aid process; and

•   Providing oversight and monitoring of all program participants—schools, financial entities,
    and students—to ensure compliance with the laws, regulations, and policies governing the
    federal student aid programs.

While FSA employees are committed to assisting students in achieving their postsecondary
education goals, they also provide benefits to the community through direct service. The ideals
of service are demonstrated through their participation in various government, Departmental,
and FSA-sponsored community service programs. Employee efforts have positively influenced
the community in the following ways:

•   Tutoring students at local area schools;

•   Contributing to various charities through the Combined Federal Campaign;

•   Donating food to various food banks, through the Feds Feed Families program, a
    government-wide food drive;

•   Supporting and participating in the Susan G. Komen Race for the Cure;

•   Donating holiday gifts to children in local schools though the Operation Santa program; and

•   Assisting in the renovation and rebuilding of affordable housing for families through the
    Habitat for Humanity program.




                                Federal Student Aid Annual Report FY 2014                            iv
                                                             Guide to Federal Student Aid Programs



                Guide to Federal Student Aid Programs

FSA delivers billions of dollars in federal financial aid to students. This aid covers expenses,
such as tuition and fees, room and board, books and supplies, and transportation. The three
main categories of federal student aid are:

•   Loans
     o Student aid funds that are borrowed to help pay for eligible education programs and
         must be repaid with interest;
•   Grants
     o Student aid funds that do not have to be repaid (unless other conditions apply); and
•   Work-Study
     o A part-time employment program that allows students enrolled in college to earn
         money to help pay for school.

The information below presents a brief overview of the various aid types included in each
category.

Loans
• Direct Subsidized Loans
    o Federal loans based on financial need made to undergraduate students for which the
       federal government generally does not charge interest while the borrower is in school,
       in grace, or in deferment status. For Direct Subsidized Loans first disbursed between
       July 1, 2012, and July 1, 2014, the borrower is responsible for paying any interest that
       accrues during the grace period. If the interest is not paid during the grace period, the
       interest will be added to the loan’s principal balance.

•   Direct Unsubsidized Loans
     o Federal loans made to undergraduate students and graduate students for which the
         borrower is fully responsible for paying the interest regardless of the loan status.
         Interest on unsubsidized loans accrues from the date of disbursement and continues
         throughout the life of the loan.

•   Direct PLUS Loans
     o Federal loans made to graduate or professional students and parents of dependent
         undergraduate students for which the borrower is fully responsible for paying the
         interest regardless of the loan status.

•   Direct Consolidation Loans
     o Federal loans made that allow the borrower to combine one or more federal student
         loans into one new loan. The borrower will only have to make one monthly payment
         on the consolidation loan and the repayment term of the loan may be longer than the
         terms on the original loans.

•   Federal Perkins Loans
     o Federal student loans made by schools to undergraduate and graduate students who
         demonstrate financial need. Loans made under this program are known as campus-
         based aid. Participating schools receive a certain amount of funds each year from
         FSA for distribution under this program, which supplement funds in a school’s
                                Federal Student Aid Annual Report FY 2014                          v
                                                             Guide to Federal Student Aid Programs

         revolving fund, from which new disbursements are made. Once the full amount of the
         school’s funds has been awarded to students, no more loans can be made under this
         program for the year.

Grants
• Federal Pell Grants
    o Federal financial aid awarded to undergraduate students with demonstrated financial
       need. This form of aid does not require repayment.

•   Federal Supplemental Educational Opportunity Grants
     o Federal grants distributed under this program are administered directly by the
         financial aid office at each participating school and are known as campus-based aid.
         Each participating school receives a certain amount of Federal Supplemental
         Educational Opportunity Grant funds each year from FSA. Once the full amount of
         the school’s grant funds has been awarded to students, no more awards can be
         made under this program for the year.

•   Teacher Education Assistance for College and Higher Education Grants
     o Federal grants awarded annually to eligible undergraduate or graduate students who
        agree to teach mathematics, science, or other specialized subjects in high-need
        schools for at least four years, within eight years of their graduation. Eligible students
        may be awarded grants totaling up to $4,000 annually. If students fail to fulfill the
        service requirements, the grants will convert to Direct Unsubsidized Loans, with
        interest accrued from the time of the award.

•   Iraq and Afghanistan Service Grants
      o Federal grants awarded to students who are not eligible for a Federal Pell Grant on
          the basis of financial need, but meet the remaining Federal Pell Grant eligibility
          requirements, and:
               Have a parent or guardian who was a member of the U.S. Armed Forces and
                 died as a result of military service performed in Iraq or Afghanistan after the
                 9/11 events; and
               Were under 24 years old or enrolled in college at least part-time at the time of
                 the parent or guardian’s death.

Federal Work-Study
• Federal program that provides part-time jobs for undergraduate, graduate, and
   professional students with financial need, allowing them to earn money to help pay
   education expenses. The program is available to full-time or part-time students and
   encourages community service work. The work is often related to the student’s course of
   study. As one of three campus-based programs, it is administered by the schools who
   participate in the Federal Work-Study program.

To obtain federal financial aid, prospective aid recipients must complete the FAFSA. For
more information on obtaining federal student aid, visit StudentAid.gov.




                                Federal Student Aid Annual Report FY 2014                            vi
                                             Introduction to the Federal Student Aid Annual Report



 Introduction to the Federal Student Aid Annual Report

The Federal Student Aid Annual Report FY 2014 (Annual Report) provides financial and
performance information that enables the President, Congress, and the public to assess how
FSA has performed in accomplishing its mission and achieving its goals. The report is
organized into the following sections:

The Management’s Discussion and Analysis section provides an overview of the entire
Annual Report. It includes a synopsis of FSA’s mission and its organizational structure, as
well as the organization’s fiscal year financial and performance highlights, which are
discussed in more detail within the subsequent sections of this report. This section also
contains a discussion of the organization’s systems, controls, and compliance with laws and
regulations. The section concludes with the subsection Limitations of Financial
Statements, which provides the context in which the financial statements should be reviewed.

The Annual Performance Report presents the strategic goals included in the Federal
Student Aid: Strategic Plan, Fiscal Years 2012–16 and discusses the results of the various
performance metrics as related to each strategic goal. Targets established for each
performance metric are compared to FSA’s actual performance during the year. These
results are presented to demonstrate the organization’s effectiveness in accomplishing its
mission. The Annual Performance Report also presents the fiscal year accomplishments of
the organization and discusses the process by which it provides legislative and regulatory
recommendations to the Department on issues that affect federal student financial aid. The
Annual Performance Report concludes with the subsections: Annual Bonus Awards, which
details executive compensation in the organization, and the Report of the Federal Student
Aid Ombudsman, which details its processes in assisting borrowers in obtaining resolutions
to federal student aid issues.

The Financial Section provides a detailed view of FSA’s stewardship and accountability for
its resources. The section includes the Message from the Chief Financial Officer, the
audited financial statements, and the accompanying notes to the financial statements. It
concludes with the subsections: Required Supplementary Stewardship Information,
Required Supplementary Information, and the Independent Auditors’ Report.

As part of the Financial Section, the Independent Auditors’ Report subsection presents the
combined audit report issued by the Independent Auditors. The subsection consists of the
Office of Inspector General Audit Transmittal Letter and the combined Independent Auditors’
Report, which includes the Report on the Financial Statements, the Report on Internal Control,
and the Report on Compliance and Other Matters. The subsection concludes with the
Management’s Response to the Audit, which is the official response of FSA’s executive
management to the findings and recommendations contained in the audit report.

The Other Information section includes the Schedule of Spending, which presents an
overview of how and where FSA spent its money during the fiscal year. This section also
provides links to the U.S. Department of Education FY 2014 Agency Financial Report,
which includes a discussion of FSA’s improper payments in compliance with the Improper




                               Federal Student Aid Annual Report FY 2014                         vii
                                              Introduction to the Federal Student Aid Annual Report

Payments Elimination and Recovery Act of 2010. The section concludes with a link to the
Summary of Financial Statement Audit and Management Assurances and a link to FSA’s
Management Challenges.

The Appendices section includes the Discontinued Performance Metrics from the Federal
Student Aid: Strategic Plan, Fiscal Years 2012–16, a glossary of acronyms and terms, and
the details on the availability of this Annual Report and previous fiscal years’ Annual Reports.




                                Federal Student Aid Annual Report FY 2014                          viii
                                    Management’s Discussion and Analysis




Management’s Discussion
     and Analysis




       Federal Student Aid Annual Report FY 2014                      1
                                                                                         Management’s Discussion and Analysis


        Fiscal Year 2014 Financial and Performance Highlights of
                           Federal Student Aid
                                                       Operational Highlights
                                                                                                                             Percentage
                                                                    FY 2014            FY 2013              Difference
                                                                                                                              Change
 Total Student Aid Loan Portfolio 2                              $ 1,130 billion    $ 1,040 billion $          90 billion               8.7%

 Total Federal Student Loan Borrowers Outstanding                     41 million          40 million            1 million               2.5%

 Total Number of Postsecondary Education Institutions                     6,142                 6,178                 (36)             (0.6)%

 Audit Opinion                                                      Unmodified         Unmodified       Not applicable       Not applicable%

                                                         Financial Highlights
                                                          (Dollars in millions)
                                                                                                                             Percentage
                                                                   FY 2014             FY 2013              Difference
                                                                                                                              Change 3
Total Assets                                                 $         985,520     $       897,245      $        88,275                  9.8%

Total Liabilities                                                      978,850             867,251              111,599                 12.9%

Net Position                                                             6,670              29,994              (23,324)               (77.8)%

Net Cost                                                                36,491             (13,422)              49,913           (371.9)%

Total Budgetary Resources Available for Spending
(Budgetary)                                                             64,531              55,748                   8,783              15.8%
Total Budgetary Resources Available for Spending
(Non-Budgetary Credit Reform Financing Accounts)                       243,151             256,711              (13,560)                (5.3)%

Total Outlays, Net
(Budgetary)                                                             13,238              (7,136)              20,374           (285.5)%
Total Outlays, Net
(Non-Budgetary Credit Reform Financing Accounts)                       120,029             148,084              (28,055)               (18.9)%

                                                      Performance Highlights
                                                                                       FY 2014               FY 2014         Performance
                         Performance Measures
                                                                                        Target                Actual           Results
                                                                                                                                 Met
Customer Satisfaction Score (ACSI)                                                     77.4─79.4              78.4

                                                                                                                                 Met
Percent of Borrowers>90 Days Delinquent                                                  8.1%                 8.1%

                                                                                                                                 Met
Aid delivery costs per application                                                      $11.94               $11.43



        2 The amounts provided for the Total Student Aid Portfolio include both amounts managed by Federal Student Aid and federal
        loans held by lenders or schools.
        3 Note that the percentage change is calculated as the FY 2013–FY 2014 difference, divided by the FY 2013 amount. In some
        instances, where the current year amount has an opposite sign to the prior year amount, the percentage change may be
        negative even though the annual change is positive (and vice versa). Similarly, if the current year negative amount has a
        larger negative value than the prior year negative amount, the difference will be negative but the percentage change will be
        positive.

                                                  Federal Student Aid Annual Report FY 2014                                                 2
                                                                Management’s Discussion and Analysis
                                                                        Mission and Organizational Structure




    Mission and Organizational Structure

Federal Student Aid (FSA), a principal office of the United States (U.S.) Department of
Education (the Department), seeks to ensure that all eligible individuals can benefit from
federal financial assistance for education beyond high school. As the nation’s largest provider
of student financial aid, FSA is responsible for implementing and managing federal student
financial assistance programs authorized under the Higher Education Act of 1965, as
amended (HEA). Specifically, Title IV of the HEA (Title IV) authorizes the federal student
assistance programs for which FSA is responsible. These programs provide grants, loans,
and work-study funds to students attending college or career school.

In order to execute the Title IV programs, FSA is responsible for a range of functions across
the student aid lifecycle, which include:

•    Educating students and families about the process of obtaining financial aid;

•    Processing millions of student financial aid applications;

•    Disbursing billions of dollars in student financial aid;

•    Insuring billions of dollars in guaranteed student loans previously issued by financial
     institutions;

•    Enforcing financial aid rules and regulations;

•    Servicing millions of student loans and helping borrowers avoid default;

•    Securing repayment from borrowers who have defaulted on their loans; and

•    Partnering with schools, financial institutions, and guaranty agencies to prevent program
     fraud, waste, and abuse.

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




                                           FSA Fact
    FSA administers the Title IV programs, the largest source of postsecondary education
    funding. The Title IV programs include the Federal Direct Loan, Federal Pell Grant, and
    Federal Work-Study programs. To learn more about these and other Title IV programs
    administered by FSA, visit StudentAid.gov/Types.

                                  Federal Student Aid Annual Report FY 2014                                    3
                                                                Management’s Discussion and Analysis
                                                                          Mission and Organizational Structure

Legislative Authority that Influences the Mission of Federal Student Aid
FSA’s mission is “Funding America’s Future, One Student at a Time.” Historically, there have
been several legislative acts that have significantly impacted FSA as an organization. The
Higher Education Amendments of 1998 established FSA as a PBO, to administer the Title IV
programs at the Department. Other key pieces of legislation that have influenced FSA’s
mission are detailed in the following table.

                                 Overview of Legislative Authority

 •   Higher Education Act of 1965, as amended
        Created the federal student financial assistance programs known as the Title IV programs.

 •   Higher Education Amendments of 1992
        Initially authorized the William D. Ford Federal Direct Loan Program as a demonstration pilot.

 •   Student Loan Reform Act of 1993
        Authorized a multi-year phased implementation of the William D. Ford Federal Direct Loan
        Program.

 •   Higher Education Amendments of 1998
        Amended the HEA and authorized the designation of FSA as the first PBO in the federal
        government.

 •   Higher Education Reconciliation Act of 2005
        Allowed graduate and professional students to utilize the Parent Loans for Undergraduate
        Students.

 •   College Cost Reduction and Access Act of 2007
         Authorized the Teacher Education Assistance for College and Higher Education Grant Program,
         created the Public Service Loan Forgiveness Program, and established the Income Based
         Repayment plan.

 •   Ensuring Continued Access to Student Loans Act of 2008
        Provided the Department with the authority to implement programs to ensure that eligible
        students and parents were not denied access to federal student loans during the credit market
        disruptions of 2008.

 •   SAFRA Act
        Provided that beginning July 1, 2010, all new loans are to be originated under the Federal
        Direct Loan Program.

 •   Bipartisan Student Loan Certainty Act of 2013
        Established that federal student loan interest rates will be tied to financial markets and that each
        loan will have a fixed interest rate for the life of the loan.

 •   Bipartisan Budget Act of 2013
        Eliminated mandatory funding to fund the operations of eligible and qualified Not-For-Profit
        student loan servicers under contract with the Department.

 •   Consolidated Appropriations Act, 2014
        Transferred all Health Education Assistance Loan program loans as of July 1, 2014 from the
        Department of Health and Human Services to the Department.


                                  Federal Student Aid Annual Report FY 2014                                      4
                                                                            Management’s Discussion and Analysis
                                                                                     Mission and Organizational Structure

FSA Stakeholders
The community of stakeholders in the student aid delivery system includes students and
parents, lenders, guaranty agencies, postsecondary institutions, contracted servicers and
collection agencies, as well as the taxpayers and other federal entities, such as Congress and
the U.S. Office of Management and Budget (OMB).

                Role of FSA and Participants in the Federal Student Aid System
                                            POSTSECONDARY
                                            INSTITUTIONS
                                            Determine students’ aid
                                            packages and disburse f unds.

    THE PRESIDENT,                          FSA supports them by                      FFEL LENDERS
                                            •Monitoring compliance,                   Hold and service outstanding
    ED, & OTHERS IN                         •Educating them regarding                 FFELP loans to students.
    EXECUTIVE                               policy, and
                                            •Assisting them in meeting
    BRANCH                                  requirements.
                                                                                      FSA supports them by
    Set regulatory standards and                                                      •Monitoring compliance,
    policy on student aid f unding.                                                   •Assisting them in meeting
                                                                                      requirements,
    FSA supports it by                                                                • Paying interest and Special
    •Providing data and inf ormation                                                  Allowance Payment, and
    f or decision making, and                                                         •Educating them regarding
    •Providing recommendations for                                                    policy.
    implementation.


                                                   STUDENTS
                                             Receive and repay student aid
                                             to f inance postsecondary
                                             education.

                                             FSA supports them by
                                             •Increasing awareness of
                                                                                      GUARANTY
    CONGRESS                                 f ederal student aid,                    AGENCIES
    Sets statutory standards on
                                             •Providing products, services            Insure FFELP loans and
    student aid f unding and
                                             and tools to ensure consistent,          service their def aulted loan
    appropriate budgets.
                                             accurate messaging about the             portf olio.
                                             importance of pursuing
    FSA supports it by
                                             postsecondary education, and             FSA supports them by
    •Providing data and
                                             •Identif ying students f or whom         •Monitoring compliance,
    inf ormation f or decision
                                             f inancial assistance can make           •Assisting them in meeting
    making, and
                                             a dif f erence.                          requirements,
    •Providing updates on
                                                                                      •Educating them regarding
    operational perf ormance.
                                                                                      policy, and
                                                                                      •Paying def ault claims.




                          FSA-CONTRACTED SERVICERS
                          1. Service Direct Loan portf olio and portions of FFELP portfolio,
                          2. Provide systems and services to support FSA’s core operations (e.g.,
                          applications, disbursement), and
                          3. Recover f unds f rom def aulted loans.

                          FSA supports them by
                          •Acquiring the service,
                          •Setting perf ormance standards, and
                          •Overseeing operations.




One of FSA’s responsibilities is to coordinate and monitor the activity of the large number of
federal, state, nonprofit, and private entities involved in federal student aid delivery, within a
statutory framework established by Congress, and a regulatory framework established by the
Department.



                                        Federal Student Aid Annual Report FY 2014                                           5
                                                                               Management’s Discussion and Analysis
                                                                                           Mission and Organizational Structure

FSA Organizational Structure
FSA currently operates under a functional organizational structure that aligns the organization
closely with its strategic drivers, business objectives, and mission goals. A Chief Operating
Officer (COO), who is appointed to a five-year term by the Secretary of Education (Secretary),
leads FSA. The Secretary appointed James W. Runcie as the COO on September 15, 2011.
The following graphic illustrates the current functional organizational structure of FSA.




During Fiscal Year (FY) 2014, the organization operated on an annual administrative budget
of approximately $1.4 billion 4. FSA is staffed by 1,247 full-time employees and is augmented
by contractors who provide outsourced business operations. The workforce is based in
Washington, D.C., with ten regional offices located throughout the country as reflected in the
following graphic. The number of full-time employees at each location is shown in
parentheses immediately following the location name.




4   The FY 2014 appropriated administrative budget for FSA per the Consolidated Appropriations Act, 2014, (Pub. L. 113-76).
                                            Federal Student Aid Annual Report FY 2014                                             6
                                                                                Management’s Discussion and Analysis
                                                                                            Mission and Organizational Structure



 Federal Student Financial Aid Programs

 The federal student financial assistance programs collectively represent the nation’s largest
 source of federal financial aid for postsecondary students. In FY 2014, FSA processed more
 than 20.7 million Free Applications for Federal Student Aid (FAFSA®), resulting in the delivery
 of $133.8 billion in Title IV aid to almost 12.9 million postsecondary students and their families.
 These students attend 6,142 active institutions of postsecondary education that participate in
 student aid programs and are accredited by dozens of agencies.

 On August 2, 2011, Congress passed the Budget Control Act of 2011 (Pub. L. 112-25), which
 put into place automatic federal budget cuts, known as “sequestration”, to take effect if
 Congress did not enact legislation to reduce the federal deficit by March 1, 2013. Because
 Congress did not act, these budget cuts went into effect. The impact of sequestration on aid
 available to students varied by program and is reflected in amounts presented in the following
 table. The table below presents a comparison of the amounts of Title IV aid disbursed to
 students by program in 2014 and 2013. A summary of each of the Title IV student assistance
 programs is presented in the paragraphs that follow the table.

                     Summary of Federal Aid Disbursed to Students by Program 5
                                                       (Dollars in Millions)
                                                            2014                  2013                                Percent
                                                       Aid Disbursed         Aid Disbursed                           Increase/
Programs                                                 to Students          to Students          Difference       (Decrease)
Loan Programs

William D. Ford Federal Direct Loan Program           $         99,355     $         102,497     $      (3,142)              (3)%

Federal Perkins Loan Program                                     1,167                  1,008               159              16%
Subtotal Loan Programs                                $       100,522      $         103,505     $      (2,983)              (3)%
Grant Programs

Federal Pell Grant Program                            $         31,554     $           32,338    $        (784)              (2)%
Federal Supplemental Educational
Opportunity Grant Program                                          694                    739               (45)             (6)%
The Teacher Education Assistance for College
and Higher Education Grant Program                                   97                   106                (9)             (8)%

Other Grant Programs/Rounding                                         0                      1               (1)          (100)
Subtotal Grant Programs                               $         32,345     $           33,184    $        (838)              (3)%
Work-Study Programs

Federal Work-Study Program                            $            928     $              959    $          (31)             (3)%

Rounding                                                              1                      0                  0             N/A
Grand Total                                           $       133,796      $         137,648     $      (3,852)              (3)%

 5 Aid disbursed to students as cited in the table above, and in the following sections concerning the Federal Loan Programs, the
 Federal Grant Programs and the Federal Work-Study Program in the Management’s Discussion and Analysis section, excluding
 the Federal Perkins Loan Program amounts, are derived from amounts from FSA’s and the Department’s financial systems. All
 amounts are fiscal year-to-date amounts, except for the Federal Perkins Loan Program, which is reported as an award year
 amount. Except for Direct Loan and Perkins Loan recipients, the number of awards or recipients reported in the Management’s
 Discussion and Analysis section is derived from amounts used to support the President’s Budget and is based on award year.
                                           Federal Student Aid Annual Report FY 2014                                                7
                                                                   Management’s Discussion and Analysis
                                                                            Mission and Organizational Structure

Federal Loan Programs
In fulfilling its program responsibilities, FSA directly manages or oversees more than
$1.1 trillion in outstanding loans—representing more than 186 million student loans to
approximately 41 million borrowers. These loans were made primarily through the first two
federal student loan programs described below.

The William D. Ford Federal Direct Loan (Direct Loan) Program lends funds directly to
students and parents through participating schools. Created in 1993, this program is funded
primarily by U.S. Department of the Treasury (Treasury) borrowings, as well as an
appropriation for subsidy costs. As of September 30, 2014, FSA’s portfolio of Direct Loans
included $778.5 billion in credit program receivables, net of a negative subsidy allowance in
the amount of $47.4 billion. In FY 2014, the Department made $99.4 billion 6 in net loans to
9.4 million recipients.

Under the Federal Family Education Loan (FFEL) Program, students and parents obtained
federal loans through private lenders. Guaranty agencies insure lenders against borrower
default; the federal government, in turn, reinsures guaranty agencies. Federal subsidies
ensure private lenders earn at least a certain yield on the loans they made.

The passage of the SAFRA Act, which was included as part of the Health Care and Education
Reconciliation Act of 2010 (HCERA) (Pub. L. 111-152), ended the origination of new FFEL
Program loans as of July 1, 2010. Nevertheless, FSA lenders and guaranty agencies
continue to service and collect outstanding FFEL Program loans. FSA, FFEL lenders, and
guaranty agencies held a FFEL Program loan portfolio of approximately $395.0 billion, as of
September 30, 2014. In FY 2014, FSA made gross payments of approximately $1.1 billion to
lenders for interest and special allowance subsidies and $8.9 billion to guaranty agencies for
reinsurance claims and fees paid to guaranty agencies for account maintenance, default
aversion, and collection activities.

The Ensuring Continued Access to Student Loans Act of 2008 (ECASLA) authorized the
Department to implement a number of programs to ensure credit market disruptions did not
deny eligible students and parents access to federal student loans for the 2008–09 and
2009–10 academic years. Under this authorization, the Department implemented three
activities, two of which allowed for loan purchase commitments and purchases of loan
participation interests. The authority to make these purchases expired after
September 30, 2010; as a result, loan purchase commitments and purchases of loan
participation interests concluded. Although, these programs were successfully closed-out on
October 15, 2010, any FFEL Program loans purchased under the ECASLA authorization are
owned and continue to be serviced by FSA.

A third program the Department implemented under the authority of ECASLA was the Asset-
Backed Commercial Paper (ABCP) Conduit Program (Conduit). Under this program, which
began operations in mid-2009, the Department entered into forward purchase commitments
with a Conduit. The Conduit issued commercial paper backed by qualifying student loans
made between October 1, 2003, and September 30, 2009. If no other financing was available
to retire this paper as it matured, the Department committed to providing the needed funds by
purchasing the underlying student loans, thereby providing a federal subsidy that had the
effect of providing low cost capital to private lenders. Lenders were able to place loans into

6   Excludes consolidation loans of $34.7 billion.
                                         Federal Student Aid Annual Report FY 2014                                 8
                                                           Management’s Discussion and Analysis
                                                                    Mission and Organizational Structure

the Conduit until June 30, 2010. By that time, 25 lenders had participated, and backed by
their loans, the Conduit issued a total of $41.5 billion in commercial paper. Under the Put
Agreement with the Conduit, the Department purchased loans subject to certain events, for
example, when a loan became 255 days delinquent. As of September 30, 2014, the
Department had purchased $2.6 billion in delinquent loans from the Conduit. The option to
sell loans to the Department ended in January 2014.

The Federal Perkins Loan Program is one of three campus-based programs through which
the Department provides funds directly to eligible institutions. Funds provided through this
program enable eligible institutions to offer low-interest loans to students based on financial
need. In FY 2014, approximately $1.2 billion were disbursed through approximately 538,000
Perkins awards.

The Health Education Assistance Loan (HEAL) Program was transferred to the
Department from the U.S. Department of Health and Human Services in FY 2014 under the
Consolidated Appropriations Act, 2014 (P.L. 113-76). This program enabled graduate
students in the schools of medicine, osteopathy, dentistry, veterinary medicine, optometry,
podiatry, public health, pharmacy, chiropractic, or in programs in health administration and
clinical psychology to obtain federally insured loans through participating lenders. As of
September 30, 1998, no new loans were originated through this program; however, borrowers
are still obligated to repay any outstanding loans obtained through the program.

The Department assumed responsibility for the program and the authority to administer,
service, collect, and enforce the program. In addition, the functions, assets, and liabilities of
the Secretary of Health and Human Services that are associated with the HEAL program were
permanently transferred to the Secretary of Education. Credit program receivables, net of
allowance for subsidy, were $114.9 million for FY 2014.

Federal Grant Programs
In its responsibility for administering Title IV aid, FSA oversaw the disbursement of
$32.3 billion in grants to 11.5 million recipients. The following provides a summary for each
grant program, including aid disbursed for FY 2014.

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. Considered the foundation of a student’s financial aid package, Pell
Grants vary according to the financial circumstances of students and their families. In
FY 2014, the Department disbursed $31.6 billion in Pell Grants averaging approximately
$3,768 to almost 9 million students. The maximum Pell Grant award was $5,645 for the
2013–14 award year and increased to $5,730 for the 2014–15 award year.

The Federal Supplemental Educational Opportunity Grant Program is one of three
campus-based programs through which the Department provides funds directly to eligible
institutions. Funds provided through this program enable eligible institutions to offer grants to
students based on need. In FY 2014, approximately $693.9 million were disbursed through
approximately 1.6 million campus-based awards.




                                Federal Student Aid Annual Report FY 2014                                  9
                                                           Management’s Discussion and Analysis
                                                                    Mission and Organizational Structure

The Teacher Education Assistance for College and Higher Education (TEACH) Grant
Program, 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. Under sequestration, award amounts for any TEACH Grant first disbursed on or
after October 1, 2013 and before October 1, 2014, were reduced by 0.89 percent from the
award amount for which a recipient would otherwise have been eligible. The maximum award
of $4,000 was reduced by approximately $36, resulting in a maximum award amount of
$3,964. If students fail to fulfill the service requirements, TEACH Grants convert to Direct
Unsubsidized Loans, with interest accrued from the time of the award. This grant program
began in the 2008–09 school year, starting July 1, 2008. In FY 2014, the Department
disbursed approximately 34,000 grants totaling $96.7 million under TEACH Grant Program.

The Iraq and Afghanistan Service Grant Program, which became effective July 1, 2010,
provides non-need-based grants to students whose parent or guardian was a member of the
Armed Forces and died in Iraq or Afghanistan as a result of performing military service after
September 11, 2001. These grants are equal to the maximum Pell Grant for a given award
year. Under sequestration, award amounts for any Iraq and Afghanistan Service Grant first
disbursed on or after October 1, 2013 were reduced by 7.2 percent from the award amount for
which a recipient would otherwise have been entitled. For example, the 2013–14 maximum
award of $5,730 was reduced by approximately $413, resulting in a maximum award amount
of $5,317. The Department disbursed approximately $304,000 to support fewer than 1,000
awards in FY 2014.

Federal Work-Study Program
The Federal Work-Study (FWS) Program is one of three campus-based programs through
which the Department provides funds directly to eligible institutions. Funds provided through
this program enable eligible institutions to offer employment to students based on financial
need. In FY 2014, approximately $928.0 million were disbursed through approximately
690,000 campus-based awards.




                                         FSA Fact

    The Federal Pell Grant has enabled millions of students to go to college. More than
    $31 billion were disbursed for Pell Grants during FY 2014. For more information about
    obtaining a Pell Grant, go to StudentAid.gov/types/grants-scholarships/Pell.


                                Federal Student Aid Annual Report FY 2014                              10
                                                               Management’s Discussion and Analysis
                                                                       Mission and Organizational Structure

Vision, Mission, and Core Values
FSA’s vision and mission focus on students and position FSA as not only a provider of federal
student financial aid and services, but also as a trusted source of information to help students
and families make better decisions about their postsecondary education funding options. The
core values reflect FSA employees’ desire to create a high-performing organization and work
environment while improving operations and services.




     Vision

     To be the most trusted and reliable source of student financial aid, information, and
     services in the nation



     Mission

     Funding America’s Future, One Student at a Time



     Core Values

     •   Integrity            •     Customer Service       •     Excellence
     •   Respect              •     Stewardship            •     Teamwork




As discussed in detail in the next section, FSA has translated this vision into a set of clearly
defined strategic goals and objectives and related measurable performance metrics. The
realization of these goals will enable the organization to accomplish its mission successfully.




                                  Federal Student Aid Annual Report FY 2014                               11
                                                              Management’s Discussion and Analysis
                                                                               Performance Management




    Performance Management

This section of the Federal Student Aid Annual Report FY 2014 (Annual Report) provides a
general overview of the performance management processes at FSA; a summary of FSA’s
FY 2014 performance metrics, objectives, and results; discussion of FSA’s Agency Priority Goal;
and discussion of FSA’s efforts to validate the quality of performance data reported.

Performance Management Processes at Federal Student Aid
FSA uses three tools to establish goals, and to communicate, measure, and report performance.
These tools are the following:

•    Five-Year Strategic Plan;
•    Annual Performance Report; and
•    Annual Organizational Performance Review (OPR).

Five-Year Strategic Plan
As part of the strategic planning process, FSA continuously identifies and evaluates key drivers
that significantly influence FSA’s long-term goals and objectives. FSA analyzes these drivers to
identify long-term core strategic goals that will serve as the foundation of FSA’s long-term strategic
planning. These strategic goals collectively provide the framework for continuous improvement at
FSA, guiding the organization in managing its programs more effectively and providing clear
strategic direction to all of FSA’s internal and external constituencies. The strategic goals
developed must be:

•    appropriate to the mission of the organization;
•    realistic and measurable;
•    achievable in the time frame established and challenging in their targets; and
•    understandable to the layperson (i.e., language is unambiguous and terminology is adequately
     defined).

Each strategic goal encompasses objectives and identifies performance metrics to measure FSA’s
level of success in meeting the strategic goal. For each performance metric, FSA identifies a
target level of performance for each fiscal year. FSA sets the target level of performance at a
challenging, but realistic level that is achievable within the timeframe. Meeting or exceeding the
target indicates that FSA succeeded in meeting the performance metric, while falling short of the
target indicates that FSA did not meet the performance metric. The following table summarizes
the key components of the Federal Student Aid: Strategic Plan, FY 2012–16 (FSA Strategic Plan,
FY 2012–16).




                                Federal Student Aid Annual Report FY 2014                          12
                                                               Management’s Discussion and Analysis
                                                                                 Performance Management

               Key Components of the FSA Strategic Plan, FY 2012–16

                  Key Component                                         Description



                                                       Statements of long-term purpose outlined in
                                                       the FSA Strategic Plan, FY 2012–16 that
 Strategic Goals                                       define how FSA will accomplish its mission.
                                                       These goals are aligned to FSA’s
                                                       responsibilities as a PBO.
                                                       Statements that describe the tactical
 Objectives                                            activities FSA will perform to achieve the
                                                       associated strategic goal.
                                                       Levels of performance over a period of time
                                                       used to gauge FSA’s success in reaching its
 Performance Metrics
                                                       strategic goals. These metrics include
                                                       targets and timeframes.
                                                       Indicators of the desired performance levels
                                                       or specific desired results targeted for a
                                                       given fiscal year. Targets are expressed in
 Targets
                                                       quantifiable terms and compared to the
                                                       actual result to determine level of
                                                       performance.

Throughout the fiscal year, FSA measures and analyzes performance based upon performance
metric results. For any performance metrics not on track, FSA’s analysis includes identifying the
root cause of the unexpected result and determining the appropriate corrective actions necessary
to improve performance.

Annual Performance Report
To report progress on meeting the strategic goals, FSA prepares and publishes an Annual
Performance Report, which is included in FSA’s Annual Report. In addition to the Annual
Performance Report, the Annual Report includes FSA management’s discussion and analysis of
financial and performance results, its audited financial statements and notes, and the report of the
independent auditors.

Annual Organizational Performance Review
The Annual OPR is part of the Department-wide performance management system. It operates at
the principal office level and is designed to integrate and align all of the Department’s performance
management elements, including the Department’s Strategic Plan, the Secretary’s annual
priorities, the priorities of the principal offices, and other requirements of law and of the President.
The OPR contains timelines with specific milestones. FSA tracks and reports the status of OPR
metrics to the Department on a quarterly basis.




                                 Federal Student Aid Annual Report FY 2014                            13
                                                              Management’s Discussion and Analysis
                                                                                Performance Management

FY 2014 Strategic Goals, Objectives, and Performance Metrics

In its earlier strategic plans, FSA focused primarily on achieving operational efficiency and system
integration, both of which are vital to its designation as a PBO. As part of the initial update to its
earlier plans, FSA developed and implemented a strategic plan that would improve the overall
system of funding for postsecondary education. The strategic plan outlined steps that would
improve the system by (1) equipping students and their families with better information to make
improved decisions about postsecondary education; and (2) actively shaping the behavior of
participants in education funding, by using FSA’s knowledge, data, oversight authority, and
relationships to improve the coordination of all participants in the system.

FSA’s current strategic plan, the FSA Strategic Plan, FY 2012–16, continued to build upon the
most recent goals established in the previous year’s strategic plan, by clarifying the organization’s
objectives and updating performance standards to better reflect the progress made in meeting the
stated objectives. As part of the process of developing this plan, FSA identified the key strategic
drivers listed in the following table.

                                                  Relevance to FSA’s Strategic Planning
            Key Strategic Driver
                                                                Process


 The Higher Education Act of 1965               Prescribes Title IV program and PBO
 legislation                                    requirements (i.e., improve service, reduce
                                                costs, improve and integrate support
                                                systems, develop delivery and information
                                                systems, and enhance staff development
                                                and talent).
 Student and borrower needs                     Students and borrowers are key customers
                                                of FSA services and products.

 Key trends and conditions for the financial    Indicates student aid environment within
 aid environment                                which FSA must operate. Listed below are
                                                key trends that may affect the financial aid
                                                environment.

                                                    •   Rising cost of attendance for
                                                        postsecondary education.
                                                    •   Decline in availability of nonfederal
                                                        sources of postsecondary education
                                                        funding.
                                                    •   Anticipated increase in enrollment.
                                                    •   Increase in enrollment at two-year
                                                        and proprietary institutions, and
                                                        distance learning.
                                                    •   Increased role of the federal
                                                        government in providing funding for
                                                        postsecondary education.


                                Federal Student Aid Annual Report FY 2014                           14
                                                               Management’s Discussion and Analysis
                                                                                Performance Management


                                                   Relevance to FSA’s Strategic Planning
               Key Strategic Driver
                                                                 Process


    The Department’s Five-Year Strategic Plan    Requires FSA’s support of the Department’s
                                                 strategic goals related to postsecondary
                                                 education.
    President Obama’s higher education goal      Requires the Department’s and FSA’s
    that, by 2020, America will have the         support to achieve goal.
    highest proportion of college graduates in
    the world
    The Office of Inspector General’s            Requires the Department and FSA senior
    Management Challenges                        management’s consideration for
                                                 establishing priorities. The Office of
                                                 Inspector General’s Management
                                                 Challenges for FY 2014 include:
                                                     • Improper Payments;
                                                     • Information Technology Security;
                                                     • Oversight and Monitoring;
                                                     • Data Quality and Reporting; and
                                                     • Information Technology System
                                                         Development and Implementation.
    The Office of Inspector General and          Requires FSA senior management’s
    Government Accountability Office audits      consideration for establishing priorities to
                                                 address findings and recommendations.
    Federal financial management laws and        Prescribes financial management
    regulations                                  requirements.
    Federal performance reporting legislation    Prescribes performance and reporting
    and requirements                             requirements.
    Federal budget deficits                      Requires FSA to look for opportunities to
                                                 reduce operating costs through improved
                                                 efficiency.


FSA identified the following five Strategic Goals based upon analysis of the above key strategic
drivers:

•     Strategic Goal A: Provide superior service and information to students and borrowers.
•     Strategic Goal B: Work to ensure that all participants in the system of funding postsecondary
      education serve the interests of students, from policy to delivery.
•     Strategic Goal C: Develop efficient processes and effective capabilities that are among the
      best in the public and private sectors.
•     Strategic Goal D: Ensure program integrity and safeguard taxpayers’ interests.
•     Strategic Goal E: Strengthen FSA’s performance culture and become one of the best places
      to work in the federal government.



                                  Federal Student Aid Annual Report FY 2014                        15
                                                                  Management’s Discussion and Analysis
                                                                                 Performance Management

The remainder of this section provides a discussion of each strategic goal, including the associated
objectives and a summary of performance metric results. For a more detailed discussion, refer to
the Annual Performance Report section of this document.

How the Remainder of this Section is Organized. This section is organized by the five strategic
goals. For each strategic goal, this section provides an overview of the goal, lists the associated
objectives that support the strategic goal, and details the performance metrics used to measure
performance. Specifically, the following information is included for each strategic goal:

•   Strategic Goal: States the strategic goal and provides a discussion of the relevance of this
    goal to FSA’s mission.

•   Objective: Includes a brief discussion of the objectives identified for the strategic goal.

•   Performance Metrics: Includes a brief summary of FSA’s performance as measured by the
    performance metrics for the strategic goal, followed by a table that details, for each
    performance metric, the prior year actual results, the current reporting period target, the actual
    result, and the page reference to the detail contained in the Annual Performance Report
    section of this document. The following is the legend for the performance result indicator
    included in the table.


                          Performance Result Indicator Legend
                      Performance result met or exceeded the             Met
                      target.

                      Performance result did not meet the              Not met
                      target.

                      Performance result is not applicable
                      because the performance metric was not             N/A
                      developed, the performance metric was
                      not implemented, or the required data
                      were not available in time for inclusion.


The performance metric results reported are as of fiscal year-end (i.e., September 30, 2014)
unless otherwise noted. If the required data are not available as of fiscal year-end in sufficient time
for inclusion, data as of the most recent period available is used. Data as of fiscal year-end may
not be available in some instances, where the required data are obtained from external sources
(i.e., state and private nonprofit guaranty agencies, lenders and loan servicers, grant and loan
recipients, etc.).




                                Federal Student Aid Annual Report FY 2014                           16
                                                               Management’s Discussion and Analysis
                                                                                 Performance Management

Strategic Goal A: Provide superior service and information to students and borrowers.


A major component of FSA’s mission is to ensure that all eligible individuals have access to federal
student aid. In order to achieve this goal, FSA provides information about funding options for
eligible students to help them and their families make well-informed decisions. As a customer-
facing organization, FSA also has an obligation to uphold the highest standards of service when
interacting with its customers: students and their families.

Strategic Goal A aims to actively inform all eligible individuals of their funding options, help
customers make well-informed decisions, provide better services, and improve customer
experience.

Objectives supported: To support this strategic goal, FSA identified a set of objectives, which
includes detailed initiatives designed to assist with meeting each objective. Meeting each objective
will result in accomplishing the strategic goal. The objectives that support this strategic goal
include:

•   Objective 1: Take a data-driven approach to better understand our customers and develop
    insights from these customers.
•   Objective 2: Reach out to potential students more effectively to expand access to
    postsecondary education.
•   Objective 3: Aggregate and distribute information on the costs and benefits of postsecondary
    education programs and on funding options to improve financial literacy and support the
    customers’ decision-making.
•   Objective 4: Identify students for whom financial assistance can make a difference in
    completing a degree or credential and develop a plan to support the President’s 2020 college
    completion goal.
•   Objective 5: Enhance customer-facing processes to improve the customer experience.

Performance Metrics measured: To determine the success of FSA’s efforts to meet this
strategic goal, FSA identified a set of performance metrics, including a target level of performance.
For this strategic goal, the following table lists the performance metrics, prior year actual results,
FY 2014 target and actual performance levels, result (i.e., met, not met, etc.), and reference to
supporting detail in the Annual Performance Report section of this document. In summary, FSA
met or exceeded the target for all five performance metrics presented under this strategic goal.




                                 Federal Student Aid Annual Report FY 2014                          17
                                                                    Management’s Discussion and Analysis
                                                                                      Performance Management



                               Performance Summary for Strategic Goal A




                               FY 2012    FY 2013       FY 2014         FY 2014       Result    Reference
Performance Metrics
                                Actual     Actual        Target          Actual                   Page



% of first-time FAFSA filers                                                           Met
                                58.4%       59.2%     58.8%─60.8%        60.1%                      50
among high school seniors

Persistence among first-                                                               Met
                                 ─            ─       77.5%─79.5%        79.6%                      52
time filing aid recipients

Customer Visits to                                                                     Met
                                 ─            ─       >=30.7 million   32.7 million                 53
StudentAid.gov

Social Media Channel                                                                   Met
                                 ─            ─        >=296,000        368,042                     54
Subscribership

Customer Satisfaction                                                                  Met
                                78.5        78.4        77.4─79.4         78.4                      55
Score (ACSI)




                                           FSA Fact
In addition to its website, StudentAid.gov, FSA has also increased its presence in
social media. To get the latest information updates on federal student financial aid,
like FSA on Facebook; follow FSA on Twitter @FAFSA or find it on YouTube.


                                     Federal Student Aid Annual Report FY 2014                           18
                                                              Management’s Discussion and Analysis
                                                                                Performance Management

Strategic Goal B: Work to ensure that all participants in the system of funding
                  postsecondary education serve the interests of students, from policy to
                  delivery.

FSA plays a vital role within the system of postsecondary education funding in the United States.
While the Department’s Office of Postsecondary Education is responsible for any matters related
to the setting of postsecondary education policy and regulation, FSA collaborates with its
colleagues across the Department and Congress to inform policy and regulations relating to
student financial assistance. Specifically, FSA provides timely and relevant information to the
Department and policymakers to support their decision-making processes concerning issues
related to funding postsecondary education. In addition, FSA has a leadership role in the universe
of postsecondary education funding to ensure that all system participants effectively serve the
interests of students.

To execute delivery of financial assistance, FSA works closely with partners: it coordinates the
activities of different contractors, including servicers and private collection agencies; it provides
oversight of postsecondary institutions; guaranty agencies and lenders; and it directly interacts with
students and their families.

Strategic Goal B aims to increase FSA’s role in working with postsecondary institutions,
contractors, and other major participants in the overall aid delivery system, to fulfill the
organization’s mission more effectively and consistently champion the promise of postsecondary
education for all Americans.

Objectives supported: To support this strategic goal, FSA identified a set of objectives, which
includes detailed initiatives designed to assist FSA with meeting each objective. Meeting each
objective will result in accomplishing the strategic goal. The objectives that support this strategic
goal include:

•   Objective 1: Improve FSA’s support, communications, and processes for postsecondary and
    financial institutions.
•   Objective 2: Provide ideas, data, and analyses to inform policymakers about opportunities
    and challenges in postsecondary education funding.
•   Objective 3: Support system participants in implementing legislative, regulatory, executive,
    and other requirements.

Performance Metrics measured: To determine the success of FSA’s efforts to meet this
strategic goal, FSA identified a set of performance metrics, including a target level of performance.
For this strategic goal, the following table lists the performance metrics, prior year actual results,
FY 2014 target and actual performance levels, result (i.e., met, not met, etc.), and reference to
supporting detail in the Annual Performance Report section of this document. In summary, FSA
met or exceeded the target for both performance metrics included under this strategic goal.




                                Federal Student Aid Annual Report FY 2014                               19
                                                                    Management’s Discussion and Analysis
                                                                                      Performance Management



                               Performance Summary for Strategic Goal B




                                            FY 2012   FY 2013    FY 2014    FY 2014    Result    Reference
Performance Metrics
                                             Actual    Actual     Target     Actual                Page



Ease of Doing Business school survey                                                     Met
                                              74         74       73─75       77                     56
(1-100 scale)

                                                                                         Met
Percent of borrowers > 90 days delinquent    9.5%       8.3%      8.1%       8.1%                    57




                                                    FSA Fact
           The Pay as You Earn Plan, recently made available for eligible borrowers, enables
           borrowers with eligible loans to limit monthly payments to 10 percent of their
           discretionary income. For more information on this repayment option, visit
           StudentAid.gov/repay-loans/understand/plans/pay-as-you-earn.

                                       Federal Student Aid Annual Report FY 2014                          20
                                                              Management’s Discussion and Analysis
                                                                                Performance Management

Strategic Goal C: Develop efficient processes and effective capabilities that are among the
                  best in the public and private sectors.

FSA is responsible for managing the operational functions associated with delivering Title IV
grants, work-study, and loan programs, while continually improving operating efficiency. To
maintain credibility and confidence in the overall student aid delivery system, it is important for FSA
to anticipate and plan for changes in volume that impact capacity requirements. As part of the
ability to respond to changing demands, FSA must consider budgetary resources available to
support increasing capacity. Historically, FSA’s budget has not grown proportionally to the
increase in the volume of aid, and that is likely to remain true going forward. As a result, FSA will
need to pursue further efficiencies in order to fund the initiatives outlined in its strategic plan.

FSA will also continue to improve its internal efficiency and capabilities across key functions,
particularly in technology, acquisition, risk management, and business management, by comparing
the current state of these functions with best practices and benchmarks across public and private
sectors. The objectives under this goal will build the foundation and capability to support the first
two strategic goals, providing better service and information to FSA customers and playing an
integral role in the overall student aid delivery system.

Strategic Goal C aims to pursue further efficiencies to free up additional resources in the operating
budget by integrating systems, improving acquisition processes, improving risk management, and
improving project management.

Objectives supported: To support this strategic goal, FSA identified a set of objectives, which
includes detailed initiatives designed to assist FSA with meeting each objective. Meeting each
objective will result in accomplishing the strategic goal. The objectives that support this strategic
goal include:

•   Objective 1: Deliver funds to students accurately, efficiently, and promptly, to create high
    levels of customer satisfaction.
•   Objective 2: Strengthen FSA’s Information Technology (IT) function to achieve systems
    modernization and active management of technology to ensure that FSA’s delivery systems
    are secure and privacy of personal information is maintained.
•   Objective 3: Continuously refine and manage FSA’s acquisition strategy and contract
    performance to realize cost savings and operating efficiencies, and mitigate risk.
•   Objective 4: Improve the organizational capacity to anticipate and manage external change.
•   Objective 5: Enhance the risk management organization, systems, and processes.
•   Objective 6: Develop a methodology to measure and track cost reductions to increase
    efficiency and productivity.
•   Objective 7: Build stronger business management capabilities and increase operational
    transparency to improve cross-functional coordination.




                                Federal Student Aid Annual Report FY 2014                               21
                                                                  Management’s Discussion and Analysis
                                                                                   Performance Management

Performance Metrics measured: To determine the success of FSA’s efforts to meet this
strategic goal, FSA identified a set of performance metrics, including a target level of performance.
For this strategic goal, the following table lists the performance metrics, prior year actual results,
FY 2014 target and actual performance levels, result (i.e., met, not met, etc.), and reference to
supporting detail in the Annual Performance Report section of this document. In summary, FSA
met the target for one performance metric and did not meet the target for one performance metric.


                                 Performance Summary for Strategic Goal C




                                      FY 2012    FY 2013     FY 2014     FY 2014     Result    Reference
Performance Metrics
                                       Actual     Actual      Target      Actual                 Page



                                                                                      Met
Aid delivery costs per application     $10.85     $11.16      $11.94      $11.43                   58


                                                                                    Not met
Loan servicing costs per borrower      $18.94     $21.42      $21.20      $21.59                   59




                                                 FSA Fact
           The Direct PLUS Loan Program can be used to help pay for an undergraduate,
           graduate, or professional education. For more information on the Direct PLUS
           Loan program, go to StudentAid.gov/types/loans/PLUS.

                                     Federal Student Aid Annual Report FY 2014                          22
                                                              Management’s Discussion and Analysis
                                                                                Performance Management

Strategic Goal D: Ensure program integrity and safeguard taxpayers’ interests.


As the nation’s largest provider of federal student assistance, FSA’s role requires the organization
to provide careful oversight of taxpayer dollars. FSA annually disburses more than $100 billion in
aid and administers a loan portfolio valued at more than $1.1 trillion. Even small variances in the
financial performance of this portfolio can have a large impact on the U.S. federal budget. FSA is
committed to upholding the highest standards of integrity with the Title IV Programs and continues
to work with institutions on increased monitoring and oversight efforts.

FSA will strive to better manage taxpayer resources and minimize program costs. As part of this
goal, FSA will concentrate its limited resources on those areas that have been identified as having
the greatest potential risk for fraud and abuse. In addition, FSA will focus on data gathering and
analysis to better understand and manage FSA’s growing student aid portfolio. Through these
efforts, FSA will be able to better identify, understand, and mitigate all enterprise risks, including
the student aid portfolio risk.

Strategic Goal D aims for continuous improvement of FSA’s oversight functions to maintain
program integrity and safeguard taxpayers’ interests by using program dollars effectively and
efficiently. FSA has oversight and enforcement responsibility for 6,142 schools and 1,645 financial
institutions. FSA must, therefore, leverage and focus its resources to optimize oversight and
monitoring activities; and its administrative, sanction, and enforcement actions when warranted.

Objectives supported: To support this strategic goal, FSA identified a set of objectives, which
includes detailed initiatives designed to assist FSA with meeting each objective. Meeting each
objective will result in accomplishing the strategic goal. The objectives that support this strategic
goal include:

•   Objective 1: Improve quality control and reduce errors, waste, fraud, abuse, and
    mismanagement in the delivery of Title IV aid.
•   Objective 2: Manage funds owed to the Department and provide transparency about student
    aid portfolio risk exposure.

Performance Metrics measured: To determine the success of FSA’s efforts to meet this
strategic goal, FSA identified a set of performance metrics, including a target level of performance.
For this strategic goal, the following table lists the performance metrics, prior year actual results,
FY 2014 target and actual performance levels, result (i.e., met, not met, etc.), and reference to
supporting detail in the Annual Performance Report section of this document. In summary, FSA
met the target for one performance metrics; and did not meet the target for two metrics.




                                Federal Student Aid Annual Report FY 2014                               23
                                                                         Management’s Discussion and Analysis
                                                                                              Performance Management



                               Performance Summary for Strategic Goal D




                                   FY 2012        FY 2013          FY 2014        FY 2014      Result      Reference
 Performance Metrics                                                Target
                                    Actual         Actual                          Actual                    Page



                                  Pell Grant      Pell Grant
                                   2.49%           2.26%

                                  Direct Loan    Direct Loan                                   Not met
 Improper Payment rate                                              1.33%           1.54%                      60
                                     0.58%          1.03%

                                    FFEL           FFEL
                                    1.93%         <0.005%


 Percentage of contract                                                                          Met
                                       ─              ─         85.3%─87.3%         88.7%                      62
 dollars competed by FSA


                                                                                               Not met
 Collection rate 7                  $31.90         $41.57           $45.65         $35.90                      63




                                                FSA Fact
  The Income-Based Repayment/Pay As You Earn/Income-Contingent Repayment Plan
  Request is an online application, which enables borrowers with eligible loans to apply
  for repayment options with greater ease and accuracy. For more information on
  repayment through Income-Driven Repayment Plans, visit StudentAid.gov/repay-
  loans/understand/plans/income-based.

7Collection  Rate for the purpose of Performance Metric D.3 is defined as the amount of dollars collected from borrowers
in the fiscal year per dollar spent to collect.

                                      Federal Student Aid Annual Report FY 2014                                       24
                                                              Management’s Discussion and Analysis
                                                                                Performance Management

Strategic Goal E: Strengthen FSA’s performance culture and become one of the best
                  places to work in the federal government.

FSA achieved substantial improvement in operational performance after its transformation to a
PBO in 1998, successfully and reliably delivering aid under changing legislative conditions.
Despite these improvements, FSA’s workforce still faces several challenges today. For example,
the results of the previous Federal Employee Viewpoint Surveys (FEVS) highlighted additional
areas in need of improvement and a significant number of FSA’s staff is eligible for retirement over
the next several years. In order to meet the performance challenges facing FSA and to fulfill its
rapidly expanding role, the organization will have to rebuild its human capital foundations.

Strategic Goal E aims to meet the performance challenges facing FSA. To do so, FSA will need to
empower its employees to accept new challenges, while ensuring the knowledge accumulated by
the retirement of experienced staff is not lost upon their departure.

Objectives supported: To support this strategic goal, FSA identified a set of objectives, which
includes detailed initiatives designed to assist FSA with meeting each objective. Meeting each
objective will result in accomplishing the strategic goal. The objectives that support this strategic
goal include:

•     Objective 1: Improve the integrity of core human capital processes to attract, develop, and
      retain talented FSA employees from diverse backgrounds; help them achieve their full
      performance potential and recognize their contribution to FSA’s mission.
•     Objective 2: Further develop a student-centric culture among all managers and employees
      that will fully deliver on FSA’s mission, vision, and strategy.

Performance Metric measured: To determine the success of FSA’s efforts to meet this strategic
goal, FSA identified a performance metric, including a target level of performance. For this
strategic goal, the following table lists the performance metrics, FY 2014 target and actual
performance levels, result (i.e., met, not met, etc.), and reference to supporting detail in the Annual
Performance Report section of this document. In summary, FSA met the target for this
performance metric.


                             Performance Summary for Strategic Goal E




                                   FY 2012    FY 2013     FY 2014    FY 2014     Result    Reference
    Performance Metrics
                                    Actual     Actual      Target     Actual                 Page



                                                                                   Met
     Employee Engagement Index        ─          ─        >=64.2%     67.7%                    64




                                 Federal Student Aid Annual Report FY 2014                              25
                                                              Management’s Discussion and Analysis
                                                                                Performance Management

Agency Priority Goal

An Agency Priority Goal is a measurable commitment to a specific result the federal government
will deliver for the American people. These goals represent high priorities for both the
administration and the Department, have high relevance to the public or reflect the achievement of
key agency missions, and will produce significant results over a 24-month period. As required by
OMB’s guidance for implementing the Government Performance and Results Modernization Act of
2010 (Pub. L. 111-352), the Department identified a limited number of new Priority Goals for
FY 2014–15 during the budget, policy, and strategic planning processes.

These new Priority Goals reflect the importance of teaching and learning at all levels of the
education system. Because they reflect a limited number of priorities, they do not fully reflect the
agency’s strategic goals nor cover the entire agency mission. Consequently, FSA is not
responsible for one specific Priority Goal for FY 2014–15. Instead, FSA will continue to provide
support as needed to the Department in accomplishing the Departmental Priority Goals. For more
information on the Department’s Priority goals, see The Department's FY 2014–15 Priority
Performance Goals.




                                       FSA Fact
   FSA offers a publication titled, College Preparation Checklist, to assist students and
   parents in preparing for college. This publication provides several checklists with
   suggested steps that will prepare students (of all age levels) both academically and
   financially for college. To download a copy of the College Preparation Checklist,
   visit StudentAid.gov/sites/default/files/college-prep-checklist.pdf

                                Federal Student Aid Annual Report FY 2014                          26
                                                             Management’s Discussion and Analysis
                                                                              Performance Management

Quality of Performance Data

Ensuring the integrity of the data required to determine performance results is a critical step in
reporting performance. For this step, FSA developed and implemented a Validation and
Verification Matrix. Specifically, FSA uses this matrix as a tool to validate the completeness and
reliability of the underlying data gathered and used to calculate each performance metric for the
reporting period, including the performance results reported in this Annual Report.

For each performance metric, this matrix is used to document the following: measurement
definition and owner; data source, availability, security procedures, and known limitations; whether
data are subject to FSA’s A-123 Internal Control Review process; and procedures for accessing
the data, calculating the performance metric, and validating and verifying the data gathered.

For a discussion of data quality and limitations for each performance metric, please see the section
Performance Results by Strategic Goal, contained in the Annual Performance Report section of
this Annual Report.




                               Federal Student Aid Annual Report FY 2014                             27
                                                                   Management’s Discussion and Analysis
                                                                   Financial Management Discussion and Analysis



Financial Management Discussion and Analysis

The financial management discussion and analysis provides an overview of FSA’s financial
results for FY 2014. This section is included to assist readers in understanding FSA’s financial
results, position, and condition as portrayed in the financial statements and notes located in the
Financial Section of this report. The financial analysis discussion explains major changes in
assets, liabilities, costs, and budgetary resources. It also includes comparisons of the current
year to the prior year and discusses the relevance of significant balances and amounts reflected
in the financial statements and notes.

FSA 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. FSA’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 FSA’s
financial position has been presented fairly. In FY 2014, FSA achieved an unmodified audit
opinion on its financial statements for the thirteenth consecutive year.

FSA presents its financial statements and notes in the format required by the OMB Circular A-
136, Financial Reporting Requirements. For the comparative fiscal years, FY 2014 and
FY 2013, the balance sheet, statement of net cost, and statement of changes in net position
were prepared on a consolidated basis, whereas the statement of budgetary resources was
prepared on a combined basis. The Independent Auditors’ Report on these statements, which
includes the Report on the Financial Statements, the Report on Internal Control, and the Report
on Compliance and Other Matters, can be found in the subsection Independent Auditors’
Report.

Federal Student Aid has oversight responsibilities for over $1.1 trillion in federal student loans,
of which approximately $872.6 billion is directly owned and managed by FSA. As described in
Notes 1 and 6, FSA reports this portfolio on its balance sheet as the line item Credit Program
Receivables, net of a subsidy cost allowance to adjust the portfolio amount to its present
value. As of September 30, 2014, FSA reported $922.4 billion in Credit Program Receivables,
Net including a negative allowance for subsidy cost of approximately $49.8 billion. In practical
terms, a negative subsidy occurs when the interest rate and/or fees charged to the borrower are
more than sufficient to cover the costs of the risk of default. FSA’s portfolio of Credit Program
Receivables, Net has seen significant growth, increasing by 11.7 percent over the FY 2013 net
portfolio balance. This growth continues to be driven by the expansion of the Direct Loan
program, as dictated by the SAFRA Act legislation. Operationally, FSA must manage the
resources it has available to ensure that this portfolio is serviced efficiently and effectively, and
that quality customer service is provided to its borrowers. FSA must mitigate several risks to
ensure this portfolio is managed effectively. These risks are discussed at the conclusion of the
analysis of the financial statements.




                                Federal Student Aid Annual Report FY 2014                               28
                                                                                        Management’s Discussion and Analysis
                                                                                        Financial Management Discussion and Analysis

 The FY 2014 FSA Financial Highlights tables presented below provide a condensed summary
 of the significant balances in FSA’s financial statements for the current and prior years, as of
 September 30, 2014 and 2013 respectively, and the percentage change between the two years.

                                   Fiscal Year 2014 FSA Financial Highlights
                                           Condensed Balance Sheet
                                                      (Dollars in millions)
                                                                                                                      Percentage
                                                          FY 2014                FY 2013             Difference
                                                                                                                       Change 8
Fund Balance with Treasury                           $       61,506      $           69,997      $        (8,491)         (12.1)%
Credit Program Receivables, Net                             922,418                 825,660               96,758            11.7%
Remaining Assets                                              1,596                   1,588                     8            0.5%
   Total Assets                                      $      985,520      $          897,245      $        88,275             9.8%

Debt                                                 $      965,362      $          851,258      $       114,104              13.4%
Other Intragovernmental Liabilities                           6,382                   8,786               (2,404)           (27.5)%
Remaining Liabilities                                         7,106                   7,207                 (101)             (1.4)%
   Total Liabilities                                 $      978,850      $          867,251      $       111,599              12.9%

Unexpended Appropriations                            $       30,485      $           33,595      $        (3,110)            (9.3)%
Cumulative Results of Operations                           (23,815)                  (3,601)             (20,214)           561.3%
   Net Position                                      $        6,670      $           29,994      $       (23,324)           (77.8)%
   Total Liabilities & Net Position                  $     985,520       $          897,245      $         88,275              9.8%

                                                         Cost Summary
                                                      (Dollars in millions)
                                                                                                                      Percentage
                                                           FY 2014               FY 2013             Difference
                                                                                                                       Change 9
Gross Cost                                            $         65,470       $        13,266     $       52,204            393.5%
Less: Earned Revenue                                          (28,979)              (26,688)             (2,291)             8.6%
   Net Cost of Operations                             $         36,491       $      (13,422)     $       49,913          (371.9)%

 Balance Sheet

 The Balance Sheet presents the recorded value of assets and liabilities retained or managed by
 FSA as of a specific point in time. The assets represent resources available for use by FSA to pay
 its liabilities or to satisfy its future service needs. The liabilities are amounts FSA owes, the
 probable and measurable future outflows of its resources arising from past transactions or events.
 The difference between the assets and the liabilities represents FSA’s net position.

 Composition of FSA Assets. The consolidated balance sheet shows that FSA had total assets
 of $985.5 billion as of September 30, 2014, an increase of $88.3 billion, or 9.8 percent over the
 September 30, 2013 total assets balance of $897.2 billion. The difference resulted primarily from
 the continuing growth of the net Credit Program Receivables ($96.8 billion) offset by a decrease
 in the Fund Balance with Treasury ($8.5 billion). Together, FSA’s Fund Balance with Treasury

 8 Note that the percentage change is calculated as the FY 2013–FY 2014 difference, divided by the FY 2013 amount. In some
 instances, where the current year amount has an opposite sign to the prior year amount, the percentage change may be negative
 even though the annual change is positive (and vice versa). Similarly, if the current year negative amount has a larger negative
 value than the prior year negative amount, the difference will be negative but the percentage change will be positive.
 9 Same as above.


                                           Federal Student Aid Annual Report FY 2014                                                29
                                                                                         Management’s Discussion and Analysis
                                                                                         Financial Management Discussion and Analysis

and its net Credit Program Receivables accounted for almost 100.0 percent of Total Assets as of
September 30, 2014, as illustrated in the Composition of Assets chart below. Following the
Composition of Assets chart is the Comparison of Assets chart that presents the growth of these
two principal balance sheet line items over the past five fiscal years.

   Composition of Federal Student Aid’s Assets as of the end of Fiscal Years 2010–14
  100%

   90%

   80%
                                                                                                                 Credit Program
   70%                                                                                                           Receivables, Net

   60%
              86.6%                 89.2%               89.4%                                                    Fund Balance with
                                                                           92.0%           93.6%
   50%                                                                                                           Treasury
   40%
                                                                                                                 Remaining Assets
   30%

   20%

   10%
              12.6%                 10.5%               10.4%               7.8%             6.2%
    0%        0.8%                  0.3%                0.2%                0.2%             0.2%
            FY 2010                FY 2011             FY 2012            FY 2013        FY 2014


   Comparison of Federal Student Aid’s Assets as of the end of Fiscal Years 2010–14
                                                        (Dollars in Billions)
 $1,200


 $1,000


   $800


   $600

                                                                                                                  $922.4
   $400                                                                                  $825.7
                                                                 $672.8
                                      $530.0
   $200    $367.4
                                               $62.2                      $78.5                   $70.0                    $61.5
                    $53.5
                            $3.3                       $1.8                       $1.4                    $1.5                     $1.6
     $0
              FY 2010                       FY 2011                 FY 2012                  FY 2013                  FY 2014

                        Credit Program Receivables, Net                       Fund Balance with Treasury
                        Remaining Assets                                      Total Assets



                                        Federal Student Aid Annual Report FY 2014                                                         30
                                                                                                Management’s Discussion and Analysis
                                                                                                Financial Management Discussion and Analysis

Credit Program Receivables, Net. With a $922.4 billion balance as of September 30, 2014,
Credit Program Receivables, Net represent FSA’s most important asset category and
accounted for 93.6 percent of Total Assets. This balance included $872.6 billion in principal,
interest, and fees relating to Direct Loans, TEACH Grants, Perkins loans, HEAL loans and FFEL
loans acquired under the Conduit, Loan Participation Purchase, Loan Purchase Commitment,
and defaulted guaranteed loan programs, together with a negative allowance for subsidy cost of
approximately $49.8 billion that adjusted the loan portfolio to its estimated present value. The
Direct Loan Credit Program receivables continue to be the major component of this portfolio and
as of September 30, 2014 comprised 84.4 percent of the net balance, for a total of
$778.5 billion. This total included $731.2 billion in principal, interest, and fees, net of a negative
subsidy allowance in the amount of $47.4 billion. Of the $731.2 billion in receivables,
$33.9 billion (4.6 percent) in loan principal was in default and had been transferred to the
Department’s defaulted loan servicer, compared to $28.9 billion (4.7 percent) as of September
30, 2013. Also, as of the end of FY 2014, an additional $0.5 billion in defaulted loans held by
servicers had not yet been transferred to the Department’s defaulted loan servicer compared to
$1.1 billion a year earlier. This amount includes defaulted Direct Loans and defaulted loans
from other loan programs.

      Total Federal Student Aid Loan Portfolio as of the end of Fiscal Years 2010–14
                                                                      (Dollars in Billions)
                                                         $1,000
                       Credit Program Receivables, Net




                                                          $900
                                                          $800
                                                          $700
                                                          $600
                                                          $500
                                                          $400
                                                          $300
                                                          $200
                                                          $100
                                                            $0
                                                                   FY 2010        FY 2011     FY 2012       FY 2013       FY 2014
                   Other Programs                                    $0.3           $0.5       $0.7           $0.8          $1.0
                   FFEL, Guaranteed*                                $26.4          $32.3       $32.3         $37.4          $39.9
                   FFEL, ECASLA**                                   $112.4         $115.7     $113.8         $108.4        $103.0
                   Direct Loans                                     $228.2         $381.5     $526.0         $679.1        $778.5
                   Total                                            $367.3         $530.0     $672.8         $825.7        $922.4




*FFEL Guaranteed (Non-ECASLA) Program
**FFEL ECASLA Acquired Loan Program

The majority of the $96.8 billion increase in net Credit Program Receivables during the
12 months ended September 30, 2014 was also due to the Direct Loan Program, which
increased $99.4 billion or 14.6 percent. Of this increase, $117.3 billion was due to growth in the
outstanding amount owed by borrowers, driven mainly by new loan originations ($99.4 billion)

                                                              Federal Student Aid Annual Report FY 2014                             31
                                                                     Management’s Discussion and Analysis
                                                                     Financial Management Discussion and Analysis

and consolidation disbursements ($34.7 billion), and interest and fee accruals and adjustments
($32.8 billion), offset by collections of principal, interest and fees from borrowers. This increase
in the borrower-owed amount was offset by a $17.8 billion reduction in the negative subsidy
allowance that reduced Credit Program Receivables, Net by the same amount, which is
explained in more detail in Note 6.

The increase in net Direct Loan Credit Program Receivables was offset by a reduction of
$2.9 billion in the net FFEL Credit Program Receivables, a 2.0 percent decrease compared to
the September 30, 2013 balance. The changes observed in both the Direct Loan and FFEL net
credit program receivables are principally related to the impact of the SAFRA Act, which as of
June 30, 2010, eliminated all new loan disbursements under the FFEL Program in favor of direct
lending, and also due to continued loan consolidations that allow borrowers to take advantage
of lower interest rates.

Fund Balance with Treasury. FSA’s Fund Balance with Treasury represents the funds it has
available to pay its current liabilities, make purchases and finance authorized loans to
borrowers. Treasury processes cash receipts from borrowers and cash disbursements for
FSA’s loan and grant programs. As of September 30, 2014, FSA reported a Fund Balance with
Treasury amount of $61.5 billion of which $32.6 billion represented general funds. Revolving
funds accounted for a further $28.9 billion, derived from borrowings, as well as collections from
the public and other federal agencies. Special funds made up only $15.0 million and included
fees collected on delinquent or defaulted Perkins loans. Please refer to Note 3 for more details.

               Fund Balance with Treasury as of the end of Fiscal Year 2014
                                                     Special Funds
                                                          0%




                                Revolving Funds
                                     47%
                                                           General Funds
                                                               53%




The FY 2014 year-end Fund Balance with Treasury amount was $8.5 billion (12.1 percent) below
the FY 2013 year-end balance. This decrease resulted mainly from reductions in balances related
to the combined Perkins Loan and Grants Programs, the FFEL Program and the Direct Loan
Program because of the net activity in these programs during the year. For the net reduction
related to the Perkins Loan and Grants Programs ($3.3 billion), this was primarily attributable to a

                                Federal Student Aid Annual Report FY 2014                               32
                                                                        Management’s Discussion and Analysis
                                                                        Financial Management Discussion and Analysis

decrease in funding due to the sequestration order required by the Budget Control Act of 2011, net
of a decrease in Pell Grant Disbursements during FY 2014. A further $3.0 billion reduction was
due to the FFEL Program, where default claim payments ($8.7 billion), debt repayments
($8.6 billion), interest payments to Treasury ($5.4 billion) and subsidy-related transactions
($5.1 billion) offset collections of principal, interest, and fees ($19.2 billion) and other activity ($5.6
billion). In addition, the Direct Loan Program contributed to the decrease ($2.3 billion) because of
new borrowings ($105.3 billion) and collections ($48.2 billion) offset by disbursements to borrowers
($134.1 billion), net interest payments to Treasury ($21.5 billion) and other costs to maintain the
Direct Loan Program.

Composition of FSA Liabilities. FSA’s liabilities represent probable and measurable future
outflows of resources arising from past transactions or events. As of September 30, 2014, FSA
had total liabilities of $978.9 billion, an increase of $111.6 billion or 12.9 percent over the
September 30, 2013 total, a higher rate of increase than the 9.8 percent growth in total assets.

Debt. With an FY 2014 year-end balance of $965.4 billion, FSA’s debt represented the primary
component of its liabilities, and was $114.1 billion (13.4 percent) above the September 30, 2013
amount. This increase was primarily a result of new borrowings to support the growing loan
volume in the Direct Loan Program, and for subsidy related costs affecting the entire portfolio of
credit program receivables. Overall, the Direct Loan portion of FSA’s debt increased by
$120.6 billion (17.3 percent) to $819.0 billion as of September 30, 2014, representing 84.8 percent
of FSA’s total debt balance. Over the same period, FFEL-related debt declined by $6.6 billion
(4.3 percent) to $145.8 billion. These changes, like those in the Credit Program Receivable, Net
portfolio discussed above, reflect the impact of the SAFRA Act on disbursements, interest-rate
driven loan consolidations, and related changes in estimated subsidy costs for the two programs
that all affect program borrowings. As illustrated in the following chart, this trend has continued
throughout the past five years, with the annual rate of increase in Direct Loan related debt
averaging 27.0 percent throughout that period compared to an overall rate of debt increase of
21.4 percent.

      Comparison of Federal Student Aid Debt as of the end of Fiscal Years 2010–14
                                            (Dollars in Billions)
             $1,200
             $1,000
                  $800
                  $600
                  $400
                  $200
                    $0
                          FY 2010           FY 2011           FY 2012         FY 2013         FY 2014
     TEACH                 $0.2              $0.3              $0.4            $0.5            $0.6
     FFEL, Guaranteed*     $10.7             $29.5              $43.3          $43.3            $43.3
     FFEL, ECASLA**        $125.6            $124.1            $121.4         $109.2           $102.5
     DL Program            $237.2            $392.4            $549.3         $698.4           $819.0
     Total Debt            $373.7            $546.3            $714.3         $851.3           $965.4

*FFEL Guaranteed (Non-ECASLA) Program
**FFEL ECASLA Acquired Loan Program




                                    Federal Student Aid Annual Report FY 2014                              33
                                                                        Management’s Discussion and Analysis
                                                                        Financial Management Discussion and Analysis

Other Intragovernmental Liabilities. Other Intragovernmental Liabilities decreased by
$2.4 billion or 27.4 percent, from $8.9 billion to $6.4 billion of which $2.0 billion was attributable
to Direct Loan activity. As detailed in Note 11, these changes result principally from a
$2.3 billion reduction in liabilities in miscellaneous receipt accounts covered by budgetary
resources, representing a reduced liability for downward subsidy re-estimates resulting from
updated economic assumptions, including probabilistic estimating, discount rates, and interest
rates. When executed, the remaining ($3.7 billion) in downward subsidy re-estimates will be
paid to Treasury’s General Fund. Please refer to Note 11 for further details.


Statement of Net Cost

The Statement of Net Cost is the federal financial statement that presents the net cost of
operations for FSA programs. FSA net cost is the gross cost incurred during its operations less
any revenues earned from its activities.

                     Composition of FSA Net Cost for Fiscal Years 2010–14
                    $50.000
                    $40.000
                    $30.000
                    $20.000
                    $10.000
                         $-
                   $(10.000)
                   $(20.000)
                   $(30.000)
                   $(40.000)
                   $(50.000)
                   $(60.000)
                                   FY 2010      FY 2011       FY 2012          FY 2013        FY 2014
              DL Program           $(1.567)     $(28.631)     $(10.720)        $(39.557)       $8.126
              FFEL Program         $(15.332)    $(14.825)     $(14.018)        $(8.753)       $(5.994)
              Grants Programs*     $26.750      $38.947       $34.224          $33.508        $33.052
              Other Programs        $0.906       $1.109        $1.174           $1.380         $1.307
              Recovery Act          $8.920       $0.027        $0.023             $-             $-
              Total FSA Net Cost   $19.677      $(3.373)      $10.683          $(13.422)      $36.491

*Includes Perkins Loan and Grants Programs

FSA’s net costs during FY 2014 increased $49.9 billion or 371.9 percent to a positive net cost of
$36.5 billion compared to a negative net cost of $13.4 billion in FY 2013. In other words, FSA’s
total costs increased relative to its revenues, so that whereas revenues exceeded expenses in
FY 2013, the reverse was true for FY 2014. The net change was the result of a $52.2 billion
increase in Gross Costs (of which $50.2 billion was attributable to the Direct Loan Program)
offset by a $2.3 billion increase in Earned Revenue (of which $2.5 billion was attributable to the
Direct Loan Program). Therefore the Direct Loan Program, which reported a FY 2014 net cost

                                   Federal Student Aid Annual Report FY 2014                               34
                                                                     Management’s Discussion and Analysis
                                                                     Financial Management Discussion and Analysis

of $8.1 billion, accounted for $47.7 billion of the $49.9 billion overall change in net costs, an
120.5 percent increase over the prior year negative net cost of $39.6 billion for this program.

This overall change was mainly the result of subsidy related transactions. Both FFEL and Direct
Loans are mandatory programs whose costs are largely driven by Federal borrowing costs,
prevailing interest rates, in-school interest benefits for borrowers, the costs related to borrower
defaults, and loan volume demand. The programs are funded by mandatory and indefinite
budget authority and therefore do not receive annual appropriations. A loan subsidy, the portion
of cost paid by the federal government, is calculated for groups of loans known as cohorts,
based on the fiscal year in which the loan award is made or the funds are committed. Under the
Federal Credit Reform Act of 1990, this subsidy cost reflects the Department’s estimate of the
net present value of future cash flows associated with the Direct Loan or FFEL Programs, and
must be recalculated for all outstanding loans by cohort group on an annual basis. Program
changes, economic conditions and borrower repayment patterns all impact subsidy estimates
and re-estimates, but the biggest factor is the changing relationship between the Government’s
estimated cost of borrowing and the interest rate at which borrowers repay their loans. As
discussed in Note 6, even small changes in economic projections may produce substantial
movement, up or down, in the subsidy rate, resulting in an upward or downward re-estimate of
the subsidy cost relating to outstanding loans, which will in turn be reflected in an increase or
decrease in FSA’s gross and net costs.

The net impact of these various factors in FY 2014 was a $30.2 billion upward adjustment of
Direct Loan re-estimated subsidy cost compared to a $12.5 billion downward adjustment for the
prior year, an overall increase in the Direct Loan Program subsidy cost of $42.8 billion.
Specifically, in FY 2014, these increased costs were related to the Pay as You Earn initiative
($8.3 billion), changes in the availability of repayment plans ($18.6 billion) and increased default
rates ($2.9 billion), offset by decreased costs due to updated discount rates for the FY 2013 and
FY 2012 cohorts ($4.4 billion), increased interest earnings due to slower than anticipated
prepayment activity ($3.2 billion), together with other changes due to other revised assumptions.
In FY 2013, the downward adjustment was mainly due to updated discount rates for the
FY 2012 and FY 2011 cohorts ($11.8 billion), deferment and forbearance rate changes
($1.5 billion), and increased interest earnings due to slower than anticipated prepayment activity
($1.1 billion) offset by higher costs due to increases in default and disability rates ($1.5 billion)
and other factors.

In addition, there was a further $3.9 billion increase in gross costs in FY 2014 due to current
year Direct Loan subsidy transfers, primarily attributable to the interest rate differential, offset by
a $2.5 billion increase in Direct Loan Program Revenues, mainly because of interest revenue
earned from the public on Credit Program Receivables held by the Department. Please refer to
Note 6 and Note 15 for more details.


Statement of Changes in Net Position

The Statement of Changes in Net Position presents those amounts that caused the net position
section of the Balance Sheet to change from the beginning to the end of the reporting period.

FSA’s net position as of September 30, 2014, was $6.7 billion, a decrease of $23.3 billion, or
77.8 percent compared to the previous September 30 net position of $30.0 billion. The
difference reflects a decrease in cumulative results of operations in the amount of $20.2 billion

                                 Federal Student Aid Annual Report FY 2014                                35
                                                                   Management’s Discussion and Analysis
                                                                   Financial Management Discussion and Analysis

that included a $21.4 billion decrease related to the Direct Loan Program, primarily attributable
to a decrease in the unfunded liability for Direct Loan upward subsidy re-estimates, which
indicates that insufficient subsidy had been paid to the financing account for loans disbursed in
the cohorts 1994–2013. This was offset by a $1.2 billion increase in cumulative results of
operations related to the FFEL Program, also related to subsidy re-estimate adjustments. In
addition, there was an overall decrease in unexpended appropriations of $3.1 billion that mainly
related to the Perkins Loan and Grants Programs, primarily attributable to a decrease in funding
as a result of the sequestration order required by the Budget Control Act of 2011, and to a
decrease in Pell grant disbursements.


Statement of Budgetary Resources

The Statement of Budgetary Resources compares the budgetary resources provided with the
status or execution of those resources. It also details the composition of the resources and
shows the amount of net outlays. Appropriations are available to cover the subsidy cost of each
loan program and administrative expenses. Subsidy expense represents 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.

This statement shows that as of September 30, 2014, FSA had $307.7 billion in combined
budgetary resources, of which $11.8 billion remained unobligated and unapportioned. This
$4.8 billion change compared to September 30, 2013 represented a 1.5 percent decrease
compared to combined budgetary resources a year earlier of $312.5 billion, of which
$13.1 billion were unobligated and unapportioned. The FFEL Program accounted for
$6.2 billion of this reduction in budgetary resources, mainly due a decrease in unobligated
balance brought forward. There was a further $3.3 billion reduction attributable to the Perkins
Loan and Grants Programs, due to the offsetting impacts of decreased funding due to the
sequestration order required by the Budget Control Act of 2011, and an increased unobligated
balance brought forward. In addition, an offsetting $4.6 billion increase attributable to the Direct
Loan Program was mainly the result of an increase in unobligated budgetary resources not yet
apportioned. These funds are not available for obligation.

FSA had total net outlays as of September 30, 2014 of $133.3 billion, a decrease of $7.7 billion
or 5.4 percent compared to the prior September 30 total of $140.9 billion. The Direct Loan
Program accounted for $5.9 billion of this change, with offsetting $0.9 billion variances
attributable to an increase in the FFEL Program, and a decrease in the combined Perkins Loan,
and Grants Programs. These changes are mainly due to an $8.9 billion decrease in budgetary
Distributed Offsetting Receipts arising from increased downward subsidy re-estimates that
resulted from interest rate differential, together with increased negative subsidy.

More details on FSA’s sources of funds and spending are presented in the Schedule of
Spending located in the Other Information section. This schedule includes the sections, “What
Money is Available to Spend” and “How Was the Money Spent”.




                                Federal Student Aid Annual Report FY 2014                              36
                                                                 Management’s Discussion and Analysis
                                                                 Financial Management Discussion and Analysis

Financial Management Risks

As mentioned previously, FSA must mitigate several financial management risks in order to
protect borrower and taxpayer interests. While not directly reflected on the financial statements
as detailed, they are overarching risks going forward that cannot be ignored. These risks
include:

System/Service Implementations. Recent major financial system implementation efforts
continue to be very successful, including the transition of the HEAL Program from the U.S.
Department of Health and Human Services and the transition of consolidated loan servicing.
Over the next few years, FSA will continue to re-compete contracts associated with several of
its major business processes, primarily those that focus on application processing, loan and
grant origination and disbursement, and its technology infrastructure. Managing multiple re-
competes and new system implementations at the same time creates a number of risks. To
mitigate risks of these large and complex implementations, FSA must be vigilant in many ways,
including the following.

•   Ensure that knowledgeable staff have sufficient time to work on all of the relevant
    implementations, given FSA’s large and complex operating environment.
•   Ensure that FSA’s tightly integrated systems that are in the process of changing at the same
    time do not implement conflicting requirements.
•   Ensure that project and portfolio management practices are in place to maintain effective
    management control over all of the implementations.

Exacerbating this risk associated with contract re-competes are the numerous program changes
that FSA has been asked to implement in recent years, and which will continue to be required of
FSA into the foreseeable future.

FSA continues to manage the risks associated with system/service implementations through a
robust and dynamic investment management process. This includes the use of an active
investment review board, the application of a lifecycle management methodology, and at least
monthly reviews of the investment portfolio’s performance.

Improper Payments. Based on OMB criteria, risk susceptible programs administered by FSA
include the Direct Loan Program, FFEL Program, and Pell Grant Program. FY 2014 outlays for
these programs were as follows:

•   Direct Loan Program – $102.1 billion
•   FFEL Program – $10.0 billion (interest and special allowance subsidies to Lenders and
    reinsurance claims and fees to Guaranty Agencies)
•   Pell Grant Program – $31.6 billion
Risks include undetected fraud, waste, and abuse. For more information regarding FSA’s
assessment of improper payment risk and planned strategies to mitigate this risk, please refer to
the Improper Payments Reporting Details narrative in the Other Information section located in
the U.S. Department of Education FY 2014 Agency Financial Report (AFR).




                               Federal Student Aid Annual Report FY 2014                            37
                                                                   Management’s Discussion and Analysis
                                                                   Financial Management Discussion and Analysis

Debt Collection. As of September 30, 2014, the Department managed a Net Credit Program
Receivable portfolio of approximately $922.4 billion, an increase of 11.7 percent from FY 2013.
This portfolio includes FSA’s Direct Loan Program, FFEL Program (guaranteed loans held by
guaranty agencies or FSA), FFEL loans acquired via authorization of the ECASLA, Federal
Perkins Loans Program receivables, HEAL loans, and TEACH Program receivables. As of
September 30, 2013, the Department was responsible for administering 81.0 percent of the net
loans receivable for the federal government and that percentage will likely grow from year to
year. FSA realizes that as the size of the loan portfolio grows so does the level of financial risk
associated with the collections on these loans.

To ensure that FSA maximizes collections, while minimizing defaults and negative borrower
impacts, FSA has been working with the Department, Treasury, and OMB to implement and
monitor more effective performance metrics. For example, through coordinated efforts with an
OMB/Treasury Debt Collection working group, FSA has clarified the requirements of the
Treasury Report on Receivables and continues to implement those clarified requirements with
all 13 of its current loan servicing contractors. These more detailed and consistent performance
metrics will assist FSA, the Department, and the federal government in making more informed
debt collection decisions.

Guaranteed Loan Portfolio. As of September 30, 2014, the $305.0 billion guaranteed loan
portfolio (non-ECASLA FFEL) included principal balances owned by private lenders and
principal, interest and fees held by FSA (unassigned serviced by guaranty agencies or assigned
serviced by FSA). This is an overall reduction by 6.8 percent of the guaranteed FFEL portfolio
since the end of last fiscal year. Because the SAFRA Act eliminated the origination of
guaranteed FFEL loans, FSA needs to ensure that the infrastructure (i.e., participating
organizations processes, controls, and systems) continues to be sufficient to administer federal
student loans consistent with relevant laws and regulations.

FSA monitors the balances of Guaranty Agency Operating Funds and Federal Funds to identify
risks associated with those funds. Specifically, these funds are monitored to protect federal
assets, to ensure timely payment of lender claims, and to ensure that FFEL borrowers receive
the service to which they are entitled. While FSA understands the need to remain constantly
vigilant, there have been no losses of federal funds, it is not aware of any lender claims being
paid untimely, nor is it aware of any instance where an insufficient Operating Fund level has
caused a FFEL borrower to not receive the services to which the borrower was entitled.

Administrative Budget. Many of the organization’s costs are driven by volume activities, such
as grant or loan origination and disbursement, and loan servicing. For example, loan servicing
costs are driven by the number of borrower accounts, the repayment status of a borrower’s
loan(s), and the timing of the borrowers’ loan disbursements. The number of grant and loan
origination and disbursement transactions drives the origination and disbursement costs. The
budgeting formulation process generally sets the initial administrative budget for a fiscal year 18
months before the start of that fiscal year. However, even a small variation in any of FSA’s
volumes can significantly impact its budget. This places all other expenditures and plans
associated with those expenditures at risk. This risk must be managed as long as the federal
government pays for mandatory Direct Loan expenditures using discretionary administration
funding.




                                Federal Student Aid Annual Report FY 2014                             38
                                                                                Management’s Discussion and Analysis
                                                                          Analysis of Systems, Controls, and Legal Compliance




Analysis of Systems, Controls, and Legal Compliance

  FSA management adheres to the U.S. Government Accountability Office (GAO) published
  guidance on internal control and recognizes that internal control is an integral part of
  managing an organization. Internal control includes the plans, methods, and procedures
  that are used to meet the organization’s missions, goals, and objectives. In carrying out
  these components of internal control, FSA supports an environment for performance-based
  management. Internal control also serves as the first line of defense in safeguarding
  assets, and preventing and detecting errors and fraud. Internal 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; and
  •    Compliance with applicable laws and regulations. 10

  FSA management is responsible for establishing and maintaining effective internal control
  and financial management systems that meet the objectives of the Federal Managers’
  Financial Integrity Act of 1982. FSA conducted its assessment of the effectiveness and
  efficiency of its internal controls over operations and compliance with applicable laws and
  regulations in accordance with OMB Circular A-123, Management’s Responsibility for
  Internal Control (OMB Circular A-123). Based on the results of this assessment, FSA
  reported to the Department’s management that its internal control over operations and
  compliance with applicable laws and regulations, as of September 30, 2014, was operating
  effectively, except where noted in the Legal Compliance section of Department’s AFR.

  In addition, FSA, working with the Department’s management, conducted its current year
  assessment of the effectiveness of internal control over financial reporting in accordance
  with the requirements of Appendix A of OMB Circular A-123. The scope of FSA’s
  assessment included, based on a rotation plan, the following processes and select sub-
  processes (notated in parentheses below), and systems that impact the Department's
  financial statements:

  •    Debt Collection*
  •    Direct Loan Originations
  •    Student Eligibility
  •    Grant Program Operations (Pell, Campus Based and TEACH*)
  •    Operations Performance Division Forms 2000
  •    Financial Reporting (5)


  10
    Government Accountability Office Standards for Internal Control in the Federal Government, GAO/AIMD-00-21.3.1,
  November 1999, p. 4-5.


                                          Federal Student Aid Annual Report FY 2014                                       39
                                                             Management’s Discussion and Analysis
                                                        Analysis of Systems, Controls, and Legal Compliance

•   Financial Reporting (Journal Entries, Month-End Closing, Monthly Reconciliations, and
    Treasury Report on Receivables Compilation Process Year-End Closing )
•   Procurement Management (Contract Acquisition and Invoice Processing )
•   Total and Permanent Disability (TPD)
•   Servicing of Direct Loans and ECASLA-acquired FFEL Program Loans by 4 Title IV
    Additional Servicers (TIVAS)* and 7 Not-For-Profit (NFP) servicers*
•   Perkins Loans*
•   Servicer Oversight
•   Entity-Level controls
•   IT Controls over the following systems: Financial Management System, Direct Loan
    Consolidation System, Debt Management Collection System 2*, Central Processing
    System , Access and Identity Management System, e-Campus Based System, National
    Student Loan Data System (NSLDS), Financial Partner Data Mart, Common Origination
    and Disbursement, Postsecondary Education Participants System, the Virtual Data
    Center*, 4 TIVAS Servicing Systems, 7 NFP Servicing Systems, and the Perkins Loan
    Servicing System.

In FY 2014, FSA continued to rely significantly on audits of loan servicers conducted by
independent public accountants in accordance with Statement on Standards for Attestation
Engagements (SSAE) Number 16, Reporting on Controls at a Service Organization. In the
list above, an asterisk (*) indicates full or partial reliance on SSAE 16 Service Organization
Control 1 (SOC1) reports for relevant process and IT controls.

With this reliance on SSAE 16 SOC1s, the number of key process controls assessed in
FY 2014 was 1,036 process and entity level controls, and demonstrates an increase from
prior year totals. As illustrated below, the breakdown of this total number of key process
controls assessed includes 623 controls covered by SSAE 16 SOC1s and 413 tested by
the FSA self-assessment team. While the number of controls assessed increased, total
deficiencies identified in FY 2014 decreased compared to FY 2013, both in number and
percentage of total controls assessed. The number of deficiencies depicted on the
following page for FY 2014 (80) includes deficiencies identified from both SSAE 16 SOC1
reports (33) and A-123A testing (47).




                                Federal Student Aid Annual Report FY 2014                               40
                                                                                       Management’s Discussion and Analysis
                                                                               Analysis of Systems, Controls, and Legal Compliance

                                FSA FY 2012–14
        A-123A Process and Entity Level Controls and Deficiencies Analysis




1200

1000

 800
                                                                                                         623
            149                                               578
 600

 400
            548
 200                                                          356                                        413
                                          43                                    60
                                          84                                                                                    33
   0                                                                            40                                              47
          FY 2012                                          FY 2013                                   FY 2014
         Controls Tested by A-123A Team           Deficiencies Identified   Number of Process Controls         SSAE16 SOC1 Findings
                                                                            Covered by SSAE16 SOC1s            (12/31 and 6/30 reports)




The total number of IT controls subject to assessment decreased in FY 2014 over FY 2013
as five Servicers (four NFPs and ACS, Inc. Education Servicing) were decommissioned
and no longer included in scope. As illustrated in the chart below, the total number of IT
controls assessed in FY 2014 likewise decreased over FY 2013. The total number of IT
controls assessed was 2,008 and includes 1,607 controls covered by SSAE16 SOC1s and
401 tested by the FSA self-assessment team. The number of deficiencies depicted below
for FY 2014 (44) includes deficiencies identified from both SSAE16 SOC1 reports (18) and
A-123A testing (26).

The total number of IT controls subject to assessment decreased in FY 2014 over FY 2013
as five Servicers (four NFPs and ACS, Inc. Education Servicing) were decommissioned
and no longer included in scope. As illustrated in the chart below, the total number of IT
controls assessed in FY 2014 likewise decreased over FY 2014. The total number of IT
controls assessed was 2,008 and includes 1,607 controls covered by SSAE16 SOC1s and
401 tested by the FSA self-assessment team. The number of deficiencies depicted below
for FY 2014 (44) includes deficiencies identified from both SSAE16 SOC1 reports (18) and
A-123A testing (26).




                                               Federal Student Aid Annual Report FY 2014                                                  41
                                                              Management’s Discussion and Analysis
                                                         Analysis of Systems, Controls, and Legal Compliance



                                   FSA FY 2012–14
                       A-123A IT Controls and Deficiency Analysis




Based on the results of this evaluation, FSA provided reasonable assurance to the
Department's management that its internal control over financial reporting as of
June 30, 2014 was operating effectively.

FSA’s participation in the Department's implementation of the requirements of OMB
Circular A-123, including 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 Analysis of Systems, Controls, and Legal Compliance
section of the Department’s AFR for additional information related to management’s
assurances and disclosures.

Please also refer to the Analysis of Systems, Controls, and Legal Compliance section of
the Department’s AFR for information related to the Department's compliance with the
Federal Financial Management Improvement Act of 1996.

FSA’s financial management systems strategy is formulated and managed as part of the
Department’s strategy. For details on FSA’s financial management systems strategy,
please refer to the Financial Management Systems Strategy narrative found in the
Management’s Discussion and Analysis section of the Department’s AFR.




                                Federal Student Aid Annual Report FY 2014                                42
                                                              Management’s Discussion and Analysis
                                                                           Limitations of Financial Statements

4

    Limitations of Financial Statements
Management has prepared the accompanying financial statements to report the financial
position and operational results for FSA, for FY 2014 and FY 2013 pursuant to the requirements
of Title 31 of the United States Code, Section 3515(b).

While these statements have been prepared from the books and records of FSA 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 for FSA, 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.




                               Federal Student Aid Annual Report FY 2014                                43
                                  Management’s Discussion and Analysis
                                            Limitations of Financial Statements




 This page left blank intentionally.




Federal Student Aid Annual Report FY 2014                                44
                                                    Annual Performance Report




Annual Performance Report




        Federal Student Aid Annual Report FY 2014                        45
                                                                                                Annual Performance Report



         FY 2014 Performance Highlights of Federal Student Aid

                Performance Metrics                             FY 2014           FY 2014           Result        Reference
                                                                 Target            Actual                           Page
Strategic Goal A: Provide superior service and information to students and borrowers.

% of first-time FAFSA filers among high school                                                       Met
                                                             58.8%–60.8%           60.1%                              50
seniors
                                                                                                     Met
Persistence among first-time filing aid recipients           77.5%–79.5%           79.6 %                             52

                                                                                                     Met
Customer Visits to StudentAid.gov                            >=30.7 million      32.7 million                         53

                                                                                                     Met
Social Media Channel Subscribership                            >=296,000          368,042                             54

                                                                                                     Met
Customer satisfaction score (ACSI)                              77.4–79.4            78.4                             55

Strategic Goal B: Work to ensure that all participants in the system of funding postsecondary education
                  serve the interests of students, from policy to delivery.
Ease of doing business school survey                                                                 Met
                                                                  73–75               77                              56
(1-100 Scale)
                                                                                                     Met
Percent of borrowers>90 days delinquent                           8.1%              8.1%                              57

Strategic Goal C: Develop efficient processes and effective capabilities that are among the best in the
                  public and private sectors.
                                                                                                     Met
Aid delivery costs per application                               $11.94            $11.43                             58

                                                                                                   Not met
Loan servicing costs per borrower                                $21.20            $21.59                             59

Strategic Goal D: Ensure program integrity and safeguard taxpayers’ interests.

                                                                                                   Not met
Improper Payment rate                                             1.33%            1.54%                              60

                                                                                                     Met
Percent of contract dollars competed by FSA                  85.3%–87.3%           88.7%                              62

                                                                                                   Not met
Collection rate 11                                               $45.65            $35.90                             63

Strategic Goal E: Strengthen FSA’s performance culture and become one of the best places to work in the
                  federal government.
                                                                                                     Met
Employee Engagement Index                                       >=64.2%            67.7%                              64




     11 The Collection Rate for the purpose of Performance Metric D.3 is defined as the amount of dollars collected from

     borrowers in the fiscal year per dollar spent to collect.

                                           Federal Student Aid Annual Report FY 2014                                       46
                                                                                 Annual Performance Report
                                                                   Introduction to the Annual Performance Report



Introduction to the Annual Performance Report

To guide FSA towards achieving its vision “To be the most trusted and reliable source of student
financial aid, information, and services in the nation,” the organization updated its Five-Year
Strategic Plan to document the strategic goals, objectives, and performance metrics of the
organization. FSA is required by the PBO-enabling legislation to report annually its level of
performance. This section, the Annual Performance Report, satisfies this annual reporting
requirement.

For additional performance related information, including a more complete discussion of FSA’s
mission, organization, and performance management, refer to the Management’s Discussion and
Analysis section of this document.

The current strategic plan, FSA Strategic Plan, FY 2012–16 was implemented at the beginning of
FY 2012. This plan builds on the previous strategic plan by clarifying FSA’s objectives and
updating organizational performance standards to better reflect its progress in meeting the stated
objectives. The strategic goals are as follows:

•   Strategic Goal A: Provide superior service and information to students and borrowers.
•   Strategic Goal B: Work to ensure that all participants in the system of funding postsecondary
    education serve the interests of students, from policy to delivery.
•   Strategic Goal C: Develop efficient processes and effective capabilities that are among the
    best in the public and private sectors.
•   Strategic Goal D: Ensure program integrity and safeguard taxpayers’ interests.
•   Strategic Goal E: Strengthen FSA’s performance culture and become one of the best places
    to work in the federal government.

To gauge its success in meeting these strategic goals, FSA identified 13 performance metrics. For
more information on FSA’s strategic goals and its performance metrics, click on the following link to
go directly to the FSA Strategic Plan, FY 2012–16.

                          StudentAid.gov/strategic-planning-reporting




                                         FSA Fact
FSA, the first federal government office designated as a Performance Based Organization
(PBO), focuses on providing tangible results and efficient management. For more information
about FSA’s performance as a PBO, visit StudentAid.gov/strategic-planning-reporting.


                                Federal Student Aid Annual Report FY 2014                              47
                                                                                     Annual Performance Report
                                                                         Introduction to the Annual Performance Report


The following table provides a summary of results, by Strategic Goal, as measured by the FY 2014
performance metrics.

                   Summary of Performance Results by Strategic Goal
                                                                           Not       No
 Strategic Goal                                                    Met                         N/A      Total
                                                                           met     target
 Goal A:
 Provide superior service and information to students and           5       0         0         0         5
 borrowers.
 Goal B:
 Work to ensure that all participants in the system of funding
 postsecondary education serve the interests of students, from      2       0         0         0         2
 policy to delivery.
 Goal C:
 Develop efficient processes and effective capabilities that are    1       1         0         0         2
 among the best in the public and private sectors.
 Goal D:
 Ensure program integrity and safeguard taxpayers’ interests.       1       2         0         0         3

 Goal E:
 Strengthen FSA’s performance culture and become one of the         1       0         0         0         1
 best places to work in the federal government.

 Total                                                             10       3         0         0         13




                                                 FSA Fact
         The College Scorecard assists students and their families in making educated
         decisions about college by providing information such as college’s graduation rate,
         net costs, average amount borrowed, etc. The College Scorecard can be accessed
         at whitehouse.gov/issues/education/higher-education/college-score-card.

                                   Federal Student Aid Annual Report FY 2014                                  48
                                                                                     Annual Performance Report
                                                                                Performance Results by Strategic Goal




Performance Results by Strategic Goal

This section presents detailed performance results including a discussion of progress made to date
in achieving the strategic goal and the data used to assess performance.

How this Section is Organized. This section is organized by the five strategic goals and the
associated performance metric(s). The section contains the following information for each
performance metric:

•   Table: Identifies the performance metric associated with the strategic goal and provides the
    historical actual results for the four previous fiscal years (if available); the target and actual result
    for the current fiscal year; and an indicator as to whether FSA met the performance metric for
    each fiscal year reported. The following is the legend for the performance result indicator
    included in the table.

                            Performance Result Indicator Legend
                         Performance result met or exceeded the           Met
                         target.
                         Performance result did not meet the            Not met
                         target.
                         Performance result is not applicable
                         because the performance metric was not           N/A
                         developed, the performance metric was
                         not implemented, or the required data
                         were not available in time for inclusion.


    The performance metric results reported are as of fiscal year-end (i.e., September 30, 2014)
    unless otherwise noted. If the required data are not available as of fiscal year-end in sufficient
    time for inclusion, data as of the most recent reporting period available are presented. Fiscal
    year-end data may not be available in instances where the required data are obtained from
    external sources (i.e., state and private nonprofit guaranty agencies, lenders and loan servicers,
    grant and loan recipients, etc.).

•   Target Context: Explains the parameters or rationale for targets, especially where anomalies
    exist.

•   Analysis of Progress: Provides a discussion of FSA’s progress in meeting its targets and
    includes explanations for unmet targets and actions being taken or planned.

•   Data Quality and Limitations: Describes the source of data required to calculate the actual
    result for the performance metric, any calculation required to determine the actual result, and any
    known data quality issues or limitations. For an overview of FSA’s business process to confirm
    the quality of performance data, please see Quality of Performance Data in the Management’s
    Discussion and Analysis section of this Annual Report.



                                 Federal Student Aid Annual Report FY 2014                                 49
                                                                                      Annual Performance Report
                                                                               Performance Results by Strategic Goal

Strategic Goal A: Provide superior service and information to students and
                      borrowers.
 Strategic Goal A: Provide superior service and information to students and borrowers.
Performance Metric A.1: % of first-time FAFSA filers among high school seniors


                                  FY 2010                 FY 2011   FY 2012   FY 2013            FY 2014
Fiscal Year
                                   Actual                 Actual    Actual     Actual       Target         Actual
Performance                                                58.7%     58.4%     59.2%     58.8%–60.8%       60.1%
                           New performance metric
                        (Prior-year data not available)     Met      Met        Met                  Met
Performance Result


Target Context:
A major component of FSA’s mission is to ensure that all eligible individuals have access to federal
student aid. In order to achieve this goal, FSA works diligently to increase awareness about the
availability of student financial assistance. This performance indicator measures the largest and
most visible outcome of FSA’s customer engagement efforts: the percent of graduating seniors who
successfully file a FAFSA as a first step in furthering their education beyond the secondary level.

Enhancements were made to the definition and timeframe of the calculation for FY 2014, for two
reasons: timeliness and accuracy. FSA has instituted a nine-month timeframe for calculation in
order to help align a given fiscal year’s score with the appropriate performance that led to this score.
Additionally, new data sources and a higher level of granularity have allowed FSA to institute
definitional changes that allow for higher accuracy than had been previously possible. Because of
the enhancements implemented, results reported for this metric in prior years have been
recalculated and are presented in the table above using the revised methodology. The prior year
results originally presented were 52.0 percent, 54.0 percent, and 52.2 percent for FY 2011, FY 2012,
and FY 2013 respectively, with the target being met in each of these three years.

Analysis of Progress:
FSA met its target for this metric, with a result of 60.1 percent.

This metric has and will continue to be a key focus for FSA. Several efforts, such as the
consolidation of StudentAid.gov, the FAFSA Completion Initiative, the Financial Aid Toolkit, and
Outreach Initiatives and Social Media Campaigns, are targeted at increasing aid awareness and
accessibility as measured, in part, by this metric.

Data Quality and Limitations:
The denominator is the number of graduating seniors according to the most recent projection by
National Center for Education Statistics. The numerator is based on the number of applications
during the first nine months of the application cycle that are—as of September 30 of the first year of
the application cycle—complete (not rejected; first-time filers; incoming freshmen, with or without
previous college attendance; age 18 or less as of June 30 of the first year of the application cycle;
reporting high school diploma attainment; and attended a high school in the fifty states and
Washington, DC).




                                   Federal Student Aid Annual Report FY 2014                               50
                                                                               Annual Performance Report
                                                                          Performance Results by Strategic Goal

The national unemployment rate continues to decline, decreasing the number of young adults
immediately pursuing a postsecondary education and, in turn, potentially decreasing FAFSA
completion rates. Driven in part by past economic factors, FSA also saw large and likely
unsustainable increases in FAFSA submissions for several FAFSA cycles through 2012. With a still-
improving economy, completion rates have yet to stabilize.




                                         FSA Fact
       As a result of FSA’s continuous effort to make the process of completing the
       FAFSA easier and more efficient, it now takes an average of 21 minutes for the
       FAFSA to be completed online. This effort has resulted in fewer paper FAFSAs
       being submitted.

                              Federal Student Aid Annual Report FY 2014                              51
                                                                                     Annual Performance Report
                                                                                Performance Results by Strategic Goal

Performance Metric A.2: Persistence among first-time filing aid recipients


                          FY 2010     FY 2011       FY 2012           FY 2013              FY 2014
Fiscal Year
                          Actual       Actual        Actual           Actual       Target            Actual
Performance                                                                     77.5%–79.5%          79.6%
                                       New performance metric
                                    (Prior-year data not available)                          Met
Performance Result


Target Context:
This metric helps track performance across one of the desired outcomes of federal student aid and
its impact on program completion. By following first-time filing aid recipients, such as college
freshmen or first-time adult learners, into their second year, it is possible to see whether FSA is
making improvements in how applicants are translating the aid that they receive into educational
persistence. The metric provides FSA with a key contribution to the President's 2020 Goal
attainment progress and calculation methodology.

Analysis of Progress:
FSA exceeded its metric in FY 2014 with a result of 79.6 percent. Because this is a new metric for
FY 2014, prior year target performance is not available.

FSA has undertaken various initiatives to improve persistence levels among aid filers, including the
consolidation of StudentAid.gov, the Financial Aid Toolkit, and the development of sophisticated
outreach and digital engagement campaigns.

Data Quality and Limitations:
The denominator is the number of first-time filers in the previous cycle (for example, 2012–13) with a
program or degree length greater than 1 year that received aid for that award year (grants and/or
loans). The numerator is the number of 2013–14 return applicants (by September 30 of the first
year of the application cycle) that were identified in the denominator.

The national unemployment rate continues to decline, decreasing the number of young adults
immediately pursuing a postsecondary education and, in turn, potentially decreasing FAFSA
completion rates. Driven in part by past economic factors, FSA also saw large and likely
unsustainable increases in FAFSA submissions for several FAFSA cycles through 2012. With a still-
improving economy, completion rates have yet to stabilize.




                               Federal Student Aid Annual Report FY 2014                                   52
                                                                                    Annual Performance Report
                                                                               Performance Results by Strategic Goal

Performance Metric A.3: Customer Visits to StudentAid.gov


                          FY 2010        FY 2011         FY 2012      FY 2013               FY 2014
Fiscal Year
                           Actual         Actual          Actual      Actual          Target          Actual
Performance                            New performance metric
                                                                                   >=30.7 million    32.7 million
                                    (Prior-year data not available)                            Met
Performance Result


Target Context:
By focusing on overall customer visits to FSA’s premier site, this performance metric helps gauge
the success of FSA’s efforts to increasingly become the trusted source for accurate and accessible
student aid information for Americans nationwide.

Analysis of Progress:
FSA greatly exceeded its target on this metric, with a result of 32.7 million. Because this is a new
metric for FY 2014, prior year target performance is not available.

FSA has made great strides in consolidating disparate sites and systems into a single integrated
student experience. Since its launch in 2012, Studentaid.gov has evolved into FSA’s premier
information interface for student aid tools, resources, and services. With new tools such as the
launch of the site’s Repayment Estimator and its My Federal Student Data feature, Studentaid.gov
will continue to evolve into an expansive resource serving students and borrowers as they traverse
the student aid lifecycle.

Data Quality and Limitations:
The metric value is based on the number of visits (as opposed to unique visitors and page views)
.




                                         FSA Fact
     The Repayment Estimator is a tool that is available on StudentAid.gov. Borrowers
     can use the Repayment Estimator to estimate the monthly payments on their loans
     under each repayment plan and make informed decisions about the repayment of
     their loans. To use the Repayment Estimator, visit StudentAid.gov



                                Federal Student Aid Annual Report FY 2014                                    53
                                                                                     Annual Performance Report
                                                                                Performance Results by Strategic Goal

Performance Metric A.4: Social Media Channel Subscribership


                          FY 2010        FY 2011        FY 2012       FY 2013               FY 2014
Fiscal Year
                           Actual         Actual         Actual       Actual         Target           Actual
Performance                                                                        >= 296,000         368,042
                                       New performance metric
                                    (Prior-year data not available)                           Met
Performance Result


Target Context:
By focusing on overall subscribership across FSA’s most prolific social media channels, this metric
helps FSA measure the success of enterprise efforts to increasingly become the trusted source for
accurate and accessible student aid information across the organization’s digitally engaged
customer base.

Analysis of Progress:
FSA greatly exceed its target on this metric, with a result of 368,042 subscribers. Because this is a
new metric for FY 2014, prior year target performance is not available.

In today’s information age, digital media techniques are becoming increasingly critical for effective
customer engagement. Since FY 2012 and in response to customer feedback and demand, FSA
has aggressively leveraged social media tools to drive awareness, uncover insights, engage and
interact with students and borrowers, and drive traffic to FSA’s websites. This metric helps track
FSA’s progress in this domain, adapting to new preferences, channels, and engagement platforms.

Data Quality and Limitations:
This metric is calculated as the aggregate sum of likes, followers, and subscribers across Facebook,
Twitter, and YouTube.




                               Federal Student Aid Annual Report FY 2014                                   54
                                                                                    Annual Performance Report
                                                                               Performance Results by Strategic Goal

Performance Metric A.5: Customer Satisfaction Score (ACSI)


                                   FY 2010                 FY 2011   FY 2012      FY 2013           FY 2014
Fiscal Year
                                    Actual                 Actual    Actual       Actual       Target       Actual
Performance                                                 78.0      78.5          78.4      77.4-79.4      78.4
                            New performance metric
                         (Prior-year data not available)     Met       Met          Met               Met
Performance Result


Target Context:
To measure the overall customer satisfaction level throughout the student aid lifecycle, FSA
calculates a weighted score for the American Customer Satisfaction Index (ACSI) surveys for
applicants, students in school, and borrowers in repayment. This performance metric measures how
FSA is improving in terms of streamlined processes for customer interaction and the accessibility of
information FSA provides to customers.

Analysis of Progress:
FSA met its target for FY 2014 with a result of 78.4. This score demonstrates FSA’s place as an
industry leader in customer satisfaction. For the past several years, FSA has significantly outscored
the federal government, which averaged 66 in FY 2013, and has matched or exceeded its private
sector banking counterparts, which posted a FY 2013 score of 78.


Data Quality and Limitations:
The ACSI survey is conducted annually on FSA’s major programs. The index provides a national,
cross-industry, cross-sector economic indicator, using widely accepted methodologies to obtain
standardized customer satisfaction information. Survey scores are indexed on a 100-point scale.
The ACSI scores for application, in-school experience, and servicing are weighted by the utilization
of each process/service and the intensity of the service provided.




                                                  FSA Fact
          At FSA’s Annual Training Conference held in FY 2014, more than 5,900
          attendees, many of whom were financial aid administrators, were able to obtain
          the latest information related to FSA policies and procedures.


                                Federal Student Aid Annual Report FY 2014                                   55
                                                                                      Annual Performance Report
                                                                                 Performance Results by Strategic Goal

Strategic Goal B: Work to ensure that all participants in the system of
                  postsecondary education funding serve the interests of
                  students, from policy to delivery.

Performance Metric B.1: Ease of doing business school survey (1-100 scale)


                                    FY 2010                 FY 2011    FY 2012    FY 2013          FY 2014
 Fiscal Year
                                     Actual                 Actual     Actual      Actual      Target    Actual
                                                             Survey
 Performance                                                             74          74        73─75         77
                                                            launched
                             New performance metric
                          (Prior-year data not available)     Met        Met         Met               Met
 Performance Result


Target Context:
FSA works closely with postsecondary institutions to provide millions of students with federal student
aid. Successfully delivering aid through a complex system depends on FSA’s ability to work well
with its institutional, financial, and state partners by supporting them with technical assistance that
will help them improve their performance and by providing adequate oversight to ensure that
participants are complying with program requirements. To ensure that all participants in the
postsecondary education funding system can easily access the information they need to perform
their important functions and serve the interests of students, FSA conducts a survey with
postsecondary institutions every quarter to gauge the “ease of doing business with FSA.” The first
year for the survey was FY 2011.

Analysis of Progress:
FSA exceeded its target for FY 2014 with a result of 77. This score reflects an increased focus on
the needs of schools and an increased capacity to hear and respond to their requests as they work
to provide quality information about federal aid to their students, even as FSA continues to safeguard
program integrity and taxpayer funds through partner oversight and new regulatory initiatives.

Data Quality and Limitations:
A survey of 10–12 questions, regarding the ease of doing business with FSA, is sent to schools
quarterly. The questions focus on the ease of use of FSA’s major delivery and information systems.

The source data for this metric originates from surveys of random samples of populations. Random
samples of the same exact population produce estimates that vary across a range of values
centered on the true opinion of the population. As such, small decreases (and increases) do not
necessarily indicate true changes in opinions among the population but statistical chance associated
with random sampling. These metrics, therefore, require that any decreases be statistically
significant before determining whether a target was missed. A predetermined confidence interval of
plus or minus one point has been instituted to correct for this phenomenon.




                                 Federal Student Aid Annual Report FY 2014                                   56
                                                                                     Annual Performance Report
                                                                                Performance Results by Strategic Goal

Performance Metric B.2: Percent of borrowers>90 days delinquent


                                   FY 2010                 FY 2011    FY 2012    FY 2013          FY 2014
 Fiscal Year
                                    Actual                 Actual     Actual      Actual      Target    Actual
 Performance                                                9.9%       9.5%        8.3%        8.1%         8.1%
                            New performance metric
                         (Prior-year data not available)                Met         Met               Met
 Performance Result                                        Baseline


Target Context:
A focus on reducing the number of borrowers more than 90 days delinquent provides FSA with
insight on how to communicate information about repayment options in a targeted and timely
manner.

Analysis of Progress:
FSA met its target with a performance result of 8.1 percent in FY 2014. Although the real number of
delinquencies was expected to rise in FY 2014, the total number of borrowers was expected to rise
at a greater rate, allowing the delinquency rate to drop slightly.

Data Quality and Limitations:
Borrower-based data are collected from TIVAS and NFP invoices. FSA calculates the average
number of borrowers serviced by TIVAS and NFPs who are between 91 and 270 days delinquent in
the year ending June 30 and divides this number by the average number of borrowers in repayment
for the year.




                                                  FSA Fact
         Borrowers who work full-time in a public service job and have a Direct Loan or a
         Direct Consolidation Loan may qualify for the Public Service Loan Forgiveness
         Program. To find more about the Public Service Loan Forgiveness Program, go to
         StudentAid.gov/repay-loans/forgiveness-cancellation/charts/public-service.

                                Federal Student Aid Annual Report FY 2014                                    57
                                                                                     Annual Performance Report
                                                                                Performance Results by Strategic Goal

Strategic Goal C: Develop efficient processes and effective capabilities that
                  are among the best in the public and private sectors.

Performance Metric C.1: Aid delivery costs per application


                                   FY 2010                 FY 2011    FY 2012    FY 2013          FY 2014
 Fiscal Year
                                    Actual                 Actual     Actual      Actual      Target     Actual
 Performance                                                $9.89     $10.85      $11.16      $11.94         $11.43
                            New performance metric
                         (Prior-year data not available)                Met         Met                Met
 Performance Result                                        Baseline


Target Context:
FSA has developed two measures to gauge the efficiency of aid delivery. The first unit cost measure
is the aid delivery cost per application. This unit cost tracks the direct cost to process FAFSAs and
originate aid in the 12-month period, divided by the number of original FAFSAs processed in the
period. The fiscal time period measured is July through June.

Analysis of Progress:
FSA achieved a performance result of $11.43, exceeding its target of $11.94. FAFSA volumes were
expected to remain relatively flat while the cost was forecasted to increase slightly (+6 percent) due
to contract renegotiations. However, the origination costs were forecasted to rise at a greater rate
(13 percent) due to the lag in reporting the tiered pricing update.

Data Quality and Limitations:
The cost data for this metric are derived from general ledger data uploaded to FSA’s Activity-Based
Costing model, which is updated on a quarterly basis and reconciled to FSA’s Statement of Net
Cost, ensuring all costs assigned to FSA are included in the cost model. The FAFSA volumes are
derived from the Central Processing System, FSA’s system for processing student aid applications.




                                Federal Student Aid Annual Report FY 2014                                      58
                                                                                     Annual Performance Report
                                                                                Performance Results by Strategic Goal

Performance Metric C.2: Loan servicing costs per borrower


                                   FY 2010                 FY 2011    FY 2012    FY 2013          FY 2014
 Fiscal Year
                                    Actual                 Actual     Actual      Actual      Target    Actual
 Performance                                                $18.15    $18.94      $21.42      $21.20     $21.59
                            New performance metric
                         (Prior-year data not available)                Met       Not met          Not met
 Performance Result                                        Baseline



Target Context:
The second measure developed to gauge the efficiency of aid delivery is the loan servicing-related
cost per borrower. This unit cost tracks the overall costs of loan servicing operations and
maintenance, including labor, non-labor, and contracts.

Analysis of Progress:
FSA’s FY 2014 result was $21.59. FSA did not meet its target for this fiscal year.

As a significant portion of the TIVAS borrower portfolio matures and transitions from In-Grace to
Current/Repayment, the contract terms shift the borrower volumes to higher rates, driving up the unit
cost. In addition, the transition away from Common Services for Borrowers, a student loan servicing
system, has pushed their remaining borrower volumes to higher cost pricing tiers. Lastly, the NFP
volumes were already at higher rates, resulting in higher costs.

Data Quality and Limitations:
The measure is defined as the total direct costs for servicing in the year ending June 30, divided by
the average number of borrowers in servicing for the year.

Data for this measure are derived from FSA’s Activity-Based Costing model, which is updated on a
quarterly basis and reconciled to FSA’s Statement of Net Cost, ensuring all costs assigned to FSA
are included in the cost model.




                                                 FSA Fact
         FSA provides a fact sheet, entitled Repay Your Federal Student Loans. This fact
         sheet shares basic information on the repayment of subsidized loans and
         unsubsidized loans, as well as PLUS loans for graduate and professional students.
         It lists information such as, repayment plans loan types, monthly payment
         amounts, etc. To obtain a copy of this sheet, visit StudentAid.gov/repay-loans.


                                Federal Student Aid Annual Report FY 2014                                    59
                                                                                     Annual Performance Report
                                                                              Performance Results by Strategic Goal

Strategic Goal D: Ensure program integrity and safeguard taxpayers’
                  interests.

Performance Metric D.1: Improper Payment rate


                          FY 2010           FY 2011          FY 2012       FY 2013           FY 2014
 Fiscal Year
                           Actual            Actual          Actual        Actual       Target      Actual
                                                            Pell Grant    Pell Grant
                                                             2.49%         2.26%

                                                            Direct Loan   Direct Loan
 Performance                                                                             1.33%       1.54%
                                                               0.58%         1.03%
                             New performance metric
                          (Prior-year data not available)     FFEL          FFEL
                                                              1.93         <0.005%
                                                               Met         Not met            Not met
 Performance Result


Target Context:
FSA develops improper payment rates annually for programs determined to be risk-susceptible to
improper payments as reported in the AFR. The rate calculation is subject to change as FSA
coordinates with OMB to refine its methodologies and re-assess the risk of its programs.

In previous years, the Improper Payment Rate metric was calculated separately for each of the three
following federal assistance programs: Direct Loan, FFEL, and the Pell Grant programs. For
FY 2014, FSA will report a single ‘blended’ rate that divides aggregated estimated improper
payments for all three by aggregated estimated outlays. This new, more comprehensive measure
enables FSA to view its progress in a more holistic manner.

The improper payment rate calculation reported for FFEL for the last two years (i.e., FY 2014 and
FY 2013) is less than 0.005 percent. Further, the results of management’s FY 2014 improper
payment risk assessment for this program suggest that going forward it is not risk-susceptible, but
low risk. FSA plans to negotiate with OMB in FY 2015 to change the designation for this program.
This will impact the FY 2015 target, because estimates for low risk programs are not reported in the
AFR. The FY 2014 target of 1.33 percent excludes FFEL. Had FFEL been included, the target
would have been 1.23 percent.

The blended rate for FY 2014 is 1.54 percent, which exceeds the FY 2014 target of 1.33 percent.
The increase is due to continued refinements in the estimation methodologies, which may result in
the rates being not directly comparable to prior year targets.

For more information on FSA’s improper payment program, including estimated improper payments
for risk-susceptible programs and a discussion or root causes and corrective actions, please see the
Other Accompanying Information “Improper Payment Reporting Details” section of the Department’s
AFR.




                               Federal Student Aid Annual Report FY 2014                                 60
                                                                                 Annual Performance Report
                                                                            Performance Results by Strategic Goal

Analysis of Progress:
FSA did not meet this target, with a final rate of 1.54 percent. This result does not indicate a change
in performance from the prior year or an increase in the underlying rate or amount of improper
payments for these programs. The failure to meet the current year target that was developed based
on last year’s result is a direct result of current year refinements to and the alternative nature of the
estimation methodology.

As reported in the FY 2013 Annual Report, the new estimation methodology represents a significant
improvement over prior year approaches. The refinements to the methodology in FY 2013 included
adopting a two-stage sampling process to strengthen the improper payment estimates. In addition,
the new methodology leverages the significant volume of work performed by FSA’s Program
Compliance area to more effectively identify root causes and plan corrective actions. These
methodologies were further refined and approved as alternative methodologies by OMB in FY 2014.

Data Quality and Limitations:
The measure is defined as the estimated total Direct Loan, Pell, and FFEL program improper
payments divided by their total program outlays for the fiscal year.

The rates for the Pell Grant and FFEL programs are derived from Program Compliance program
review reports. The rate for the Direct Loan program is derived from Program Compliance program
review reports and from Business Operations’ refund and loan consolidation data.

The OMB-approved FY 2014 improper payment estimation methodology is an alternative to a
statistical methodology. Accordingly, these estimates may lack the precision of other estimates
developed using random, statistical methodologies. The alternative methodology is based on an
analysis of data obtained from program reviews conducted at schools identified through a risk-based
(i.e., non-random) selection process. The population of the available program review reports is
limited, because of the number of reviews is limited and the time to complete each review can
extend multiple years. An important refinement to the FY 2014 methodology compared to that in
FY 2013 was the evaluation of an earlier academic year review cycle. This refinement allows
Program Compliance and the schools additional time to complete and finalize these reviews thereby
increasing the population of program review reports available to sample. While the sample size
increased in FY 2014, FSA still observed relatively small sample sizes where, for Direct Loan, the
error in one school had a higher than anticipated impact on the overall rate.




                                Federal Student Aid Annual Report FY 2014                              61
                                                                                     Annual Performance Report
                                                                                Performance Results by Strategic Goal

Performance Metric D.2: Percentage of contract dollars competed by FSA


                          FY 2010       FY 2011        FY 2012        FY 2013               FY 2014
 Fiscal Year
                           Actual       Actual         Actual         Actual          Target          Actual

 Performance                           New performance metric                      85.3%─87.3%        88.7%
                                    (Prior-year data not available)
                                                                                               Met
 Performance Result


Target Context:
The OMB encourages federal agencies to compete contracts where possible, believing that
contracts which are competed are more likely to be cost-effective and of high quality. This metric
tracks the percentage of contract dollars competed by FSA.

Analysis of Progress:
FSA exceeded this metric with a final score of 88.7 percent. FSA is in the process of greatly
strengthening its acquisitions workforce in order to develop and maintain the highest quality
standards among enterprise contractors.

Data Quality and Limitations:
The metric is a five-year rolling average. The numerator is the total amount of dollars competed over
a five-year period ending in the most recently completed fiscal year; the denominator is the total
amount of dollars expended on contracts over the same period. The data are extracted from the
Federal Procurement Data System–Next Generation using the standard “Competition Report” for
contracting office “Federal Student Aid Procurement Activity”.

To allow for minor unexpected changes in competed dollars (due, for example, to unforeseen
legislative requirements), a confidence interval of plus or minus 1 percent has been placed around
the target for FY 2014. Targeting is expected to become more sophisticated as baseline years
become established.




                                     FSA Fact
 The Financial Awareness Counseling Tool (FACT) is available to assist student
 borrowers in managing their student loan debt. This interactive tool, launched by
 FSA provides students with tutorials that cover topics ranging from managing a
 budget to avoiding default. To get more information about FACT, go to
 StudentLoans.gov.


                               Federal Student Aid Annual Report FY 2014                                   62
                                                                                                 Annual Performance Report
                                                                                           Performance Results by Strategic Goal


Performance Metric D.3: Collection rate 12


                                  FY 2010           FY 2011          FY 2012        FY 2013                FY 2014
 Fiscal Year
                                   Actual            Actual          Actual          Actual         Target         Actual
 Performance                                                          $31.90          $41.57         $45.65        $35.90
                                  New performance metric
                               (Prior-year data not available)         Met             Met                 Not met
 Performance Result


Target Context:
FSA’s collection rate measures the amount of dollars collected from borrowers in the fiscal year per
dollar spent to collect. Measuring this rate helps FSA to gauge the efficiency of its back-end
systems and processes.


Analysis of Progress:
FSA did not meet its target in FY 2014, with a result of $35.90. This was a result of a policy change
that significantly increased defaulted loans being rehabilitated with lower borrower payments, which
ultimately resulted in higher aggregate agency collection costs and lower cash collected. Total
collections from rehabilitated loans rose by 50 percent over the prior year, to $6.9 billion, and
69 percent of the increase in collections over the prior year can be attributed to rehabilitation.

Data Quality and Limitations:
Collections are defined as the total amount of principal collected on both current and defaulted debt
during the 12-month period ending June 30 of each year. Costs include the total direct costs
calculated for loan servicing plus debt collections for the same period using FSA’s Activity-Based
Costing process.

The cost data are derived from FSA’s Activity-Based Costing model (Default Collections and Loan
Servicing) and Private Collection Agency spending. A program from the general ledger captured the
amount of collections and repayment.




12Collection Rate for the purpose of this metric is defined as the amount of dollars collected from borrowers in the fiscal
year per dollar spent to collect

                                       Federal Student Aid Annual Report FY 2014                                         63
                                                                                      Annual Performance Report
                                                                                 Performance Results by Strategic Goal

Strategic Goal E: Strengthen FSA’s performance culture and become one of
                  the best places to work in the federal government.

Performance Metric E.1: Employee Engagement Index


                            FY 2010         FY 2011        FY 2012      FY 2013              FY 2014
 Fiscal Year
                            Actual           Actual         Actual      Actual         Target         Actual
 Performance                                                                          >=64.2%         67.7%
                                         New performance metric
                                      (Prior-year data not available)                           Met
 Performance Result


Target Context:
In the past, FSA has measured its progress on Strategic Goal E via the FSA Morale Index, based on
a subset of questions from the government-wide FEVS. In FY 2014, FSA is transitioning to the
Employee Engagement Index, a government-wide standard subset of questions developed by the
U.S. Office of Personnel Management and the Partnership for Public Service, which jointly
administer and analyze the FEVS. Doing so aligns FSA with the federal standard for FEVS analysis
and allows for cross-agency comparisons.

Analysis of Progress:
FSA greatly exceeded its target score of 64.2 percent with a final score of 67.7 percent. This is a
testament to FSA’s strong focus on improving the employee experience in FY 2014. FSA’s
performance improved on 70 of the 71 questions found on the FY 2014 FEVS. More information
about the FEVS and the questions included on the survey can be located at Fedview.opm.gov.


Data Quality and Limitations:
The Employee Engagement Index is calculated as the average of positive response percentages to
a predetermined set of questions in the annual FEVS: 3, 4, 6, 11, 12, 47, 48, 49, 51, 52, 53, 54, 56,
60, and 61. These questions can be found on the FY 2014 FEVS located at Fedview.opm.gov.




                                           FSA Fact
        Over 3,300 U.S. college students applied for the Virtual Student Foreign
        Service (e-Internship). The Department, including FSA, is one of eleven
        agencies that participates in this program.


                               Federal Student Aid Annual Report FY 2014                                      64
                                                                             Annual Performance Report
                                                              FY 2014 Accomplishments of Federal Student Aid




FY 2014 Accomplishments of Federal Student Aid

During FY 2014, FSA realized additional accomplishments that were not measured
specifically by the performance metrics implemented to measure performance against FSA’s
Strategic Plan. Although not measured by FSA performance metrics, these additional
accomplishments were the result of initiatives FSA undertook to support the implementation
of this Strategic Plan or legislative changes. This section describes its additional
accomplishments.

FSA realized the following additional accomplishments in support of Strategic Goal
A: Provide superior service and information to students and borrowers.

•   FSA improved the FAFSA by increasing fraud prevention mechanisms, modifying fields
    and instructions for increased clarity, and eliminating gender as a consideration when
    collecting information from applicants’ parents.

•   FSA launched the FAFSA Completion Initiative, which empowers high school guidance
    counselors and administrators to view confidentially individual students’ FAFSA
    completion and submission status as well as school-specific completion totals, enabling
    them to assist applicants directly as needed.

•   FSA partnered with organizations such as the White House Office of the First Lady, the
    Office of Science and Technology Policy, Treasury, and Intuit, Incorporated, to develop
    extremely high-profile FAFSA completion and borrower engagement campaigns.


FSA realized the following additional accomplishments in support of Strategic Goal
B: Work to ensure that all participants in the system of funding postsecondary education
serve the interests of students, from policy to delivery.

•   FSA implemented Iteration 1 of Integrated Partner Management, which aims to
    modernize FSA’s partner management operations and replace and integrate aging
    legacy systems into a single system with a more secure, intuitive portal. This first phase
    of the next-generation system delivers core eligibility and enrollment capabilities to
    FSA’s schools and other partners.

•   FSA standardized and strengthened its relationship management capabilities by
    instituting dedicated teams and formal channels for communicating with key external
    partners such as Congress and Executive Branch agencies.

•   FSA strengthened its Jeanne Clery Disclosure of Campus Security Policy and Campus
    Crime Statistics Act (Clery Act) oversight processes following an increase in the size of
    its Clery Act Oversight Group, supporting its goal of protecting the safety of all students
    at institutions of higher education in the United States.



                                Federal Student Aid Annual Report FY 2014                              65
                                                                           Annual Performance Report
                                                            FY 2014 Accomplishments of Federal Student Aid

FSA realized the following additional accomplishments in support of Strategic Goal
C: Develop efficient processes and effective capabilities that are among the best in the
public and private sectors.

•   FSA began development of the Enterprise Data Warehouse and Analytics system, which
    will reduce the risk associated with leveraging legacy operational systems for analytical
    purposes, increase the speed of data request processing, and provide the capability to
    solve more sophisticated and complex data problems.

•   FSA conducted a comprehensive review of FSA’s business processes and instituted
    changes to its organizational and governance structures.

•   FSA strengthened IT security for non-privileged users by working to replace the existing
    Social Security number-based personal identification number system with a more secure
    user identification and password mechanism.

FSA realized the following additional accomplishments in support of Strategic Goal
D: Ensure program integrity and safeguard taxpayers’ interests.

•   FSA improved the strength and efficiency of FSA’s oversight capabilities by extending
    oversight to Private Collection Agencies and by consolidating Third Party Servicer
    activities into a single regional division.

•   FSA developed analytical models to identify characteristics of borrowers most likely to
    default as well as those likely to receive improper payments through waste, fraud, and
    abuse, and instituted controls to mitigate existing and future risk.

FSA realized the following additional accomplishments in support of Strategic Goal E:
Develop FSA’s performance culture and become one of the best places to work in the
federal government.

•   FSA developed its Human Capital Strategic Plan, which details FSA’s strategy for
    successfully managing talent acquisition, workforce engagement, and succession
    planning.

•   FSA re-instituted its paid Summer Internship program, helping to develop a talent
    pipeline for aspiring Federal employees and enabling FSA systems and programs to
    leverage the skills of tomorrow’s workforce.

•   FSA developed training based on the new Departmental Collective Bargaining
    Agreement and ensured that every supervisor and manager became familiar with the
    new Agreement’s terms.

•   FSA held a Learning Symposium for employees to share and learn about management
    and technical best practices.

•   FSA developed and strongly encouraged employees to attend Non-Public Information
    training, which focuses on federal employees’ responsibilities when handling information,
    such as market-sensitive data, that is confidential or not able to be released to the
    public.

                               Federal Student Aid Annual Report FY 2014                             66
                                                                            Annual Performance Report
                                                                Legislative and Regulatory Recommendations




Legislative and Regulatory Recommendations

One of FSA’s mission responsibilities under the law is to provide input on legislative
proposals (both from the Congress and from the administration) and to support the
Department’s regulatory activity. FSA also may suggest legislative or regulatory changes for
consideration by the Department’s senior policy officials. These recommendations
customarily center on improving and simplifying the Title IV programs, minimizing
administrative costs, and improving program integrity. FSA’s recommendations inform the
Department’s policymaking process, including its activities and decisions related to each
year’s budget process. FSA usually provides these recommendations by direct contact with
colleagues in various offices within the Department, such as the Office of Postsecondary
Education and the Office of the Under Secretary, at both the senior policy level and at a staff
level. While a portion of this policy advising is accomplished on an ongoing, informal daily
basis, during the past year, FSA provided specific recommendations to policy officials on the
following issues: (1) the regulations implementing the 150 percent Direct Subsidized Loan
Limit, (2) improving and simplifying the FAFSA; (3) developing the expansion of the
Experimental Sites Initiative; (4) developing regulations for the eligibility of gainful
employment programs at institutions of higher education; (5) policies to address the
expiration of the Federal Perkins Loan Program; and (6) various budget and legislative
initiatives. In addition, FSA’s staff also contributed to the Department’s other rulemaking
processes, most importantly, the ongoing negotiated rulemaking on cash management, and
the final rule regarding PLUS Loans.




                                        FSA Fact
  FSA, worked closely with the Department to implement the changes made to the Clery
  Act by the Violence Against Women Reauthorization Act of 2013. The Department
  published a final rule that included additional requirements to ensure that institutions
  provide the most complete information possible to their students, better inform and
  protect victims, and clarify the process for collecting crime statistics, among other
  changes. That act and the new rule strengthens the Clery Act to improve security and to
  address more effectively, and ultimately reduce, sexual violence on college campuses.


                                Federal Student Aid Annual Report FY 2014                            67
                                                                          Annual Performance Report
                                                                                  Annual Bonus Awards



Annual Bonus Awards

FY 2014 performance ratings and related awards for FSA senior managers and Senior
Executive Service staff were not finalized at the time this report was prepared.

At the end of FY 2014, there were 44 FSA senior managers. There were also seven Senior
Executive Service members. Seven of the 44 senior managers and 4 of the 7 Senior Executive
Service staff served on the FSA Operating Committee and reported directly to the COO. The
remaining 37 senior managers and 3 Senior Executive Service staff served in a variety of senior
positions and capacities within FSA.

For FY 2013, the composition of ratings for the 37 senior managers who did not serve on the
Operating Committee last year were as follows: 14 achieved a performance rating of
Exceptional Results, 12 achieved a performance rating of High Results and 11 achieved a
performance rating of Results Achieved.

Award amounts for those senior managers achieving an Exceptional Results rating ranged from
a low of $7,128 to a high of $10,510 with a median award of $8,673. Award amounts for those
achieving a High Results rating ranged from a low of $4,957 to a high of $6,877 with a median
award of $6,268.

There were also FY 2013 ratings and awards for seven senior manager members of the
Operating Committee. The composition of those rated includes: five achieved a performance
rating of Exceptional Results; two achieved a performance rating of High Results. Two of four
Senior Executive Service members on the Operating Committee achieved a performance rating
of Exceptional Results. The remaining two Senior Executive Service members on the
Operating Committee achieved a performance rating of High Results. The three Senior
Executive Service members who were not on the Operating Committee achieved a performance
rating of High Results.

Award amounts for the Operating Committee ranged from approximately $17,786 to
$70,000, depending on the performance rating of each individual. Only individuals with
performance ratings of High Results Achieved or Exceptional Results achieved were
eligible for performance-based awards.

For additional information, please refer to:
Higher_Education_Amendments_1998/sec101D.html




                              Federal Student Aid Annual Report FY 2014                           68
                                                                            Annual Performance Report
                                                              Report of the Federal Student Aid Ombudsman



Report of the Federal Student Aid Ombudsman

The FSA Ombudsman entered its 15th year of service to federal student aid recipients in
FY 2014. Established by the 1998 amendments to the HEA, the Ombudsman began
operations on September 30, 1999.

Consistent with its statutory mission, the Ombudsman Group uses informal dispute resolution
processes to address complaints about the Title IV financial aid programs. The Ombudsman
employs a collaborative approach in working with institutions of higher education, lenders,
guaranty agencies, loan servicers, and other participants in the student aid programs.
Ombudsman Group staff conduct fact-finding, review student loan data and records, and
facilitate contacts between borrowers and their loan servicers to promote mutually agreeable
resolution of issues.

Information about customer inquiries is compiled into the Ombudsman Case Tracking System
(OCTS). The data are analyzed, and the findings are included in internal and external reports
for FSA and the industry in general, to identify systemic issues affecting Title IV programs.
Implementation of systemic solutions can at times prevent problems, an approach preferable
to resolving individual complaints as received.

Since 1999, the Ombudsman has received 332,926 customer contacts, including 38,665 in
FY 2014. The Ombudsman has generally received more customer contacts in each
succeeding year of operation, attributable, in part, to growing awareness of the Ombudsman
and the increase in the number of individuals receiving federal student aid. The 38,665
customer contacts received in FY 2014 represent a single-year record for the Ombudsman
Group.

                                 Total Volume of Contacts

      FY            New Customer Contacts              Percentage Change from Previous FY
     2011                  32,922                                   +8.5%
     2012                  34,909                                   +6.0%
     2013                  33,916                                    -2.8%
     2014                  38,665                                   +14.0%

The Ombudsman Group classifies customer contacts as one of two types: General
Assistance, which typically are resolved almost immediately through the provision of
information or referral to the appropriate entity within the student loan community; and
Research, which present a more complex situation requiring the engagement of multiple
parties and a series of contacts, are assigned to a research specialist to address, and may
take several months to close. Historically, Research cases have represented an increasing
percentage of total contacts to the Ombudsman, but, as the table below demonstrates, this
trend reversed in FY 2013 and continued in FY 2014. Possible reasons for this shift will be
discussed later in this report.




                                Federal Student Aid Annual Report FY 2014                            69
                                                                                 Annual Performance Report
                                                                     Report of the Federal Student Aid Ombudsman

                                     Research Contacts Received
                                                                                  Research Cases as
                                        Percentage Change in Research
          FY       Research Cases                                                 Percentage of Total
                                            Cases from Previous FY
                                                                                  Customer Contacts
      2011                8,208                      + 20.2%                            24.9%
      2012               11,570                      + 41.0%                            33.1%
      2013                9,414                      -18.6%                             27.8%
      2014                7.819                      -16.9%                             20.2%

  Case Volume − Overall
  Customer contacts to the Ombudsman spiked in FY 2012 due to a confluence of factors and
  decreased slightly in the following year. In FY 2014 the historical pattern of annual growth in
  the number of customer contacts returned, reaching the highest annual level in the
  Ombudsman’s fifteen years of operation.

  The Ombudsman Group uses issue categories and sub-categories to classify the nature of the
  question, issue, or observation brought to it by customers. The following table shows the total
  volume of customer contacts by each of the 16 major issue categories and a brief description
  of the category.
                         FY 2014 Customer Contacts by Original Issue
                                                                                     FY 2014 Volume
     Issue Category
                                               Description                                      General
         Name                                                                    Research
                                                                                               Assistance
                             Questions/disagreement about the balance being
Account Balance              collected, balance dispute, school refund,            2,051          4,386
                             disbursement
                             Bankruptcy related issues from a bankruptcy
Bankruptcy                                                                           42             59
                             court filing
                             Issues related to a post-secondary school's
Closed School                                                                        70            350
                             closure
                             Actions taken by collectors deemed excessive,
Collection Practices                                                                122            451
                             abusive, unreasonable, or illegal by borrower
                             Question/complaint about terms and processes
Consolidation                for consolidating FFEL, Federal Direct Loan,           345            878
                             Perkins, or HEAL Loans
                             A report detailing all outstanding consumer-
Credit Reporting                                                                    619           1,334
                             related debt, including bad student loan debt
                             Assertion that the default status is wrong, or is
Default                                                                             623           2,839
                             asking for options for default removal
                             Deferment, Deferment Rejected, Forbearance,
Deferment/Forbearance                                                               337           1,927
                             Forbearance Granted
                             General Information Request, Pell Grant, Not a
FSA Assistance                                                                      210           6,841
                             Loan Question, Other, Other Aid Issue
                             Loan Cancellation, Disability Discharge,
Loan
                             Discharge – Death, Discharge Denied, Loan             1,077          2,614
Cancellation/Discharge
                             Discharge, False Certification, ID Theft
NSLDS                        NSLDS is incorrect                                     148            321
Repayment                    Customer wants to establish, revise, or comment
                                                                                   1,044          3,507
Plans/Amounts                on available repayment plans/amounts
                             Complaints about loan servicing, service quality,
Service Quality                                                                     573           2,387
                             due diligence, quality of education
                                    Federal Student Aid Annual Report FY 2014                               70
                                                                              Annual Performance Report
                                                                  Report of the Federal Student Aid Ombudsman


                                                                                  FY 2014 Volume
     Issue Category
                                            Description                                      General
         Name                                                                 Research
                                                                                            Assistance
                           Borrower cannot receive Title IV funds because
Student Eligibility        of regulatory or school imposed                       106           1,198
                           policy/procedures
Tax Refund/(Federal)       Borrower wants to avoid tax or other Federal
                                                                                 258           1,153
Offset                     offset
                           Borrower objects to administrative wage
Wage Garnishment           garnishment, wants to avoid it, reduce amount,        194            601
                           or complain about how the agency implements it.

   Case Volume–Research
   As noted in the table, Research Contacts received—those requiring more intensive efforts to
   resolve—are a subset of the total volume received. In keeping with its role as a neutral, the
   Ombudsman Group typically declines to characterize every contact it receives as a
   “complaint.” However, it is fair to say that Research contacts most often result from a
   customer’s dissatisfaction with previous efforts to resolve an issue. As such, this section
   shares more information about the cause and types of issues identified as Research contacts.

   In FY 2014, the top five issues for Research cases were consistent with the prior years with
   one exception that first emerged in FY 2013.

   Account Balance. Customer requests for assistance
   concern disagreement over account balances,               “My original loan was
   interest accrual, or how payments are applied. The        approximately $89,000, now the
   root causes of these contacts are nearly as varied as     loan has ballooned to over
   the individuals contacting the Ombudsman Group.           $350,000…”
   The quote cited is an extreme example of how
   Ombudsman Group customers can find themselves in a difficult position after their account
   balance has grown over time as a result of capitalized interest and, possibly, late fees and
   collection costs due to loan default. The Ombudsman takes the time to review all payment
   history documentation provided by the loan servicer and the customer to validate whether an
   outstanding balance has been calculated correctly, from loan disbursement to the current
   date.




                                  Federal Student Aid Annual Report FY 2014                              71
                                                                            Annual Performance Report
                                                              Report of the Federal Student Aid Ombudsman



Loan Cancellation/Discharge. Customers assert their loans should be cancelled or
                                 discharged because of existing conditions or services
 “Initially all of my loans were performed. Historically, discharge for TPD has been the
 forgiven due to permanent       primary cause of contacts to the Ombudsman Group. More
 disability. Apparently, when    discussion is below on the trend the Ombudsman Group saw
 the database changed over       in FY 2014 on how recent regulatory changes seem to have
 to a new system they forgot     lessened the burden placed on student loan borrowers to
 to include one loan. I am at    prove their eligibility for TPD.
 my wits end.”
                                  Repayment Plans/Amounts. Customer requests for
assistance concern the desire to establish, revise, or complain about their repayment plans.
This category has been in the top five in the entire history of the
Ombudsman Group. The array of repayment plan options has              “I have two children and bills to
expanded significantly in recent years, in some ways, taxing          manage…I can’t afford the monthly
customer and servicer abilities to comprehend the perceived           payments and still take care of
advantages and benefits of each. The 10-year standard                 them. Please help me!”
repayment plan may no longer be the optimal plan for many
borrowers as they enter repayment. Helping individual borrowers select the best alternative to
the 10-year plan involves not only advising them on how to submit the appropriate application
and documents, but also helping them determine whether the plan is best for them in the short
or long term.

Default. Customers assert the default status of their loans is wrong, or customers are asking
for options for removing the defaulted status of their
loans. Most customers in this category have had some         ”Please help me! I think I defaulted
interaction with the entity performing collection activities on my student loans. I am scared!
on the debt, but have not been satisfied with the            I'm a single Mom of 4 kids and I
outcome of those interactions, or are seeking an             work full time and need food
alternative to the options offered. The role of the          stamps. My kids' Dad does not pay
Ombudsman Group is frequently one of facilitating the        any child support. I don't have the
customer’s interaction with the loan holder or collection    money for this now. What can I
agency. Depending on the customer’s circumstances,           do?”
the resolution may be assisting the customer with entering a mutually agreeable repayment
plan for the purpose of loan rehabilitation. During FY 2014, new regulations were issued to
make more consistent the manner in which the Department and guaranty agencies calculated
a “reasonable and affordable” repayment plan for the purpose of loan rehabilitation.

Credit Reporting. Customer requests for assistance concern issues involved with their credit
reports as affected by their federal student loans.

Customer contacts relating to credit reporting issues
                                                           “I have several late reports on my
increased significantly beginning in FY 2013, rising for
                                                           credit report from 2012. The
the first time to the top five for Research cases. The
                                                           loans were supposed to be in
trend continued on FY 2014 with credit reporting
                                                           forbearance.”
remaining a top five issue for Research cases.




                                Federal Student Aid Annual Report FY 2014                            72
                                                                            Annual Performance Report
                                                               Report of the Federal Student Aid Ombudsman

Credit reports and Fair Isaac Corporation credit scores play an enhanced role in the economy,
affecting not just eligibility for credit but are factors, for example, in decisions about
employment and residential leases. It is possible that the gradual improvement in overall
economic conditions led to an increase in instances of individuals encountering problems due
to previous delinquencies and defaults on student loans. Additionally, the Ombudsman notes
an increase in the advertisement and marketing of debt relief and credit repair services. The
Ombudsman has seen instances in which credit repair services counsel its customers to
contact their loan holders to seek removal of adverse comments. The Fair Credit Reporting
Act requires reporting entities, including servicers and holders of all federal student loans over
which FSA has administrative oversight, to report “accurate” information, and loan servicers
typically will not remove adverse comments absent documentation of a servicing error.

Reduction in Research Cases. A series of initiatives undertaken by the Ombudsman, FSA
business units, and federal student loan servicers are contributing to a reduction in the
number of contacts to the Ombudsman that result in Research Cases. This was first evident
in FY 2013 and continued in the current fiscal year. The mission of the FSA Ombudsman is to
serve as a forum of last resort, to assist borrowers who have been unable to resolve their
problem with their loan servicer. Borrowers contacting the Ombudsman who have not
exhausted the problem resolution options available through their loan holder are referred to
the loan holder and counseled to re-contact the Ombudsman if those efforts are unsuccessful.

Each of the TIVAS has in place second-tier escalation processes to handle issues not
resolved at the first level of contact. Additionally, FSA took steps in the past three years to
place all of a borrower’s Direct Loans with a single servicer, reducing the complications
borrowers experienced when having loans with multiple servicers. FSA also took steps to
concentrate certain benefit programs, such as Public Service Loan Forgiveness and Teacher
Loan Forgiveness or loan discharge for total and permanent disability, with a single servicer.
This strategy permits the servicer to develop specialized knowledge and expertise with
program benefits of high interest to borrowers, resulting in greater consistency and efficiency
in administering the programs. This strategy, to the extent it is successful in preventing
problems, reduces the need for borrowers to contact the Ombudsman.

The Ombudsman worked collaboratively with FSA’s Default Resolution Group (DRG) in
FY 2013 to develop an escalation process for defaulted borrowers whose loans are with DRG.
When borrowers in these circumstances contact the Ombudsman Group, the contact is
logged into OCTS as a General Assistance case, and the case is referred to DRG and
assigned to an escalation team that will work with the borrower to resolve any problems. The
referral is handled via a personal contact by Ombudsman Group staff to DRG and to the
borrower who is advised to return to the Ombudsman Group if the work with DRG does not
produce a resolution of the problems.

These initiatives are intended to contribute to a climate of heightened customer service at all
levels of the federal student loan process and enable more effective use of Ombudsman
Group resources to better serve customers who require its assistance.

Analysis of Outcomes
In FY 2014, the Ombudsman Group continued an initiative begun in the previous year to
capture and analyze case outcomes. Case closing categories and sub-categories in OCTS
allow logging of the outcomes for customers who contact the Ombudsman Group for
assistance. The Ombudsman believes improved analysis of these data will contribute to a
                                Federal Student Aid Annual Report FY 2014                             73
                                                                           Annual Performance Report
                                                             Report of the Federal Student Aid Ombudsman

better understanding of the nature of the issues customers present, point out areas where
service quality can be improved, and identify possible system issues that lead to customer
complaints.

Complexities were quickly evident. Resolutions of the problems customers present are rarely
binary—the customer receives or does not receive the outcome sought. Customers
sometimes seek outcomes that statute and regulation do not authorize—e.g. discharge of
student loan debt due to the poor quality of education received—or for which they are not
eligible due to their circumstances. Customers often are unaware of the option or options that
provide the best way to manage their student loan debt, and the best service that can be
provided by the Ombudsman is to create awareness of those actions.

The Ombudsman Group identified broad categories that capture the range of customer
outcomes:

•   Action: Ombudsman activity results in a change to the customer’s account, e.g. a change
    in loan status, payments reapplied, loan balance adjusted, loan cancellation/discharge
    granted, income-driven repayment granted, etc.

•   Confirmation: No change occurred on the customer’s account and research confirms the
    status, e.g. loan balance verified, interest rate found to be accurate, the desired benefit
    was properly denied, etc. In these situations, the Ombudsman staff will provide guidance
    for the borrower on the available options for managing their student loans and refer them
    to proper entity for initiating the optimal option.

•   Information: The customer was provided with information or guidance on the available
    options for managing their student loan account and empowered to take next steps, e.g.
    loan servicer identified, Public Service Loan Forgiveness or Income Based Repayment
    (IBR) explained, contact information provided, etc.

•   Referral: Customer is provided guidance on available options and referred to appropriate
    party for resolution, e.g. loan servicer, guaranty agency, or other FSA office.

•   Other: Customer has to submit information or contact us again in order for further
    Ombudsman research to continue.

Outcomes for Research Cases Closed in FY 2014 by Original Issue Category
Since research contacts are more complex and time consuming, there are many different
paths to resolving the customer’s issue. By contrast, the Ombudsman Group referred
82.6 percent of general assistance contacts to the most appropriate entity to address the
customers’ issues. In Fiscal Year 2014, for about 38.1 percent of research contacts,
confirmation was the result. Although the resolution may not be what the customer ultimately
wanted, as an independent, neutral, third party, the Ombudsman has provided the customer
with an unbiased review of the matter, and informed the customer of their specific options
unique to their situation.

For 32.0 percent of the research contacts during FY 2014, an action or change occurred
because of the Ombudsman Group’s research. For another 18.4 percent, the Ombudsman
provides empowering information to take the next steps related to their issues or alert the
customer to a process that would help them. For about 7.1 percent of research contacts, the
                               Federal Student Aid Annual Report FY 2014                            74
                                                                             Annual Performance Report
                                                               Report of the Federal Student Aid Ombudsman

 Ombudsman Group refers the customer to another entity that is better able to assist, and for
 about 4.4 percent of research contacts, the Ombudsman is awaiting additional information
 from the customer.

                          FY 2014 Outcome Category by Issue Category
      Research –                                                                            Total
Original Issue Category     Action     Confirmation   Information   Referral     Other     Closed
Account Balance                25.3%         57.1%          7.9%       5.0%        4.7%    100.0%
Bankruptcy                     22.4%         59.2%         14.3%       0.0%        4.1%    100.0%
Closed School                  23.7%         46.1%         21.1%       6.6%        2.6%    100.0%
Collection Practices           30.0%         20.8%         18.3%      15.8%       15.0%    100.0%
Consolidation                  49.0%         32.8%         10.7%       4.2%        3.3%    100.0%
Credit Reporting               18.2%         43.8%         28.3%       3.8%        5.9%    100.0%
Default                        31.7%         34.4%         23.1%       7.9%        2.9%    100.0%
Deferment/Forbearance          39.9%         22.4%         23.5%       8.6%        5.5%    100.0%
FSA Assistance                 32.6%         11.8%         17.6%      26.2%       11.8%    100.0%
Loan
Cancellation/Discharge         30.5%         34.6%         23.8%       7.4%        3.7%    100.0%
NSLDS                          74.9%          7.6%          8.2%       5.3%        4.1%    100.0%
Repayment
Plans/Amounts                  37.1%         25.0%         28.4%       6.3%        3.2%    100.0%
Service Quality                34.8%         46.6%          6.0%       9.1%        3.4%    100.0%
Student Eligibility            38.5%         12.8%         11.9%      28.4%        8.3%    100.0%
Tax Refund/Offset              40.5%         18.2%         31.4%       6.4%        3.4%    100.0%
Wage Garnishment               34.3%         24.5%         31.9%       5.9%        3.4%    100.0%
Total                         32.0%          38.1%         18.4%       7.1%        4.4%    100.0%

 Different research issues have different outcomes. Account Balance is the most frequent type
 of research contact and could include a customer who disputes the validity of their entire debt,
 or believes that their balance should be lower than the amount they are being asked to repay.
 Account Balance also includes those customers who request a reapplication of payment or
 believe the interest is calculated or capitalized incorrectly. For each customer whose account
 balance is adjusted in their favor, e.g. payments reapplied correctly, account balance
 corrected, payment refund, etc., there are two customers for whom their issues are confirmed
 e.g. verify outstanding loan balance as correct, payments were applied correctly, interest rate
 cannot change, etc.

 Customers that contact the Ombudsman about Repayment Plans/Amounts are another
 frequent research issue. For 37.1 percent of these contacts, an action, e.g. IBR approved,
 reversal of a Teach Grant loan conversion, IBR adjusted, etc., occurs after its research. For
 28.4 percent, critical information is provided, e.g. IBR explained, Income Contingent
 Repayment Plan explained, etc. For 25.0 percent of Repayment Plans/Amounts contacts,

                                 Federal Student Aid Annual Report FY 2014                            75
                                                                            Annual Performance Report
                                                               Report of the Federal Student Aid Ombudsman

confirmation is provided, e.g. Teach Grant conversion appropriate, did not get new payment
plan, etc.

Earlier in this report, the recent trend of increased contacts related to credit reporting was
discussed. For 43.8 percent of the Credit Reporting research contacts, the Ombudsman
Group confirms the issue, e.g. credit retraction denied, etc., and for another 28.3 percent, the
Ombudsman provides help information and next steps, e.g. must file dispute with credit
bureau and explain the credit report, etc.

For Federal Tax Refund/Federal Offset issues, in 40.5 percent of these research contacts, the
Ombudsman Group gets an action (Offset returned/refunded, removed from offset
certification, etc.), and for another 31.4 percent, the Ombudsman Group provides crucial
information (hardship review explained, how the federal offset process works, the existence of
this process that’s available to certain customers, etc.)

Although not a top five research issue, when a customer contacts the Ombudsman about
NSLDS, after research, the Ombudsman gets an action (NSLDS updated with correct loan
status, removal of a defaulted loan, or update of an incorrect loan on the record) 74.9 percent
of the time.


Other FY 2014 Highlights
Consumer Financial Protection Bureau. In FY 2014, the Ombudsman continued its
collaboration with the Consumer Financial Protection Bureau (CFPB) Private Student Loan
Ombudsman. The FSA Ombudsman’s statutory authority limits its jurisdiction to the federal
student loan program, so a major part of this collaboration is a mutual referral process that
ensures that borrowers with private loan issues receive assistance from the CFPB. Borrowers
who contact the Ombudsman Group with private student loan problems are provided with
contact information and referred to CFPB. Conversely, borrowers with federal student loans
who contact CFPB are referred to the FSA Ombudsman. In FY 2014, 1,191 of new customers
reported they were referred by CFPB. During FY 2014, the Ombudsman Group referred 467
customers to CFPB.

As in prior years, CFPB Private Student Loan Ombudsman staff participated in the annual
Student Loan Ombudsman Caucus Meeting to share information and engage in discussion
with colleagues throughout the student loan community.

Student Loan Borrower Interest Groups Roundtable. Beginning in FY 2013, the
Ombudsman Group initiated a program of outreach to organizations that have an interest in
issues relating to student loans. Through periodic conference calls, the Ombudsman Group
provides a forum for these organizations to share concerns and to engage in dialogue with
Ombudsman Group staff and representatives of other business units within FSA. The goal is
to enhance communication with the advocacy groups and allow discussion of observed
servicing issues and changes in servicing operations. The Ombudsman Group facilitates this
discussion and expands FSA’s ability to anticipate the customer experience and communicate
with stakeholders.

The Ombudsman Group held four of these calls in FY 2014. Participants included legal aid
societies, consumer protection groups, and organizations focused on the operational impacts
of federal student loan policy. Many of the participants work with individual borrowers and

                                Federal Student Aid Annual Report FY 2014                             76
                                                                           Annual Performance Report
                                                             Report of the Federal Student Aid Ombudsman

often refer those individuals to the Ombudsman Group. The topics of conversation this year
included the January 2014 modifications to the loan consolidation process, loan rehabilitation
regulatory changes effective July 2014, FSA’s income driven repayment plan email
campaigns, and the appropriate use of hardship forms available on MyEdDebt.com. These
conversations are a part of several activities aimed at continuously improving customer
service for borrowers of federal student loans.

Total and Permanent Disability. Loan Cancellation and Discharge has historically been one
of major categories of issues leading customers to contact the Ombudsman for assistance,
and again in FY 2014, it was one of the top five issues for Research cases. However, there
was a significant shift in the sub-issues in this category. Customer contacts leading to
Research cases related to loan discharge for TPD declined significantly. Research cases for
TPD declined by 34.3 percent in FY 2014 when compared with the prior year.

The Ombudsman Group believes two factors importantly contributed to the decline in TPD
cases. New regulations, effective July 1, 2013, allowed borrowers seeking TPD discharge to
apply with a single application sent directly to FSA. Prior to this change, borrowers were
required to send an application to each loan holder or servicer. In addition, the new
regulations established a streamlined application process for some recipients of disability
benefits through the Social Security Administration. The Ombudsman believes these
improvements reduced the number of borrowers experiencing difficulty in applying for TPD
discharge.

The second factor believed to be contributing to the decline in TPD cases is FSA’s improved
process for TPD discharge, which is handled by Nelnet-TPD. The Department has placed an
emphasis on customer service. With the use of redesigned and informative Web pages, an
on-line application process, and a dedicated call center, our servicer has worked to reduce the
barriers to TPD application and to assist borrowers and their physicians in navigating the
application process. As a result, fewer borrowers need to contact the Ombudsman for
assistance.

The Ombudsman views these changes as positive steps for serving one of the most
vulnerable segments of the student loan population.

Third Party Firms Promising Debt Relief. The emergence of companies using
sophisticated marketing tactics targeting student loan borrowers, their parents, service
members and their families with promises of easy and instant relief from student loan debt has
become a concern for the Ombudsman. These companies promise assistance with loan
consolidations and application for repayment plans designed to help manage the student loan
debt—all services available from FSA and loan servicers at no charge to the borrower.
Reports indicate some companies are collecting personal information, personal identification
numbers, and Power of Attorney forms from the borrowers that allow the company to manage
the borrowers’ accounts.

The Ombudsman is working with the members of the Student Loan Ombudsman Caucus to
use the Web, social media, and other communication channels to make borrowers aware that
free assistance is available from their loan servicers, and there is no need to pay exorbitant
fees to private companies for assistance.



                               Federal Student Aid Annual Report FY 2014                            77
                                                                           Annual Performance Report
                                                              Report of the Federal Student Aid Ombudsman

Customer Satisfaction Survey. Customer satisfaction with the Ombudsman Group 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 quality. On a scale of one to five, with five being the highest
rating, survey results are calculated weekly and cumulatively for the year. Only ratings of 4.00
or higher meet the Ombudsman Group customer satisfaction goal. The average FY 2014
customer satisfaction rating for Research cases was 4.68 on a 5.00 point scale.

Customers also write or call independently to express appreciation for the assistance from the
Ombudsman.

   “(My caseworker) went above and beyond to ensure that the
   errors were fixed. It’s a rare treat to work with someone as
   professional and knowledgeable … Thank you for hiring
   such great employees to help out folks like me.”

                               “(My caseworker) has been extremely helpful in helping me
                               deal with my financial struggles to pay my student loan by
                               offering many options and support. She is a credit to your
                               organization and deserves to be recognized for her amazing
                               work.”



    “This is by far the most informative and comprehensive response
    I have received during my time with Congressman ….”
                        Congressional Staff Person


                                  “I was so grateful to receive your email with such a logical
                                  explanation for what happened! Thank you so much for
                                  all your time and energy to resolve this issue, so I now
                                  have the understanding I was searching for.”




                               Federal Student Aid Annual Report FY 2014                             78
                                              Financial Section




   Section 1. 0

Financial Section




  Federal Student Aid Annual Report FY 2014              79
                                            Financial Section




  This page intentionally left blank.




Federal Student Aid Annual Report FY 2014              80
                                                                                       Financial Section
                                                                  Message from the Chief Financial Officer



Message From the Chief Financial Officer




  Federal Student Aid’s (FSA’s) mission statement is Funding
  America’s Future, One Student at a Time. This mission, in turn,
  supports the Federal government’s goal of increasing access to
  postsecondary education, ultimately leading to a better educated
  citizenry and a higher standard of living for all Americans. My
  colleagues and I at FSA are driven daily to achieve this mission
  while protecting taxpayers’ interests and minimizing costs.

  In FY 2014, FSA delivered $133.8 billion of federal aid to nearly
  13 million postsecondary students and their families. In addition,
  the loan portfolio overseen by FSA grew by 8.7 percent, from
  $1.0 trillion to $1.1 trillion. This is an enormous financial
  responsibility to students seeking financial assistance, borrowers
  who are paying off their student loans, and taxpayers who expect
  fiscal prudence and stewardship. Thanks to the dedicated and                John W. Hurt, III
  talented staff at the United States (U.S) Department of Education        Chief Financial Officer
  (the Department) and FSA, we met the unprecedented challenges
  presented by this financial responsibility and continued to maintain our high standards of
  financial management and fiscal reporting. To manage the largest student aid operation in the
  world, FSA utilizes an internal control framework and an effective investment management
  process.

  As part of the internal control framework, FSA documented and tested 1,036 business process
  and 2,008 Information Technology (IT) system internal controls across 28 business processes
  (and sub-processes) and 23 IT systems, respectively. In 2014, we assessed that 96 percent of
  the controls tested are designed and operating effectively. The other 4 percent are immaterial
  deficiencies for which we have established or are establishing corrective actions. We will
  continue to repeat this assessment process on a regular basis, constantly looking for
  opportunities to improve our operations. This strong underlying internal control framework
  helps FSA leverage its small number of staff to manage loan and grant operations that impact
  a relatively large percentage of the U.S. population.

  Integrated within FSA’s internal control framework are numerous controls that prevent, detect,
  and mitigate the risk of both improper payment and fraud. We continually evaluate these
  controls and our programs to inform our decisions on how best to mitigate these risks, prioritize
  implementation of new or improved controls, and monitor the impact. Some of these control
  improvements are described in the Improper Payments Reporting Details section of the U.S.
  Department of Education FY 2014 Agency Financial Report. Through these actions, we
  are striving to eliminate fraud from our operations; however, we recognize that zero fraud is an
  unlikely outcome. The Office of Inspector General (OIG) estimated in a 2013 report on student
  aid fraud rings that there was $187 million of probable fraud out of a total of $510 billion in
  Federal student financial aid disbursements for award years 2009 through 2012. This is a
  large dollar amount of estimated probable fraud that we continue to address aggressively. We
  have for example implemented or expanded new controls to include the use and expansion of

                                Federal Student Aid Annual Report FY 2014                              81
                                                                                    Financial Section
                                                               Message from the Chief Financial Officer

the Internal Revenue Service Data Retrieval Tool, expansion of school verification, and other
pre-award and pre-payment controls. Expressed as a percentage of disbursements, however,
the OIG’s probable fraud estimate is 0.037 percent. While we strive to eliminate fraud, this
0.037 percent rate estimate compares favorably to other fraud benchmarks.

In FY 2014, FSA spent $1.4 billion to deliver the $133.8 billion in aid and manage the
$1.1 trillion loan portfolio. The $1.3 billion administrative budget is managed largely through
FSA’s investment management process. FSA uses this process to manage all major aspects
(i.e., scope, schedule, and cost) of the investments in order to deliver our promised
performance levels. This past year, we successfully transitioned the Health Education
Assistance Loan program into our operations, after Congress transferred it to us in the
Consolidated Appropriations Act, 2014 (P.L. 113-76), as amended. In addition, we
successfully transitioned contractor support for the Debt Management and Collection System
(DMCS) to a new contractor as of August 1, 2014. This transition and our close monitoring of
the new contractor continue to significantly improve DMCS operations. While we continue to
make improvements to our investment management process, it has been effective in ensuring
that we are consistently successful in our project implementations, even under the challenging
timeframes often imposed upon us.

I am proud to be working with a group of professionals throughout the Department who so
enthusiastically meet our financial management challenges and achieve such distinguished
results.

Sincerely,



John W. Hurt, III
Chief Financial Officer
November 14, 2014




                              Federal Student Aid Annual Report FY 2014                             82
                                                                                                          Financial Section
                                                                                                 Consolidated Balance Sheet


Financial Statements

                                 United States Department of Education
                                                Federal Student Aid
                                            Consolidated Balance Sheet
                                         As of September 30, 2014 and 2013
                                                  (Dollars in Millions)


                                                                              Fiscal Year                Fiscal Year
                                                                                 2014                       2013
  Assets:
   Intragovernmental:
        Fund Balance with Treasury (Note 3)                               $            61,506     $              69,997
        Accounts Receivable (Note 4)                                                        -                         1
    Total Intragovernmental                                                            61,506                    69,998
    Cash and Other Monetary Assets (Note 5)                                            1,471                      1,482
    Accounts Receivable, Net (Note 4)                                                    105                         90
    Credit Program Receivables, Net (Note 6)                                         922,418                    825,660
    Property and Equipment, Net (Note 7)                                                   7                          2
    Other Assets (Note 8)                                                                 13                         13
  Total Assets (Note 2)                                                   $          985,520      $             897,245

  Liabilities:
   Intragovernmental:
        Accounts Payable (Note 9)                                         $                1      $                    1
        Debt (Note 10)                                                               965,362                    851,258
        Guaranty Agency Federal Funds Due to Treasury (Note 5)                         1,471                      1,482
        Other Intragovernmental Liabilities (Note 11)                                  6,382                      8,786
    Total Intragovernmental                                                          973,216                    861,527

    Accounts Payable (Note 9)                                                           3,848                     3,942
    Accrued Grant Liability (Note 12)                                                   1,719                     1,727
    Other Liabilities (Note 11)                                                            67                        55
  Total Liabilities (Note 11)                                             $          978,850      $             867,251

    Commitments and Contingencies (Note 18)

  Net Position:
    Unexpended Appropriations (Note 13)                                   $            30,485     $              33,595
    Cumulative Results of Operations (Note 13)                                        (23,815)                   (3,601)

  Total Net Position (Note 13)                                            $             6,670     $              29,994

  Total Liabilities and Net Position                                      $          985,520      $             897,245
                                                                                            0                          0


  The accompanying notes are an integral part of these statements.




                                        Federal Student Aid Annual Report FY 2014                                      83
                                                                                                       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, 2014 and 2013
                                               (Dollars in Millions)


                                                                       Fiscal Year           Fiscal Year
                                                                          2014                  2013
Program Costs:
    Increase College Access, Quality, and Completion
  # Gross Costs                                               $                 65,470 $               13,266
  # Earned Revenue                                                             (28,979)               (26,688)
        Net Program Costs                                                       36,491                (13,422)

  Total Program Costs                                         $                 36,491 $              (13,422)



Net Cost of Operations (Notes 14 & 17)                        $                 36,491 $              (13,422)




The accompanying notes are an integral part of these statements.




                                 Federal Student Aid Annual Report FY 2014                                        84
                                                                                                                                                    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, 2014 and 2013
                                                                       (Dollars in Millions)


                                                                                           Fiscal Year                                        Fiscal Year
                                                                                              2014                                               2013


                                                                          Cumulative Results           Unexpended              Cumulative Results        Unexpended
                                                                            of Operations             Appropriations             of Operations          Appropriations


Beginning Balances:
 1.Beginning Balances                                                 $                (3,601) $               33,595      $              (7,588) $              30,361


Budgetary Financing Sources:
 4.Appropriations Received                                            $                     - $                49,876 $                       - $                44,797
 5.Appropriations Transferred - In/Out                                                      -                      74                         -                     (10)
 6.Other Adjustments (Rescissions, etc.)                                                    -                    (125)                        -                    (261)
 7.Appropriations Used                                                                 52,935                 (52,935)                   41,292                 (41,292)
 8.Nonexchange Revenue                                                                     12                       -                        10                       -
Other Financing Sources:
14. Imputed Financing from Costs Absorbed by Others                   $                        12 $                    -   $                 11 $                        -
15. Negative Subsidy Transfers, Downward Subsidy
15. Re-estimates, and Other                                                           (36,682)                         -                (50,748)                         -
Total Financing Sources                                               $                16,277 $                (3,110) $                  (9,435) $               3,234

Net Cost of Operations:                                               $               (36,491) $                       -   $             13,422 $                        -

Net Change:                                                           $               (20,214) $               (3,110) $                  3,987 $                 3,234

19. Ending Balances (Note 13)                                         $               (23,815) $               30,485      $              (3,601) $              33,595



The accompanying notes are an integral part of these statements.




                                              Federal Student Aid Annual Report FY 2014                                                                              85
                                                                                                                                 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, 2014 and 2013
                                                                   (Dollars in Millions)
                                                                               Fiscal Year                          Fiscal Year
                                                                                  2014                                 2013
                                                                                       Non-Budgetary                         Non-Budgetary
                                                                                       Credit Reform                          Credit Reform
                                                                       Budgetary                             Budgetary
                                                                                         Financing                              Financing
                                                                                         Accounts                               Accounts
Budgetary Resources:
Unobligated Balance, Brought Forward, October 1                    $        13,950 $          11,072     $       10,366      $          18,579
Recoveries of Prior Year Unpaid Obligations                                    464            97,274                359                 35,425
Other Changes in Unobligated Balance (+ or -)                                 (148)          (99,806)             (266)               (39,189)
Unobligated Balance from Prior Year Budget Authority (Net)         $        14,266 $           8,540     $       10,459      $          14,815
Appropriations (Discretionary and Mandatory)                                49,854               581             44,578                      -
Borrowing Authority (Discretionary and Mandatory) (Note 16)                      -           182,749                  -               194,970
Spending Authority from Offsetting Collections
                                                                                411           51,281                711                46,926
(Discretionary and Mandatory)
Total Budgetary Resources (Note 16)                                $        64,531     $     243,151     $       55,748      $        256,711
Status of Budgetary Resources:
Obligations Incurred (Note 16)                                     $        51,889     $     233,294     $       41,796      $        245,639
Unobligated Balance, End of Year:
Apportioned                                                                 10,617                69             11,952                     -
Unapportioned                                                                2,025             9,788              1,998                11,072
Total Unobligated Balance, End of Year                             $        12,642     $       9,857     $       13,950      $         11,072
Total Status of Budgetary Resources (Note 16)                      $        64,531     $     243,151     $       55,748      $        256,711
Change in Obligated Balance:
 Unpaid Obligations:
  Unpaid Obligations, Brought Forward, October 1                   $         23,380 $         161,488    $        24,094     $         171,959
  Obligations Incurred                                                       51,889           233,294             41,798               245,639
  Outlays (Gross) (-)                                                       (53,339)         (217,404)          (42,153)              (220,685)
  Recoveries of Prior Year Unpaid Obligations (-)                              (464)          (97,274)             (359)               (35,245)
  Unpaid Obligations, End of Year                                  $         21,466 $          80,104    $        23,380     $         161,488
 Uncollected Payments:
  Uncollected Payments, Federal Sources, Brought Forward,
                                                                   $               -   $           (3)   $               -   $             (4)
  October 1 (-)
  Change in Uncollected Payments, Federal Sources (+ or -)                         -               (1)                   -                   1
  Uncollected Payments, Federal Sources, End of Year (-)           $               -   $           (4)   $               -   $             (3)
 Memorandum (Non-add) Entries:
  Obligated Balance, Start of Year (+ or -)                        $        23,380     $     161,485     $       24,094      $        171,955
  Obligated Balance, End of Year (+ or -)                          $        21,466     $      80,100     $       23,380      $        161,485
Budget Authority and Outlays, Net:
 Budget Authority, Gross (Discretionary and Mandatory)             $        50,265 $         234,611     $       45,289 $             241,896
 Actual Offsetting Collections (Discretionary and Mandatory) (-)              (542)          (97,375)              (844)              (72,601)
 Change in Uncollected Customer Payments from Federal
                                                                                   -               (1)                   -                  1
 Sources (Discretionary and Mandatory) (+ or -)
Budget Authority, Net (Discretionary and Mandatory)                $        49,723     $     137,235     $       44,445      $        169,296
Outlays, Gross (Discretionary and Mandatory)                       $         53,339 $        217,404     $         42,153 $           220,685
Actual Offsetting Collections (Discretionary and Mandatory) (-)                (542)         (97,375)               (844)             (72,601)
Outlays, Net (Discretionary and Mandatory)                                   52,797          120,029               41,309              148,084
Distributed Offsetting Receipts (-) (Note 16)                               (39,559)               -             (48,445)                     -
Agency Outlays, Net (discretionary and mandatory)
                                                                   $        13,238     $     120,029     $        (7,136) $            148,084
(Note 16)



The accompanying notes are an integral part of these statements.




                                                 Federal Student Aid Annual Report FY 2014                                                        86
                                                                                     Financial Section
                                                                       Notes to the Financial Statements



Notes to the Financial Statements for the Years Ended
September 30, 2014 and 2013

 Note 1. Summary of Significant Accounting Policies

    Reporting Entity and Programs…
 Federal Student Aid (FSA) was created as a Performance Based Organization (PBO) within
 the United States (U.S.) Department of Education (the Department) under the Higher
 Education Act of 1965 (HEA) from previously existing Department student financial assistance
 program offices. FSA operates under the PBO mandate to develop a management structure
 driven by strong incentives to manage for results. FSA’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 Loan Programs. FSA and the Department administer direct loan, loan
 guarantee and other student aid programs to help students and their families finance the cost
 of postsecondary education. These include the William D. Ford Federal Direct Loan Program
 (Direct Loan) and the Federal Family Education Loan Program (FFEL).
 The Direct Loan Program, added to HEA in 1993 by the Student Loan Reform Act of 1993,
 authorizes the Department to make loans through participating schools for eligible
 undergraduate and graduate students and their parents. The FFEL Program, authorized by the
 HEA, operated through state and private nonprofit guaranty agencies which provided loan
 guarantees and interest subsidies on loans made by private lenders to eligible students. The
 SAFRA Act, that was included in the Health Care and Education Reconciliation Act of 2010
 (HCERA), effective July 1, 2010, stated that no new FFEL loans would be made.
 FSA also administers loans the Health Education Assistance Loan Program (HEAL) and the
 Teacher Education Assistance for College and Higher Education Grant Program (TEACH).
 Grant Programs. FSA and the Department manage numerous grant programs, which provide
 financial aid that, in most cases, does not need to be repaid, to students with financial need.
 The largest of these programs is the Federal Pell Grant (Pell Grant) Program, which provides
 need-based grants to low-income undergraduate and certain post-baccalaureate students that
 promotes access to postsecondary education. Other grant programs include Federal
 Supplemental Educational Opportunity Grants (FSEOG), and Iraq and Afghanistan Service
 Grants.
    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 FSA 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 FSA, in
 accordance with Generally Accepted Accounting Principles (GAAP) accepted in the U.S. for
 federal entities, issued by the Federal Accounting Standards Advisory Board (FASAB), and the
 Office of Management and Budget (OMB) Circular No. A-136, Financial Reporting
 Requirements, as revised. These financial statements are different from the financial reports
 prepared by the Department pursuant to OMB directives that are used to monitor and control
 FSA’s use of budgetary resources.

                               Federal Student Aid Annual Report FY 2014                             87
                                                                                      Financial Section
                                                                       Notes to the Financial Statements

FSA’s financial statements should be read with the realization that they are for reporting
organization, FSA, 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 FSA funds have been eliminated from the consolidated
financial statements.
   Intragovernmental Transactions
The Department and FSA’s financial activities are interlinked and dependent upon the financial
activities of the centralized management functions of the federal government. Due to financial
regulation and management control by OMB and the U.S. Department of Treasury (Treasury),
operations may not be conducted and financial positions may not be reported as they would if
FSA were a separate, unrelated entity.
   Accounting for Federal Credit Programs
The purpose of the Federal Credit Reform Act of 1990 (FCRA) is to record the lifetime cost of
direct loans and loan guarantees at the time the loan is disbursed. Under the FCRA, subsidy
cost is estimated using the net present value of future cash flows to and from the Department.
In accordance with the FCRA, credit programs either estimate a cost to the government (a
“positive” subsidy to borrowers), breakeven (zero subsidy cost), or estimate a negative subsidy
cost. Credit programs have negative subsidies when the estimated cost to the government of
providing credit is less than the estimated collections from repayments, interest, and fees, on a
present value basis. The estimates are affected by the cost of borrowing (at Treasury’s rates)
and the estimated risk of default. In practical terms, a negative subsidy occurs when the
interest rate and/or fees charged to the borrower are more than sufficient to cover the costs of
the risk of default.
The cost of direct loan and loan guarantee programs are budgeted and tracked by the fiscal
year in which the loan award is made or the funds committed. Such a grouping of loans or
guarantees is referred to as a “cohort”. A cohort is a grouping of direct loans obligated or loan
guarantees committed by a program in the same year even if disbursements occur in
subsequent years.
In order to account for the change in the net present value of the loan portfolio over time, the
subsidy cost is “amortized” each year. Amortization of subsidy is interest expense on debt with
Treasury minus interest income from borrowers and interest on uninvested fund balance with
Treasury. It is calculated as the difference between interest revenue and interest expense.
Amortized amounts are recognized as an increase or decrease in interest income. Amortization
accounts for the differences in interest rates, accruals, and cash flows over the life of a cohort,
insuring that cost is reflected in subsidy estimates and re-estimates. For direct loans, the
allowance for subsidy is adjusted with the offset to interest revenue. For guaranteed loans, the
liability for loan guarantees is adjusted with the offset to interest expense.
The FCRA establishes the use of Program, Financing, and General Fund Receipt Accounts for
loan guarantees committed and direct loans obligated after September 30, 1991. The Program
Account is a budget account that receives and obligates appropriations to cover the subsidy
cost of a direct loan or loan guarantee and disburses the subsidy cost to the Financing

                               Federal Student Aid Annual Report FY 2014                              88
                                                                                     Financial Section
                                                                       Notes to the Financial Statements

Account. A Program Account also receives appropriations for administrative expenses.
Appropriations for new subsidy and subsidy re-estimates are received in Program Accounts
and transferred to the Financing Accounts. Financing Accounts borrow funds from Treasury,
make direct loan disbursements, pay claims on guaranteed loans, collect principal and interest
from borrowers, collect fees and other program income, pay interest to Treasury on
borrowings, collect interest from Treasury on uninvested funds, and collect funds for positive
subsidy or transfer excess or negative subsidy to a General Fund Receipt Account. The
Financing Account receives the subsidy cost payment from the Program Account. The General
Fund Receipt Account, a budget account, is used by Treasury for the receipt of amounts paid
from the Financing Account when there are negative subsidies for original cost estimates or
downward re-estimates of prior subsidy costs. The budgetary resources and activities for these
accounts are presented separately in the Combined Statement of Budgetary Resources (SBR)
and the Budget of the United States Government and are excluded from the determination of
the budget deficit or surplus. Program accounts are classified as either budgetary or non-
budgetary in the Combined SBR. The budgetary accounts include the Program and Liquidating
Accounts, while Financing Accounts are non-budgetary. FCRA establishes Liquidating
Accounts for activity relating to any loan guarantees committed or direct loans obligated before
October 1, 1991.
Components of subsidy costs for loans and guarantees include defaults (net of recoveries);
contractual payments to third-party private loan collectors who receive a set percentage of
amounts collected; and, as an offset, origination and other fees collected. For direct loans, the
difference between interest rates incurred by the Department on its borrowings from Treasury
and interest rates charged to particular borrowers is also subsidized (or may provide an offset
to subsidy if the Department’s rate is less). 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.
As of July 1, 2014, consistent with the Consolidated Appropriations Act, 2014 (P.L. 113-76), the
Department of Health and Human Services (HHS) transferred all HEAL program loans to the
Department. This was accomplished through Treasury guidance on obligated and non-
obligated balance transfers. (See Note 6)
   Budget Authority
Budget authority is the authorization provided by law for FSA and the Department to incur
financial obligations that will result in outlays. FSA’s budgetary resources include unobligated
balances of resources from prior years; recoveries of prior-year obligations; and new
resources, which include appropriations, authority to borrow from the Treasury, and spending
authority from collections.
Borrowing authority is an indefinite budgetary resource authorized under the FCRA. This
resource, when realized, finances the unsubsidized portion of the Direct Loan, FFEL, and other
loan programs. In addition, borrowing authority is requested in advance of expected collections
to cover negative subsidy cost. Treasury prescribes the terms and conditions of borrowing
authority and lends to the Financing Account amounts as appropriate. Amounts borrowed, but
not yet disbursed, are included in uninvested funds and earn interest. Treasury uses the same
weighted average interest rates for both the interest charged on borrowed funds and the
interest earned on uninvested funds. Treasury calculates a different interest rate to be used for
each loan cohort. FSA may carry forward borrowing authority to future fiscal years provided
that cohorts are disbursing loans. All borrowings from Treasury are effective on October 1 of
the current fiscal year, regardless of when FSA borrowed the funds, except for amounts
borrowed to make annual interest payments.


                              Federal Student Aid Annual Report FY 2014                              89
                                                                                      Financial Section
                                                                       Notes to the Financial Statements

Authority to borrow from Treasury provides most of the funding for disbursements made under
the Direct Loan Program, FFEL, TEACH, and other loan programs. Subsidy and administrative
costs of the programs are funded by appropriations. Borrowings are repaid using collections
from borrowers, fees and interest on uninvested funds.
Unobligated balances represent the cumulative amount of budget authority that is not obligated
and that remains available for obligation under law, unless otherwise restricted. Resources
expiring at the end of the fiscal year remain available for five years, but only for upward
adjustments of prior year obligations, after which they are canceled and may not be used.
Resources that have not expired at year-end are available for new obligations, as well as
upward adjustments of prior-year obligations. Funds are appropriated on an annual, multi-year,
or no-year basis. Appropriated funds shall expire on the last day of availability and are no
longer available for new obligations. Amounts in expired funds are unavailable for new
obligations, but may be used to adjust previously established obligations.
Permanent Indefinite Budget Authority. The Direct Loan, FFEL, TEACH, and other loan
programs have permanent indefinite budget authority through legislation. Parts B and D of the
HEA pertain to the existence, purpose, and availability of permanent indefinite budget authority
for these programs.
Reauthorization of Legislation. Funds for most FSA programs are authorized, by statute, to
be appropriated for a specified number of years, with an automatic one-year extension
available under Section 422 of the General Education Provisions Act. Congress may continue
to appropriate funds after the expiration of the statutory authorization period, effectively
reauthorizing the program through the appropriations process. The current Budget of the
United States Government presumes all programs continue in accordance with congressional
budgeting rules. (See Note 16)
   Use of Estimates
FSA and Department management are required to make certain estimates while preparing
consolidated financial statements in conformity with GAAP. These estimates are reflected in
the assets, liabilities, net cost, and net position of the financial statements and may differ from
actual results. The Department and FSA’s estimates are based on management’s best
knowledge of current events, historical experiences, and other assumptions that are believed to
be reasonable under the circumstances. Significant estimates reported on the financial
statements include allocation of Department administrative overhead costs, annual credit
program re-estimates and modifications of subsidy cost (general program administration cost)
as well as grant liability and advance accruals. (See Notes 6, 12, and 14)
   Entity and Non-Entity Assets
Assets are classified as either entity or non-entity assets. Entity assets are those that FSA has
authority to use for its operations. Non-entity assets are those held by FSA but not available for
use in its operations. FSA non-entity assets are offset by liabilities to third parties and have no
impact on net position. FSA 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 four types of funds in the Department’s accounts
with Treasury available to pay current liabilities and finance authorized purchases, as well as
funds restricted until future appropriations are received: (1) General funds consist of
expenditure accounts used to record financial transactions arising from congressional
appropriations, as well as receipt accounts; (2) Revolving funds, which include Financing
Accounts, manage the activity of self-funding programs whether through fees, sales or other
                               Federal Student Aid Annual Report FY 2014                              90
                                                                                       Financial Section
                                                                        Notes to the Financial Statements

income; (3) Special funds are receipts from sources that are authorized by law for a specific
purpose; these receipts are available for expenditure for special programs; and (4) Other funds
primarily consist of deposit, receipt funds, and clearing accounts. Treasury processes cash
receipts and cash disbursements for FSA. FSA’s records are reconciled with Treasury’s. (See
Note 3)
   Accounts Receivable
Accounts Receivable are amounts due to FSA 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 federal agencies result from reimbursable agreements entered
into by FSA with other agencies to provide various goods and services. Accounts receivable
are reduced to net realizable value by an allowance for uncollectible amounts. The estimate of
an allowance for loss on uncollectible accounts is based on the Department and FSA’s
experience in the collection of receivables and an analysis of the outstanding balances.
Accounts Receivable are established as claims to cash or other assets against other entities.
At the Department, accounts receivable originate through legal provisions or program
requirements to return funds due to noncompliant program administration, regulatory
requirements, or individual service obligations. Further, the Department utilizes the opportunity
to reduce the accounts receivable balances through the Treasury referral program.
The Department calculates the allowance for loss from uncollectable accounts receivable by
applying a collection rate based on historical trends against gross accounts receivable. The
collection rate is determined based on a rolling average of actual collection rates for the prior
seven fiscal years. (See Note 4)
   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 Federal Fund assets of state and nonprofit FFEL
Program guaranty agencies. Guaranty Agency Federal Fund reserves are classified as non-
entity assets with the public 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.
Sections 422A and 422B of the HEA required FFEL guaranty agencies to establish a Federal
Student Loan Reserve Fund (Federal Fund) and an Operating Fund. 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 U.S. 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.
FSA and the Department disburse funds to a guaranty agency. A guaranty agency, through its
Federal Fund, pays lender claims and pays default aversion fees into its own Operating Fund.
The Operating Fund is the property of the guaranty agency and 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. Payments made to the Department from
guaranty agency federal funds through a statutory recall or agency closures represent capital
transfers and are credited to the Department’s Fund Balance with Treasury account. (See Note
5)




                               Federal Student Aid Annual Report FY 2014                              91
                                                                                      Financial Section
                                                                        Notes to the Financial Statements

   Credit Program Receivables, Net 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 FCRA. Loans and interest receivable are valued at
their gross amounts less an allowance for the present value of amounts not expected to be
recovered and thus having to be subsidized—called “allowance for subsidy.” The difference
between the gross amount and the allowance for subsidy is the present value of the cash flows
to and from FSA that are expected from receivables over their projected lives. Similarly,
liabilities for loan guarantees are valued at the present value of the cash outflows from FSA
less the present value of related inflows. The estimated present value of net long-term cash
outflows of FSA for subsidized costs is net of recoveries, interest supplements, and offsetting
fees. FSA also values all pre-1992 loans, loan guarantees, and direct loans at their net present
values. If the Liability for Loan Guarantee is positive, the amount is reported as a component of
Credit Program Receivables, Net.
The Liability for Loan Guarantees presents the net present value of all future cash flows from
currently insured FFEL loans including claim payments, interest assistance, allowance
payments, and recoveries from assigned loans. Guaranteed loans that default are initially
turned over to guaranty agencies for collection. Defaulted FFEL loans are accounted for and
reported in the financial statements under credit reform rules, similar to direct loans, although
they are legally not direct student loans. Negative balances are reported as a component of
Credit Program Receivables Net. Credit Program Receivables, Net includes default FFEL loans
owned by the Department and held by the Department or guaranty agencies. In most cases,
after approximately four years, defaulted guaranteed loans not in repayment are turned over to
the Department for collection.
Credit program receivables for activities under the temporary loan purchase authority include
the present value of future cash flows related to purchased loans. Subsidy was transferred,
which may have been prior to loan purchase, and is recognized as subsidy expense on the
Balance Sheet and 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. (See Note 6)
   Property and Equipment, Net and Leases
In accordance with the Department’s policy, FSA capitalizes single items of property and
equipment with a cost of $50,000 or more that have an estimated useful life of two years or
more. Additionally, FSA 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 of at least 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.




                               Federal Student Aid Annual Report FY 2014                              92
                                                                                                Financial Section
                                                                                  Notes to the Financial Statements

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



The Department and FSA lease buildings, along with information technology and
telecommunications equipment, as part of a contractor-owned, contractor-operated services
contract. Lease payments associated with the equipment have been determined to be
operating leases and, as such, are expensed as incurred. The non-cancellable lease term is
one year, with the Department holding the right to extend the lease term by exercising
additional one-year options. (See Note 7)
   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 FSA 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 Program liabilities are entitlements covered by permanent indefinite budget
authority. (See Note 11)
   Accounts Payable
Accounts Payable include amounts owed by the Department for goods and services received
from other entities, as well as payments not yet processed. (See Note 9)
   Debt
The Department borrows from Treasury to provide funding for the Direct Loan, FFEL, TEACH,
and other loan programs. The liability to Treasury from borrowings represents unpaid principal
at year-end. FSA repays the principal based on available fund balances. Interest on the debt is
calculated and paid at fiscal year-end using rates set by Treasury. These are rates generally
fixed based on the rate for 10-year Treasury securities. (See Note 10)
   Accrued Grant Liability
Disbursements of grant funds are recognized as expenses at the time of disbursement. Some
grant recipients incur allowable expenditures as of the end of an accounting period but have
not yet been reimbursed by the agency. The Department and FSA will accrue a liability for
these allowable expenditures incurred that have not yet been reimbursed. The amount is
estimated using statistical sampling as well as information on recent grant expenditures and
unliquidated balances. (See Note 12)




                                  Federal Student Aid Annual Report FY 2014                                     93
                                                                                        Financial Section
                                                                         Notes to the Financial Statements

   Other Liabilities
Other Liabilities include liabilities in miscellaneous receipts and capital transfers. Liabilities in
miscellaneous receipt accounts are recorded for downward subsidy re-estimates that are
accrued at year end and for amounts of future capital transfers from Liquidating Accounts.
Miscellaneous receipt accounts are a mechanism used by Treasury to facilitate the elimination
of receivables and payables within the government, and the Department follows the guidance
for using miscellaneous receipt accounts in recording specific events. Upon execution of a
downward re-estimate or an actual capital transfer, the liabilities in the miscellaneous receipt
accounts are satisfied and removed from the general ledger. Liabilities in miscellaneous receipt
accounts are unfunded liabilities. (See Note 11)
   Net Cost
Net cost consists of gross costs and earned revenue. Gross costs and earned revenue are
classified as intragovernmental (exchange transactions between FSA and other entities within
the federal government) or with the public (exchange transactions between FSA and non-
federal entities).
Net program costs are gross costs less any revenue earned from activities. FSA determines
gross cost and earned revenue by tracing amounts back to the specific program office.
Administrative overhead costs of funds unassigned are allocated based on full-time employee
equivalents of each program. (See Note 14)
   Interest Expense and Interest Revenue
FSA and the Department accrue interest receivable and record interest revenue on performing
Direct Loans and FFEL loans purchased by the Department. The Department recognizes
interest income when interest is accrued on loans to the public for the Direct Loan, FFEL, and
TEACH Programs. FFEL Financing and Liquidating Accounts accrue interest as part of
allowance for subsidy. Interest due from borrowers is accrued at least monthly and is satisfied
upon collection or capitalization into the loan principal.
Interest expense and interest revenue are equal for all credit programs due to subsidy
amortization. If interest revenue is greater than expense or interest expense is greater than
revenue, the difference is recorded to revenue with the offset to allowance for subsidy.
Subsidy amortization is required by the FCRA and accounts for the difference between interest
accruals and interest cash flows. (See Note 15)
   Net Position
Net position consists of unexpended appropriations and cumulative results of operations.
Unexpended appropriations include undelivered orders and unobligated balances, except for
amounts in Financing Accounts, Liquidating Accounts, and trust funds. Cumulative results of
operations represent the net difference since inception between (1) expenses and (2) revenues
and financing sources. (See Note 13)
   Personnel Compensation and Other Employee Benefits
Annual, Sick, and Other Leave. The liability for annual leave, compensatory time off, and
other vested leave is accrued when earned and reduced when taken. Each year, the accrued
annual leave account balance is adjusted to reflect current pay rates. Sick leave and other
types of non-vested leave are expensed as taken. Annual leave earned but not taken, within
established limits, is funded from future financing sources.



                               Federal Student Aid Annual Report FY 2014                                94
                                                                                   Financial Section
                                                                     Notes to the Financial Statements

Retirement Plans and Other Retirement Benefits. Employees participate in either the Civil
Service Retirement System (CSRS), a defined benefit plan, or the Federal Employees
Retirement System (FERS), a defined benefit and contribution plan. For CSRS employees, the
Department contributes a fixed percentage of pay.
FERS consists of Social Security, a basic annuity plan, and the Thrift Savings Plan. The
Department and the employee contribute to Social Security and the basic annuity plan at rates
prescribed by law. In addition, the Department is required to contribute to the Thrift Savings
Plan a minimum of 1 percent per year of the basic pay of employees covered by this system,
match voluntary employee contributions up to 3 percent of the employee’s basic pay, and
match one-half of contributions between 3 percent and 5 percent of the employee’s basic pay.
For FERS employees, the Department also contributes the employer’s share of Medicare.
Contributions for CSRS, FERS, and other retirement benefits are insufficient to fund the
programs fully and are subsidized by the Office of Personnel Management (OPM). The
Department imputes its share of the OPM subsidy, using cost factors provided by OPM, and
reports the full cost of the programs related to its employees.
Federal Employees’ Compensation Act. The Federal Employees’ Compensation Act (FECA)
provides income and medical cost protection to covered federal civilian employees injured on
the job, employees who have incurred work-related occupational diseases, and beneficiaries of
employees whose deaths are attributable to job-related injuries or occupational diseases. The
FECA Program is administered by the U.S. Department of Labor (DOL), which pays valid
claims and subsequently seeks reimbursement from the Department for these paid claims.
The FECA liability consists of two components. The first component is based on actual claims
paid and recognized by the Department as a liability. Generally, the Department reimburses
DOL within two to three years once funds are appropriated. The second component is the
estimated liability for future benefit payments based on unforeseen events, such as death,
disability, medical, and miscellaneous costs as determined by DOL annually. (See Note 11)
   Reclassifications
Certain reclassifications were made to the Fiscal Year (FY) 2013 financial statements and
notes to conform to the current year presentation. These changes had no effect on total assets,
liabilities, net position, net cost of operations, or budgetary resources. The American Recovery
and Reinvestment Act of 2009 (ARRA) funding is winding down, thereby diminishing the
materiality of the program. Therefore, the separate ARRA presentation on the financial
statements and note disclosures has been removed. The Consolidated Statement of Net Cost
and related note disclosures for FY 2013 have been reclassified to present ARRA funding now
reported under the specific program offices distributing the funding. (See Notes 12 and 14)




                              Federal Student Aid Annual Report FY 2014                            95
                                                                                                Financial Section
                                                                                Notes to the Financial Statements

Note 2. Non-Entity Assets
As of September 30, 2014 and 2013, non-entity assets consisted of the following:
                                              Non-Entity Assets
                                                 (Dollars in Millions)

                                                                             2014                2013
       Non-Entity Assets
         With the Public:
            Cash and Other Monetary Assets                               $      1,471       $        1,482
            Credit Program Receivables, Net                                       387                  369
            Accounts Receivable, Net                                               33                   30
               Total With the Public                                            1,891                1,881
       Total Non-Entity Assets                                                  1,891                1,881
       Entity Assets                                                          983,629              895,364
       Total Assets                                                      $    985,520       $      897,245


FSA’s FY 2014 assets are predominantly entity assets (99.8 percent), leaving the small portion
of assets remaining as non-entity assets. Non-entity assets with the public primarily consist of
guaranty agency reserves (77.8 percent), reported as Cash and Other Monetary Assets, and
related Federal Perkins Loan Program loan receivables (20.5 percent), reported as Credit
Program Receivables, Net. Federal Perkins Loan Program is a non-entity asset because the
assets are held by FSA but are not available to the Department. The corresponding liabilities
for these non-entity assets are reflected in various accounts, including Intragovernmental
Accounts Payable, Guaranty Agency Federal Fund Due to Treasury, and Other Liabilities. (See
Notes 5, 9, and 11)




                                  Federal Student Aid Annual Report FY 2014                                   96
                                                                                                        Financial Section
                                                                                        Notes to the Financial Statements


Note 3. Fund Balance with Treasury
Fund Balance with Treasury by status of funds and fund type, as of September 30, 2014 and
2013, consisted of the following:
                                         Fund Balance with Treasury
                                               (Dollars in Millions)

                                                                                   2014
                                                       General             Revolving          Special
                                                                                                             Total
                                                       Funds                Funds             Funds
  Status of Funds
  Unobligated Balance:
             Available                             $      10,617           $       69         $     -    $     10,686
             Unavailable                                     543                9,788              11          10,342
  Obligated Balance, Not Yet Disbursed                    21,462               19,012               4          40,478
  Fund Balance with Treasury                       $      32,622           $   28,869         $    15    $     61,506



                                                                                    2013
                                                       General             Revolving          Special
                                                                                                             Total
                                                       Funds                Funds             Funds
  Status of Funds
  Unobligated Balance:
             Available                             $      11,952       $            -   $           -    $     11,952
             Unavailable                                     503               11,071              14          11,588
  Obligated Balance, Not Yet Disbursed                    23,377               23,077               3          46,457
  Fund Balance with Treasury                       $      35,832           $   34,148     $        17    $     69,997

Composition of Funds
A portion of the general funds is provided in advance by multiyear appropriations for obligations
anticipated during the current and future fiscal years. Revolving funds are derived from
borrowings, as well as collections from the public and other federal agencies. Special funds
include fees collected on delinquent or defaulted Perkins loans that have reverted back to FSA
and the Department from the initial lenders.
Status of Funds
Available unobligated balances represent amounts that are apportioned for obligation in the
current fiscal year. Unavailable unobligated balances represent amounts that are not
apportioned for obligation during the current fiscal year and expired appropriations no longer
available to incur new obligations. Total unavailable unobligated balances ($10,342 million)
differs from unapportioned amounts on the SBR ($11,813 million) due to the Cash and Other
Monetary Assets ($1,471 million). Obligated balances not yet disbursed include undelivered
orders and unpaid expended authority. (See Note 5)




                                    Federal Student Aid Annual Report FY 2014                                           97
                                                                                                                   Financial Section
                                                                                             Notes to the Financial Statements

Note 4. Accounts Receivable
Accounts Receivable, as of September 30, 2014 and 2013, consisted of the following:
                                               Accounts Receivable
                                                    (Dollars in Millions)

                                                                                     2014
                                                  Gross
                                                Receivables                         Allowance              Net Receivables

       Intragovernmental                   $                   -            $                   -          $                  -
       With the Public                                     115                               (10)                           105

       Total                               $               115              $                (10)          $                105



                                                                                      2013
                                                  Gross
                                                Receivables                         Allowance              Net Receivables

       Intragovernmental                    $                 1             $                   -          $                  1
       With the Public                                     103                               (13)                           90

       Total                                $              104                  $            (13)          $                 91

Accounts receivable consist of institutional debt resulting from external audit or program
review; program scholarship grant repayments; employee debt; and intragovernmental debts
due from other federal agencies through interagency agreements.


Note 5. Cash and Other Monetary Assets
Cash and Other Monetary Assets consist of reserves held in the FFEL guaranty agency
Federal Fund. Changes in the valuation of the Federal Fund increase or decrease the
Department’s Cash and Other Monetary Assets with a corresponding change in Guaranty
Agency Federal Fund Due to Treasury.

The table below presents Cash and Other Monetary Assets for the Years Ended September
30, 2014 and 2013.
                                     Cash and Other Monetary Assets
                                                    (Dollars in Millions)

                                                                                             2014                    2013
       Beginning Balance, Cash and Other Monetary Assets                              $         1,482          $        1,307
         Increase/(Decrease) in Guaranty Agency Federal Fund, net                                   (11)                    175

       Ending Balance, Cash and Other Monetary Assets                                 $         1,471          $        1,482


The $11 million net decrease in the Federal Fund in FY 2014 represents the change in the
estimated value of net assets held in the FFEL guaranty agency Federal Fund. This decrease
reflects the impact of guaranty agencies’ operations.




                                  Federal Student Aid Annual Report FY 2014                                                       98
                                                                                             Financial Section
                                                                               Notes to the Financial Statements

Note 6. Credit Programs for Higher Education: Credit Program
Receivables, Net and Liabilities for Loan Guarantees
The Department currently operates two major student loan programs: Direct Loan and FFEL.
The Direct Loan Program offers four types of loans: Stafford, Unsubsidized Stafford, PLUS,
and Consolidation. Evidence of financial need is required for an undergraduate student to
receive a subsidized Stafford loan. The other three loan programs are available to borrowers at
all income levels. Loans can be used only to meet qualified educational expenses.
FSA holds $922 billion in outstanding student loan net receivables. This outstanding balance is
comprised primarily of Direct Loan, FFEL, and loans purchased using authority provided in
Ensuring Continued Access to Student Loans Act of 2008 (ECASLA), but there are several
other loan programs that the Department administers–including the Federal Perkins Loan
Program, the TEACH Grant Program, and the HEAL Program.
Credit Program Receivables, as of September 30, 2014 and 2013, consisted of the following:

                                 Credit Program Loan Receivables, Net
                                                (Dollars in Millions)


                                                                            2014             2013
    Direct Loan Program Loan Receivables, Net                           $   778,516      $    679,107
    FFEL Program Loan Receivables:
     FFEL Guaranteed Loan Program, Net (Pre-1992)                             1,904             2,231
     FFEL Program (Post-1991):
      FFEL Guaranteed Loan Program, Net                                      37,969            35,144
      Temporary Loan Purchase Authority:
        Loan Purchase Commitment, Net                                        36,556            38,946
        Loan Participation Purchase, Net                                     64,513            67,546
        ABCP Conduit, Net                                                     1,922             1,864
    Federal Perkins and Other Loan Program Loan Receivables, Net               387               369
    TEACH Program Loan Receivables, Net                                        536               453
    HEAL Program Loan Receivables, Net                                         115                  -

    Total                                                               $   922,418      $    825,660


Due to Congressional legislation, HHS will report all prior year HEAL Program information on
their financial statements. Thus, the Department and FSA will not report FY 2013 HEAL
Program information on the comparable financial statements in FY 2014.

The federal student loan programs provide students and their families with the funds to help
meet postsecondary education costs. Funding for these programs is provided through
permanent indefinite budget authority. What follows is a comprehensive description of the
student loan programs at the Department, including summary financial data and subsidy rates.

William D. Ford Federal Direct Loan Program. The federal government makes loans directly
to students and parents through participating institutions of higher education under the Direct
Loan Program. Direct Loans are originated and serviced through contracts with private
vendors. As of September 30, 2014 and 2013, total principal balances outstanding of Direct
Loans were approximately $694 billion and $585 billion, respectively.


                                   Federal Student Aid Annual Report FY 2014                                 99
                                                                                                 Financial Section
                                                                                   Notes to the Financial Statements

The Department disbursed approximately $134 billion in Direct Loans to eligible borrowers in
FY 2014 and approximately $130 billion in FY 2013. Of the $134 billion disbursed in Direct
Loans, new loans were $99 billion and consolidation loans were $35 billion. Loans are typically
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 8.5 percent of Direct Loan obligations made in a 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 before the student begins classes. For Direct Loans obligated in the 2014 cohort, an
estimated $12.6 billion will never be disbursed. Eligible schools may obtain advances from the
Department to fund Direct Loans awards or request subsequent reimbursement from the
Department.
Direct Loan Program loan receivables are defaulted and non-defaulted loans owned and held
by the Department. 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)

                                                                            2014                 2013
    Principal Receivable                                                $   694,006          $    584,528
    Interest Receivable                                                      37,152                29,332
      Total                                                                 731,158               613,860
    Allowance for Subsidy                                                    47,358                65,247
    Direct Loan Program Loan Receivables, Net                           $   778,516          $    679,107


Of the $731.2 billion in receivables, as of September 30, 2014, $33.9 billion (4.6 percent) in
loan principal was in default and had been transferred to the Department’s defaulted loan
servicer, compared to $28.9 billion (4.7 percent) as of September 30, 2013. As of
September 30, 2014 and 2013, an additional $0.5 billion and $1.1 billion, respectively in
defaulted loans held by servicers had not yet been transferred to the Department’s defaulted
loan servicer; this amount includes defaulted Direct Loans and defaulted loans from other loan
programs.
Negative allowance for subsidy is a factor of interest rates, default rates, fees, and other costs.
Negative subsidy is an estimate of future cash inflows exceeding future cash outflows. Subsidy,
either positive or negative, provides resources for the Department to carry on its loan
origination and loan servicing activities under the Direct Loan Program.




                                Federal Student Aid Annual Report FY 2014                                      100
                                                                                                        Financial Section
                                                                                        Notes to the Financial Statements

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)
                                                                               2014                    2013
    Beginning Balance, Allowance for Subsidy                               $      65,247           $      32,076
    Activity
    Fee Collections                                                               (1,623)                 (1,557)
    Loan Cancellations                                                              2,068                   1,890
    Subsidy Allowance Amortization                                               (11,319)                 (7,719)
    Other                                                                           1,111                   1,000
    Total Activity                                                                (9,763)                 (6,386)
    Components of Negative Subsidy Transfers
    Interest Rate Differential                                                     33,161                 37,063
    Defaults, Net of Recoveries                                                   (1,409)                 (1,887)
    Fees                                                                            1,756                   1,801
    Other                                                                        (11,418)                 (9,967)
    Current Year Negative Subsidy Transfers                                       22,090                  27,010
    Components of Subsidy Re-estimates
    Interest Rate Re-estimates                                                    (8,344)                 11,754
    Technical and Default Re-estimates                                           (21,872)                    793
    (Upward)/Downward Subsidy Re-estimates                                       (30,216)                 12,547

    Ending Balance, Allowance for Subsidy                                  $      47,358           $      65,247


Loan cancellations include write-offs of loans because the primary borrower died, became
disabled, or declared bankruptcy. The Other components of current year negative subsidy
transfers consist of contract collection costs, program review collections, fees, and other
accruals. The interest rate re-estimate relates to subsidy associated with establishing a fixed
rate for the Department’s borrowing from Treasury.
The following schedule summarizes the Direct Loan Financing Account interest expense and
interest revenue for the years ended September 30, 2014 and 2013:

                      Direct Loan Program Interest Expense and Revenue
                                               (Dollars in Millions)

                                                                               2014                    2013
    Interest Expense on Treasury Borrowing                             $           25,152      $           22,661
    Total Interest Expense                                             $           25,152      $           22,661


    Interest Revenue from the Public                                   $           32,801      $          26,972
    Amortization of Subsidy                                                      (11,319)                 (7,720)
    Interest Revenue on Uninvested Funds                                            3,670                   3,409
    Total Interest Revenue                                             $           25,152      $          22,661




                                   Federal Student Aid Annual Report FY 2014                                         101
                                                                                                 Financial Section
                                                                                  Notes to the Financial Statements

The following schedule summarizes the Direct Loan Financing Account subsidy expense for
the years ended September 30, 2014 and 2013:

                             Direct Loan Program Subsidy Expense
                                               (Dollars in Millions)

                                                                           2014                  2013
    Components of Negative Subsidy Transfers
    Interest Rate Differential                                         $     33,161          $     37,063
    Defaults, Net of Recoveries                                             (1,409)                (1,887)
    Fees                                                                      1,756                  1,801
    Other                                                                  (11,418)                (9,967)
    Negative Subsidy Transfers                                              22,090                 27,010

    (Upward)/Downward Subsidy Re-estimates                                 (30,216)                12,547

    Direct Loan Subsidy Expense                                        $    (8,126)          $     39,557


The change in Direct Loan Subsidy Expense of $47.7 billion from FY 2013 to FY 2014 is
primarily due to the change in subsidy re-estimates. Direct Loan re-estimated subsidy cost was
adjusted upward by $30.2 billion in FY 2014. Updated discount rates for the 2013 and 2012
cohorts decreased cost by $4.4 billion. Changes in the availability of repayment plans
increased cost by $18.6 billion. Costs increased $2.9 billion due to increases in default rates.
Changes in prepayment rates reflect slower than expected prepayment activity, leading to
increased interest earnings resulting in $3.2 billion in downward subsidy cost. Other
assumption updates produced offsetting costs, with the remainder attributable to interest on the
re-estimate. In June 2014, President Obama announced a new initiative to expand the Pay As
You Earn repayment plan to all borrowers. The modified cost for subsidy of this plan for cohort
years 1994-2013 is $8.3 billion. This planned initiative will be negotiated with interested parties
in 2015. 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
$3.5 billion. Re-estimated costs only include those cohorts that are 90 percent disbursed;
cohort years 1994–2013.
Direct Loan re-estimated subsidy cost was adjusted downward by $12.5 billion in FY 2013.
Updated discount rates for the 2012 and 2011 cohorts decreased cost by $11.8 billion.
Deferment and forbearance rate changes decreased cost by $1.5 billion. Costs increased
$1.5 billion due to increases in default and disability rates. Changes in prepayment rates reflect
slower than expected prepayment activity, leading to increased interest earnings resulting in
$1.1 billion in downward subsidy cost. 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 $1.8 billion. Re-estimated costs only
include those cohorts that were 90 percent disbursed; cohort years 1994–2012.




                                  Federal Student Aid Annual Report FY 2014                                   102
                                                                                                    Financial Section
                                                                                     Notes to the Financial Statements

The subsidy rates applicable to the 2014 loan cohort year follow:
                              Direct Loan Subsidy Rates—Cohort 2014
                                            Interest
                                           Differential        Defaults       Fees       Other        Total

   Stafford                                 (4.86)%              0.15%       (1.07)%      6.37%       0.59%
   Unsubsidized Stafford                    (25.51)%             0.27%       (1.07)%      7.77%     (18.54)%
   PLUS                                     (34.89)%             0.51%       (4.29)%      6.99%     (31.68)%
   Consolidation                            (6.59)%              1.58%       0.00%        11.14%      6.13%
   Total                                    (18.08)%             0.59%       (1.25)%      8.20%     (10.54)%


The subsidy rate represents the subsidy expense of the program in relation to the obligations
or commitments made during the fiscal year and are weighted on gross volume. The subsidy
expense for new direct loans reported in the current year relates to disbursements of loans
from both current and prior years’ cohorts. Subsidy expense is recognized when the
Department disburses direct loans. The subsidy expense reported in the current year may
include re-estimates. The subsidy rates shown above, which reflect aggregate negative
subsidy in the FY 2014 cohort, cannot be applied to direct loans disbursed during the current
reporting year to yield the subsidy expense, nor are these rates applicable to the portfolio as a
whole. The Department does not re-estimate student loan cohorts until they are at least 90
percent disbursed. As a result, the financial statement re-estimate does not include a re-
estimate of the current year cohort. The first re-estimate of this cohort will take place upon
execution of the 2016 President's Budget.
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 program interest rates are established by statute; the existing loan portfolio has a
mixture of borrower and lender rate formulas. Interest rate projections are based on
probabilistic interest rate scenario inputs developed and provided by OMB.
The following schedule summarizes the Direct Loan Program loan disbursements by loan type
for the years ended September 30, 2014 and 2013:

                           Direct Loan Program Expenditures by Loan Type
                                             (Dollars in Millions)

                                                                          2014                     2013
    Stafford                                                         $       (25,877)       $         (26,530)
    Unsubsidized Stafford                                                    (54,740)                 (56,122)
    PLUS                                                                     (18,910)                 (19,388)
    Consolidation                                                            (34,525)                 (27,472)
    Total Expenditures                                               $      (134,052)       $        (129,512)

The allocation of disbursements for the first three loan types is estimated based on historical
trend information.
Student and parent borrowers may prepay existing loans without penalty through a new
consolidation loan. Under the FCRA and requirements provided by OMB regulations, the
retirement of Direct Loans being consolidated is considered a collection of principal and
interest. This receipt is offset by the disbursement related to the newly created consolidation
loan. Underlying direct or guaranteed loans, performing or nonperforming, are paid off in their
original cohort; new consolidation loans are originated in the cohort in which the new
consolidation loan was obligated. Consolidation activity is taken into consideration in
establishing subsidy rates for defaults and other cash flows. The cost of new consolidations is
                                  Federal Student Aid Annual Report FY 2014                                      103
                                                                                      Financial Section
                                                                       Notes to the Financial Statements

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 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 consolidations increased from $28 billion during FY 2013 to $35 billion during
FY 2014. Under the FCRA, the subsidy costs of new consolidation loans are not reflected until
the future fiscal year in which they are disbursed. The effect of the early payoff of the existing
loans—those being consolidated—is recognized in the future projected cash flows of the past
cohort year in which the loans were originated.
Federal Family Education Loan Program. As a result of the SAFRA Act, the Department and
private lenders did not originate or guarantee any new loans in FY 2014 or FY 2013. Federal
guarantees on FFEL Program loans and commitments remain in effect for loans made before
July 1, 2010, that were sold to the Department through an ECASLA program, consolidated into
a direct loan, or otherwise satisfied, discharged, or cancelled. As of September 30, 2014 and
2013, total principal balances outstanding of guaranteed loans held by lenders were
approximately $242 billion and $264 billion, respectively. As of September 30, 2014 and 2013,
the estimated maximum government exposure on outstanding guaranteed loans held by
lenders was approximately $236 billion and $258 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.




                               Federal Student Aid Annual Report FY 2014                             104
                                                                                              Financial Section
                                                                                Notes to the Financial Statements

                               FFEL Program Loan Receivables, Net
                                             (Dollars in Millions)
                                                                         2014                 2013

    FFEL Program (Pre-1992)
      Principal Receivable                                           $      4,707         $       5,040
      Interest Receivable                                                   5,810                 5,563
        Total                                                             10,517                10,603
      Allowance for Subsidy                                               (8,586)               (8,356)
      Liabilities for Loan Guarantees                                         (27)                  (16)
    FFEL Guaranteed Loan Program, Net (Pre-1992)                            1,904                 2,231

    FFEL Program (Post-1991)
    FFEL Guaranteed Loan Program:
    Principal Receivable                                                  34,251                32,649
    Interest Receivable                                                     5,273                 4,849
      Total                                                               39,524                37,498
       Allowance for Subsidy                                              (5,773)               (6,614)
       Liabilities for Loan Guarantees                                      4,218                 4,260
    FFEL Guaranteed Loan Program, Net (Post-1991)                         37,969                35,144

    Temporary Loan Purchase Authority:
    Loan Purchase Commitment:
    Principal Receivable                                                  29,401                31,899
    Interest Receivable                                                    1,927                 1,859
      Total                                                               31,328                33,758
         Allowance for Subsidy                                             5,228                 5,188
    Loan Purchase Commitment, Net                                         36,556                38,946
    Loan Participation Purchase:
    Principal Receivable                                                  52,782                56,041
    Interest Receivable                                                    3,358                 3,297
      Total                                                               56,140                59,338
         Allowance for Subsidy                                             8,373                 8,208
    Loan Participation Purchase, Net                                      64,513                67,546
    ABCP Conduit:
    Principal Receivable                                                   2,036                 2,208
    Interest Receivable                                                      218                   193
      Total                                                                2,254                 2,401
         Allowance for Subsidy                                             (332)                 (537)
    ABCP Conduit, Net                                                      1,922                 1,864

    FFEL Program Loan Receivables, Net                               $   142,864          $    145,731


ECASLA gave the Department temporary authority to purchase FFEL loans and participation
interests in those loans. The Department implemented three activities under this authority: loan
purchase commitments; purchases of loan participation interests; and a put, or forward
purchase commitment, with an Asset-Backed Commercial Paper (ABCP) Conduit. This
authority expired after September 30, 2010; as a result, loan purchase commitments and
purchases of loan participation interests concluded. However, under the terms of the Put
Agreement with the conduit, ABCP Conduit activity ceased operations in January 2014.
The asset-backed commercial paper vehicle, the Conduit, closed in early FY 2014, resulting in
a $71 billion recovery of prior year obligations and the cancellation of unused borrowing
authority.

                                  Federal Student Aid Annual Report FY 2014                                 105
                                                                                                     Financial Section
                                                                                   Notes to the Financial Statements

The FFEL Guaranteed Student Loan Financing Account has a negative estimated Liability for
Loan Guarantees of $4.2 billion and $4.3 billion as of September 30, 2014 and 2013,
respectively. This indicates that expected collections on anticipated future defaulted loans will
be in excess of default disbursements, calculated on a net present value basis. Under GAAP,
the negative estimated liability has been classified as a component of Credit Program
Receivables on the Consolidated Balance Sheet. The following schedule provides a
reconciliation between the beginning and ending balances of the liability for loan guarantees for
the insurance portion of the FFEL Program:

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

                                                                           2014                     2013
    Beginning Balance, FFEL Financing Account Liability for
    Loan Guarantees                                                    $      4,260         $         (1,013)
    Activity
    Interest Supplement Payments                                              1,094                    1,336
    Claim Payments                                                            8,914                    9,125
    Fee Collections                                                          (2,156)                  (2,239)
    Interest on Liability Balance                                             1,843                    1,783
    Other                                                                   (13,785)                 (12,564)
    Total Activity                                                           (4,090)                  (2,559)
    Components of Loan Modifications
    Loan Modification Costs                                                   4,020                         -
    Modification Adjustment Transfers                                          (581)                        -
    Loan Modifications                                                        3,439                         -


    (Upward)/Downward Subsidy Re-estimates                                        609                  7,832

    Ending Balance, FFEL Financing Account Liability for Loan
    Guarantees                                                                4,218                    4,260
    FFEL Liquidating Account Liability for Loan Guarantees                      (27)                     (16)
    Liabilities for Loan Guarantees                                    $      4,191             $      4,244


Other activity includes negative special allowance collections, collections on defaulted FFEL
loans, expenditures, and loan cancellations due to death, disability, or bankruptcy.




                                    Federal Student Aid Annual Report FY 2014                                     106
                                                                                                            Financial Section
                                                                                           Notes to the Financial Statements

The following schedules provide reconciliations between the beginning and ending balances of
the allowance for subsidy for the Loan Purchase Commitment component and the Loan
Participation Purchase component of the FFEL Program. Loans in these programs are loans
acquired by the Department. Acquired loans are reported at their net present value of future
cash flows.


           Loan Purchase Commitment Reconciliation of Allowance for Subsidy
                                                (Dollars in Millions)

                                                                                2014                       2013
    Beginning Balance, Allowance for Subsidy                                $         5,188            $        5,258
    Activity
    Subsidy Allowance Amortization                                                     (749)                      (771)
    Loan Cancellations                                                                  116                        106
    Contract Collection Cost and Other                                                   72                         51
    Total Activity                                                                     (561)                      (614)


    (Upward)/Downward Subsidy Re-estimates                                              601                        544

    Ending Balance, Allowance for Subsidy                                   $         5,228            $        5,188



           Loan Participation Purchase Reconciliation of Allowance for Subsidy
                                                (Dollars in Millions)

                                                                                2014                       2013
    Beginning Balance, Allowance for Subsidy                                $         8,208            $        8,910
    Activity
    Subsidy Allowance Amortization                                                   (1,304)                 (1,319)
    Loan Cancellation                                                                   224                        197
    Contract Collection Cost and Other                                                   93                         43
    Total Activity                                                                     (987)                 (1,079)


    (Upward)/Downward Subsidy Re-estimates                                            1,152                        377

    Ending Balance, Allowance for Subsidy                                   $         8,373            $        8,208


The following schedule provides FFEL Program subsidy expense for the years ended
September 30, 2014 and 2013, respectively:

                                         FFEL Program Subsidy Expense
                                                    (Dollars in Millions)

                                                                                         2014                     2013
       FFEL Guaranteed Loan Program Subsidy Re-estimates                         $               609        $        7,832
       Loan Purchase Commitment Subsidy Re-estimates                                             601                   544
       Loan Participation Purchase Subsidy Re-estimates                                        1,152                   377
       ABCP Conduit Subsidy Re-estimates                                                         203                     -
       FFEL Program (Upward)/Downward Subsidy Re-estimates                                     2,565                 8,753

       FFEL Guaranteed Loan Program Modification Costs                                         4,020                      -

       FFEL Program Subsidy Expense                                               $            6,585        $        8,753


                                     Federal Student Aid Annual Report FY 2014                                                107
                                                                                     Financial Section
                                                                       Notes to the Financial Statements

FFEL Guaranteed re-estimated subsidy cost was adjusted downward by $0.6 billion in
FY 2014. Costs decreased $411 million due to updated economic assumptions, including
probabilistic deterministic rates, which reflected historically low commercial paper rates,
resulting in substantially higher negative special allowance payments than were previously
projected. Costs decreased $111 million due to maturity and debt distribution assumption
updates. 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 $18 billion.
FFEL Guaranteed re-estimated subsidy cost was adjusted downward by $7.8 billion in
FY 2013. Costs decreased $5.2 billion due to updated economic assumptions, including
probabilistic deterministic rates, which reflected historically low commercial paper rates,
resulting in substantially higher negative special allowance payments than were previously
projected. Costs increased $1 billion due to increases in bankruptcy and disability rates. 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 $12.3 billion.
Modification of Subsidy Cost. 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 recorded for modification costs and modification adjustment
transfers. The Department modified loans in FY 2014, but not in FY 2013.
FY 2014 Modification. The Bipartisan Budget Act of 2013 eliminated guaranty agencies'
retention share of original defaulted student loan amounts, and reduced the maximum fee they
can charge a borrower on the borrower's outstanding balance from 18.5 to 16 percent. The Act
required these agencies to send rehabilitated loans to the Department if they cannot find a
private lender buyer. These technical changes resulted in a $4 billion downward subsidy cost
modification and a $581 million modification adjustment transfer loss for the FFEL Financing
Account.
Other Credit Programs for Higher Education
Federal Perkins Loan Program. The Federal Perkins Loan Program provides low-interest
loans to eligible postsecondary school students. In some statutorily defined cases, funds are
provided to reimburse schools for loan cancellations. For defaulted loans assigned to the
Department, collections of principal, interest, and fees, net of amounts paid by the Department
to cover contract collection costs, are transferred to Treasury annually.
As of September 30, 2014 and 2013, loan and interest receivables, net of allowance for losses,
were $387 million and $358 million, respectively. These receivables are valued at net realizable
value with estimated allowance for losses of $161 million and $154 million as of
September 30, 2014 and 2013, respectively.
TEACH Grant Program. The Department awards annual grants of up to $4,000 to eligible
undergraduate and graduate students who agree to serve as full-time mathematics, science,
foreign language, bilingual education, special education, or reading teachers at high-need
schools for four years within eight years of graduation. The maximum lifetime grant for students
is $16,000 for undergraduate programs and $8,000 for graduate programs. For students failing

                              Federal Student Aid Annual Report FY 2014                              108
                                                                                                       Financial Section
                                                                                   Notes to the Financial Statements

to fulfill the service requirement, the grants are converted to Direct Unsubsidized Stafford
Loans. Since grants can be converted to direct loans, for budget and accounting purposes, the
program is operated as a loan program under the FCRA.
As of September 30, 2014 and 2013, loan receivables were $536 million and $453 million,
respectively. The receivable balance is net of allowance for subsidy of $120 million and
$106 million as of September 30, 2014 and 2013, respectively.
The subsidy rates applicable to the 2014 loan cohort year follow:

                            TEACH Subsidy Rates—Cohort 2014
                                         Interest
                                        Differential            Defaults    Fees       Other            Total

   Total Subsidy Rates                    6.96%                   0.24%     0.00%         6.55%         13.75%


HEAL Program. The Department assumed responsibility for the HEAL program and the
authority to administer, service, collect, and enforce the program. The HEAL Program is
structured as required by the FCRA. A Liquidating Account is used to record all cash flows to
and from the government resulting from guaranteed HEAL loans committed prior to 1992.
Credit program receivables, net of allowance for subsidy and liabilities for loan guarantees,
were $115 million for FY 2014. All loan activity for 1992 and beyond is recorded in
corresponding Financing Accounts.

Administrative Expenses
Administrative expenses for the periods ended September 30, 2014 and 2013, consisted of the
following:
                                    Administrative Expenses
                                              (Dollars in Millions)

                                               2014                                       2013
                                Direct Loan                  FFEL           Direct Loan                 FFEL
                                 Program                   Program           Program                  Program
     Operating Expense          $      604                $           390   $       639           $       413
     Other Expense                      22                            14             25                    16

     Total                      $      626                $           404   $       664           $       429




                              Federal Student Aid Annual Report FY 2014                                             109
                                                                                                         Financial Section
                                                                                        Notes to the Financial Statements


Note 7. Property and Equipment, Net and Leases
Property and Equipment, as of September 30, 2014 and 2013, consisted of the following:


                                         Property and Equipment, Net
                                                        (Dollars in Millions)

                                                                                       2014
                                                                  Asset             Accumulated              Net Asset
                                                                  Cost              Depreciation              Value

       Information Technology, Internal Use Software,
       and Telecommunications Equipment                    $             130        $      (123)         $               7
       Furniture and Fixtures                                                   2            (2)                         -

       Property and Equipment, Net                         $             132        $      (125)         $               7



                                                                                       2013
                                                                  Asset             Accumulated              Net Asset
                                                                  Cost              Depreciation              Value

       Information Technology, Internal Use Software,
       and Telecommunications Equipment                    $              129       $      (127)     $               2
       Furniture and Fixtures                                                   2            (2)                         -

       Property and Equipment, Net                         $              131       $      (129)     $                   2


The Depreciation expense for the years ended September 30, 2014 and 2013 was $1 million
and $8 million, respectively.
The major drivers of fixed assets at FSA are improvements to information technology, including
financial management and program management systems. Specifically, recent enhancements
have been made to FSA’s automated grant management capability. FSA acquires more robust
information technology to augment its significant capabilities to manage student loan and grant
operations.
Leases
FSA staff and contractors are housed in leased buildings. FSA does not own real property for
the use of its staff. The leased contracts with GSA are operating leases and are expensed as
incurred.
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 $13 million as of September 30, 2014 and 2013.




                                   Federal Student Aid Annual Report FY 2014                                                 110
                                                                                                      Financial Section
                                                                                        Notes to the Financial Statements


Note 9. Accounts Payable
Accounts Payable, as of September 30, 2014 and 2013, consisted of the following:
                                              Accounts Payable
                                                     (Dollars in Millions)

                                                                                 2014                   2013
       Accrual for Unreimbursed Loan Disbursements                           $          3,027     $            2,923
       In Process Disbursements:
          Direct Loans                                                                    312                   573
          Grants                                                                          161                   237
          FFEL Claim Payments                                                             311                     52
       Contractual Services                                                               163                   172
       Other                                                                            (126)                   (15)
       Accounts Payable to the public                                                   3,848                  3,942

       Intragovernmental Accounts Payable                                                   1                     1

       Total Accounts Payable                                                $          3,849     $            3,943



FY 2014 Accounts Payable to the public primarily consists of in-process grant and loan
disbursements, including an accrued liability for schools that have disbursed loans prior to
requesting funds. The Department pays vendor invoices according to the Prompt Payment Act
rules that are built into the financial system as a control mechanism, generally within 30 days of
receipt of goods and proper invoicing. The Department also monitors and leverages vendor
discount opportunities by processing payments to coincide with discount terms when possible.

The Accounts Payable Other abnormal balance of $(126) million is primarily due to a temporary
adjustment related to FFEL Guaranteed Loan Program collections of fees, principal, and
interest on defaulted loans.




                                 Federal Student Aid Annual Report FY 2014                                             111
                                                                                                         Financial Section
                                                                                           Notes to the Financial Statements

Note 10.            Debt
Debt, as of September 30, 2014 and 2013, consisted of the following:

                                                        Debt
                                                   (Dollars in Millions)

                                                                               2014

                                       Beginning                                                               Ending
                                        Balance                   Borrowing            Repayments              Balance
 Treasury Debt
 Direct Loan Program               $       698,361            $            171,227     $      (50,581)    $       819,007
 FFEL Program
  Guaranteed Loan Program                   43,254                               -                   -             43,254
  Loan Purchase Commitment                  38,598                            976              (3,303)             36,271
  Loan Participation Purchase               68,017                            790              (4,505)             64,302
  ABCP Conduit                               2,543                            203                (773)              1,973
 TEACH Program                                 485                             99                 (29)                   555
 Total                             $       851,258            $            173,295     $      (59,191)     $      965,362

                                                                                2013
                                       Beginning                                                               Ending
                                        Balance                   Borrowing            Repayments              Balance
 Treasury Debt
 Direct Loan Program               $       549,332            $            177,682     $      (28,653)     $      698,361
 FFEL Program
   Guaranteed Loan Program                  43,254                               -                   -             43,254
   Loan Purchase Commitment                 42,341                             602             (4,345)             38,598
   Loan Participation Purchase              77,292                             519             (9,794)             68,017
   ABCP Conduit                              1,735                           1,000               (192)              2,543
 TEACH Program                                 370                             128                (13)                485
 Total                             $       714,324            $            179,931     $      (42,997)     $      851,258


FSA borrows from Treasury to fund the disbursement of new loans and the payment of credit
program outlays and related costs. During FY 2014, debt increased 13 percent from
$851 billion in the prior year to $965 billion. The Department makes periodic principal payments
after considering the cash position and liability for future outflows in each cohort of loans, as
mandated by the FCRA.
Over 84 percent of FSA’s debt, as of September 30, 2014, is attributable to the Direct Loan
Program. The majority of the net borrowing activity (borrowing less repayments) for the year
was designated for funding new Direct Loan disbursements. Net borrowing in the Direct Loan
Program for FY 2014 totaled $121 billion. The new financing was used to disburse new loans
and make negative subsidy transfers. FSA also borrowed funding to execute the downward
subsidy re-estimate on the entire portfolio and to pay its interest to Treasury at year-end.
Principal payments were made during the year. The FFEL Program is no longer offering new
financing to public borrowers or entering into guaranty agreements with lending authorities.
FSA also borrows from Treasury for activity in the TEACH Program. During FY 2014, TEACH
net borrowing of $70 million was used for the advance of new grants and repayments of
principal made to Treasury.



                                 Federal Student Aid Annual Report FY 2014                                                  112
                                                                                                             Financial Section
                                                                                             Notes to the Financial Statements

Note 11. Other Liabilities
Other Liabilities, as of September 30, 2014 and 2013, consisted of the following:
                                                  Other Liabilities
                                                        (Dollars in Millions)

                                                                       2014                               2013
                                                             Intragovern-   With the           Intragovern-    With the
                                                                mental       Public               mental       Public
   Liabilities Covered by Budgetary Resources
     Current
        Employer Contributions and Payroll Taxes               $           1        $    -      $        2    $        -
        Accrued Payroll and Benefits                                       -             5               -             9
        Deferred Revenue                                                   -            50               -            31
        Liabilities in Miscellaneous Receipt Accounts                  3,762             -           6,050             -
   Total Other Liabilities Covered by
   Budgetary Resources                                                 3,763            55           6,052            40


   Liabilities Not Covered by Budgetary Resources
     Current
        Accrued Unfunded Annual Leave                                           -       12               -            10
     Non-Current
        Accrued Unfunded FECA Liability                                    1             -               1                -
        Liabilities in Miscellaneous Receipt Accounts                    376             -             358                -
        Capital Transfers                                              2,242             -           2,375                -
        Accrued FECA Actuarial Liability                                   -             -               -                5
   Total Other Liabilities Not Covered by
   Budgetary Resources                                                 2,619            12           2,734            15

   Other Liabilities                                           $       6,382        $   67      $    8,786     $      55


Other liabilities include current and non-current liabilities. The current liabilities covered by
budgetary resources primarily consist of $3.7 billion for downward subsidy re-estimates, which,
when executed, will be paid to the General Fund of the Treasury.
The non-current liabilities not covered by budgetary resources primarily relate to capital
transfers, excess unanticipated collections on defaulted loans in liquidating accounts in the
amount of $2.2 billion, and the student loan receivables of the Federal Perkins Loan Program
in the amount of $376 million.
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 $2.7 billion as of
September 30, 2014 and 2013.
As of September 30, 2014 and 2013, liabilities on the Balance Sheet totaled $978.9 billion and
$867.3 billion, respectively. Of this amount, liabilities covered by budgetary resources totaled
$976.2 billion and $864.5 billion as of September 30, 2014 and 2013, respectively.
Note 12. Accrued Grant Liability
FSA’s Accrued Grant Liability was $1,719 million and $1,727 million as of September 30, 2014
and 2013, respectively. The majority is comprised of Pell Grants. The remaining Accrued
Grant Liability also includes Discretionary, Formula, and Campus-Based Grants.

                                     Federal Student Aid Annual Report FY 2014                                                113
                                                                                              Financial Section
                                                                            Notes to the Financial Statements

Note 13. Net Position
Unexpended appropriations, as of September 30, 2014 and 2013, consisted of the following:
                                     Unexpended Appropriations
                                              (Dollars in Millions)

                                                                          2014                  2013
       Unobligated Balances:
         Available                                                    $          10,571   $         11,952
         Not Available                                                             482                 403
       Undelivered Orders                                                        19,432             21,240

       Unexpended Appropriations                                      $          30,485   $         33,595


Cumulative Results of Operations. The Cumulative Results of Operations of $(23,815)
million and $(3,601) million as of September 30, 2014 and 2013, respectively, consists mostly
of unfunded upward subsidy re-estimates for Direct Loan and FFEL Loan Programs, other
unfunded expenses, and net investments of capitalized assets.
Other Resources. Negative Subsidy Transfers, Downward Subsidy Re-estimates, and Other
in the Other Financing Sources section of the Statement of Changes in Net Position was
$(36,682) million and $(50,748) million as of September 30, 2014 and 2013, respectively. The
amount was primarily comprised of Direct Loan and FFEL Program activity.
Appropriations Received. Appropriations Received was $49,876 and $44,797 million as of
September 30, 2014 and 2013, and comprised primarily of Pell Grant, Direct Loan, Special
Education, and Education for the Disadvantaged Programs.

Note 14. Intragovernmental Cost and Exchange Revenue by
Program

As required by the GPRA Modernization Act of 2010, FSA’s reporting groups and major
program offices have been aligned with the goals presented in the Department’s Strategic Plan
2014–2018.Strategic Goal 1, Increase college access, quality, and completion by improving
higher education and lifelong learning opportunities for youth and adults, is a sharply defined
directive that guides divisions to carry out the vision and programmatic mission of FSA.
FSA and the Department’s Net Cost of Operations has continued to decrease due to American
Recovery and Reinvestment Act funding diminishing, as well as, Direct Loan negative subsidy
transfers net cost program has been created. Gross Cost and Exchange Revenue is the cost
incurred less any exchange revenue earned from activities.
The Department determines Gross Cost and Exchange Revenue by tracing amounts back to
the relevant program office
Gross costs and earned revenue are classified as intragovernmental (exchange transactions
between FSA and other entities within the federal government) or with the public (exchange
transactions between FSA and non-federal entities). The change of $50 billion in Increase
College Access, Quality, and Completion Gross Cost from FY 2013 to FY 2014 is primarily due
to an upward subsidy re-estimate of $30 billion. The following table presents FSA's gross cost
and exchange revenue by program for FY 2014 and FY 2013.



                               Federal Student Aid Annual Report FY 2014                                     114
                                                                                                                 Financial Section
                                                                                               Notes to the Financial Statements



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

                                                                                             2014                    2013

      Increase College Access, Quality, and Completion
      Intragovernmental Gross Cost                                                   $         31,267        $         28,513
      Public Gross Cost                                                                        34,203                  (15,247)
         Total Gross Program Costs                                                             65,470                  13,266
      Intragovernmental Earned Revenue                                                          (4,293)                 (3,685)
      Public Earned Revenue                                                                    (24,686)                (23,003)
        Total Program Earned Revenue                                                           (28,979)                (26,688)
      Total Program Cost                                                                       36,491                  (13,422)

      Net Cost of Operations                                                             $     36,491            $     (13,422)


Note 15. Interest Expense and Interest Revenue
For FY 2014 and FY 2013, interest expense and interest revenue by program consisted of the
following:
                                  Interest Expense and Interest Revenue
                                                   (Dollars in Millions)
                                                                                     2014
                                                      Expenses                                            Revenue
                                                        Non-                                                Non-
                                         Federal                            Total             Federal                  Total
                                                       federal                                             federal


      Direct Loan Program                $ 25,152          $      -        $25,152            $ 3,670     $ 21,482    $25,152
      FFEL Program:
         Guaranteed Loan Program            2,083         (1,843)              240                  240          -            240
         Loan Purchase Commitment           1,163               -            1,163                   64      1,099          1,163
         Loan Participation Purchase        2,102               -            2,102                  119      1,983          2,102
         ABCP Conduit                          75               -               75                   14         61             75
      TEACH Program                            18               -               18                    2         16             18
      Other Programs                            -               -                -                    -         13             13

      Total                               $30,593      $ (1,843)           $28,750            $ 4,109     $ 24,654    $28,763


                                                                                     2013
                                                      Expenses                                            Revenue
                                                        Non-                                                Non-
                                         Federal                            Total             Federal                  Total
                                                       federal                                             federal

      Direct Loan Program                $ 22,661        $        -        $22,661            $ 3,409     $ 19,252    $22,661
      FFEL Program:
         Guaranteed Loan Program            2,083         (1,783)              300                  300          -            300
         Loan Purchase Commitment           1,244               -            1,244                   79      1,165          1,244
         Loan Participation Purchase        2,293               -            2,293                  203      2,090          2,293
         ABCP Conduit                         124               -              124                   44         80            124
      TEACH Program                            16               -               16                    2         14             16
      Other Programs                            -               -                -                    -          -              -

      Total                              $ 28,421      $ (1,783)           $26,638            $ 4,037     $ 22,601    $26,638

                                  Federal Student Aid Annual Report FY 2014                                                         115
                                                                                                 Financial Section
                                                                                   Notes to the Financial Statements

Federal interest expense is recognized on the Department’s outstanding Borrowings from
Treasury (debt). The Direct Loan and FFEL Programs have $819 billion and $146 billion in
debt, respectively, as of September 30, 2014. Federal interest revenue is earned on Fund
Balance with Treasury for the Direct Loan and FFEL Programs. The interest rate set by OMB is
the same for interest expense and interest revenue.
Non-federal interest expense results from the amortization of loan subsidy. Non-federal interest
revenue is interest earned from the public on Credit Program Receivables held by the
Department. The Credit Program Receivable net balances for the Direct Loan and FFEL
Program are $779 billion and $143 billion, respectively, as of September 30, 2014.

Note 16. Statement of Budgetary Resources
The SBR compares budgetary resources with the status of those resources. As of September
30, 2014, budgetary resources were $308 billion and net agency outlays were $133 billion. As
of September 30, 2013, budgetary resources were $312 billion and net agency outlays were
$141 billion.
Obligations Incurred by Apportionment Type and Category
Obligations incurred by apportionment type and category, as of September 30, 2014 and 2013,
consisted of the following:
                    Obligations Incurred by Apportionment Type and Category
                                                (Dollars in Millions)

                                                                            2014                    2013
       Direct:
          Category A                                                    $        1,175       $          1,019
          Category B                                                           283,814                286,137
          Exempt from Apportionment                                                194                    281

       Obligations Incurred                                             $      285,183       $        287,437


Obligations incurred can be either direct or reimbursable. Reimbursable obligations are those
financed by offsetting collections received in return for goods and services provided, while all
other obligations are direct. The apportionment categories are determined in accordance with
the guidance provided in OMB regulations. Category A apportionments are those resources
that can be obligated without restriction on the purpose of the obligation, other than to be in
compliance with legislation underlying programs for which the resources were made available.
Category B apportionments are restricted by purpose for which obligations can be incurred. In
addition, some resources are available without apportionment by OMB.

Unused Borrowing Authority
Unused borrowing authority and related changes in available borrowing authority, as of
September 30, 2014 and 2013, consisted of the following:
                                      Unused Borrowing Authority
                                                (Dollars in Millions)
                                                                            2014                   2013
       Beginning Balance, Unused Borrowing Authority                    $       138,411      $         145,238
       Current Year Borrowing Authority                                        182,749                 194,970
       Funds Drawn From Treasury                                              (173,295)              (179,931)
       Borrowing Authority Withdrawn                                           (86,776)               (21,866)

       Ending Balance, Unused Borrowing Authority                       $          61,089    $        138,411


                                 Federal Student Aid Annual Report FY 2014                                       116
                                                                                                       Financial Section
                                                                                     Notes to the Financial Statements

FSA is given authority to draw funds from Treasury to finance the Direct Loan, FFEL, TEACH,
and other loan programs. Unused Borrowing Authority is a budgetary resource and is available
to support obligations for these programs. FSA periodically reviews its borrowing authority
balances in relation to its obligations and may cancel unused amounts.
Undelivered Orders at the End of the Period
Undelivered orders, as of September 30, 2014 and 2013, consisted of the following:
                                      Undelivered Orders
                                                  (Dollars in Millions)

                                                                              2014                      2013
       Budgetary                                                          $          19,506    $            21,304
       Non-Budgetary                                                                 76,676                158,444

       Undelivered Orders (Unpaid)                                        $          96,182    $           179,748


Undelivered orders at the end of the period, as presented above, will differ from the
undelivered orders included in Unexpended Appropriations. Undelivered orders represent the
amount of goods and/or services ordered which have not been actually or constructively
received. This amount includes any orders which may have been prepaid or advanced but for
which delivery or performance has not yet occurred. Undelivered orders for trust funds,
reimbursable agreements, and federal financing and liquidating funds are not funded through
appropriations and are not included in Unexpended Appropriations. (See Note 13)
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 current fiscal year executed subsidy re-estimates and negative
subsidies. The collections are recorded as offsetting receipts and they offset the agency's
budget authority and outlays. Distributed Offsetting Receipts, for the Years Ended September
30, 2014 and 2013, consisted of the following:
                                         Distributed Offsetting Receipts
                                                  (Dollars in Millions)
                                                                              2014                      2013
       Negative Subsidies and Downward Re-estimates:
         FFEL Program                                                     $           7,945        $            9,946
         Direct Loan Program                                                         31,551                    38,436
         TEACH Program                                                                   13                        17
         Total Negative Subsidies and Downward Re-estimates                          39,509                    48,399
       Other                                                                             50                        46
       Distributed Offsetting Receipts                                    $          39,559    $               48,445




                                  Federal Student Aid Annual Report FY 2014                                             117
                                                                                      Financial Section
                                                                       Notes to the Financial Statements

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 Fund of the guaranty agencies. Ownership by the federal government is
independent of the actual control of the assets. Since the actual operation of the Federal Fund
is independent from the Department’s direct control, budgetary resources and obligations are
estimated and disclosed in the President’s Budget to approximate the gross activities of the
combined Federal Funds. Amounts reported on the FY 2013 SBR for the Federal Fund are
compiled through combining all guaranty agencies’ annual reports to determine a net valuation
amount for the Federal Fund.
Note 17. Reconciliation of Net Cost of Operations to Budget
The Reconciliation of Net Cost of Operations to Budget reconciles the resources used to
finance activities, both those received through budgetary resources and those received through
other means, with the Net Cost of Operations on the Statement of Net Cost. This reconciliation
provides an explanation of the differences between budgetary and financial (proprietary)
accounting, as required by FASAB Standard No. 7, Accounting for Revenue and Other
Financing Sources and Concepts for Reconciling Budgetary and Financial Accounting.
Resources Used to Finance Activities (section one) are reconciled with the net cost of
operations by: (a) excluding Resources Used or Generated for Items Not Part of the Net Cost
of Operations (section two), and (b) including Components of the Net Cost of Operations That
Will Not Require or Generate Resources in the Current Period (section three). The primary
resources used to finance activities that do not fund the net cost of operations include the
acquisition of net credit program assets, the liquidation of liabilities for loan guarantees, and
subsidy re-estimates accrued in the prior period. Significant components of the net cost of
operations that will not generate or use resources in the current period include subsidy
amortization, interest on the liability for loan guarantees, and increases in exchange revenue
receivable from the public.




                              Federal Student Aid Annual Report FY 2014                             118
                                                                                                      Financial Section
                                                                                        Notes to the Financial Statements

The Reconciliation of Net Cost of Operations to Budget, as of September 30, 2014 and 2013,
are presented below:
                         Reconciliation of Net Cost of Operations to Budget
                                                  (Dollars in Millions)

                                                                                         2014              2013

Resources Used to Finance Activities:
  Obligations Incurred                                                              $      285,183     $     287,437
  Spending Authority from Offsetting Collections and Recoveries                          (195,653)         (109,229)
  Offsetting Receipts                                                                     (39,559)          (48,445)
    Net Budgetary Resources Obligated                                                      49,971           129,763
  Transfers In/Out Without Reimbursements (+/-)                                                  -                (10)
  Imputed Financing from Costs Absorbed by Others                                               12                11
  Other Financing Sources                                                                 (36,682)          (50,748)
    Net Other Resources                                                                   (36,670)          (50,747)

Net Resources Used to Finance Activities                                                   13,301            79,016


Resources Used or Generated for Items Not Part of the Net Cost of Operations:
  (Increase)/Decrease in Budgetary Resources Obligated but Not Yet Provided                83,563            10,168
  Resources that Fund Subsidy Re-estimates Accrued in Prior Period                          2,383            (3,922)
  Credit Program Collections                                                               80,293            58,293
  Acquisition of Fixed Assets                                                                  (3)               (2)
  Acquisition of Net Credit Program Assets or Liquidation of Liabilities for Loan
  Guarantees                                                                             (186,818)         (191,364)
  Resources from Non-Entity Activity                                                        36,682            50,923
     Net Resources That Do Not Finance the Net Cost of Operations                           16,100          (75,904)


Net Resources Used to Finance the Net Cost of Operations                                   29,401             3,112


Components of the Net Cost of Operations That Will Not Require or Generate Resources in the Current Period:
  Change in Depreciation                                                               (2)                  8
  Subsidy Amortization and Interest on the Liability for Loan Guarantees           11,609               8,100
  Other                                                                               581                  20
     Total Components Not Requiring or Generating Resources                        12,188               8,128
  Increase in Annual Leave Liability                                                     2                  -
  Accrued Re-estimates of Credit Subsidy Expense                                   20,130             (2,382)
  Increase in Exchange Revenue Receivable from the Public                        (25,227)            (22,288)
  Other                                                                                (3)                  8
     Total Components Requiring or Generating Resources in Future
     Periods                                                                      (5,098)            (24,662)

Total Components That Will Not Require or Generate Resources in the
Current Period                                                                              7,090           (16,534)


Net Cost of Operations                                                              $      36,491     $     (13,422)




                                    Federal Student Aid Annual Report FY 2014                                            119
                                                                                      Financial Section
                                                                       Notes to the Financial Statements

Note 18. Contingencies
FSA discloses contingencies where any of the conditions for liability recognition are not met
and there is at least a reasonable possibility that a loss or an additional loss may have been
incurred in accordance with FASAB Standard No. 5, Accounting for Liabilities of the Federal
Government. The following commitments are amounts for contractual arrangements that may
require future financial obligations.
Guaranty Agencies
FSA may assist guaranty agencies experiencing financial difficulties. No provision has been
made in the financial statements for potential liabilities. FSA has not done so in fiscal years
2014 or 2013 and does not expect to in future years.
Federal Perkins Loan Program
The Federal Perkins Loan Program provides financial assistance to eligible postsecondary
school students. In FY 2014, the Department provided funding of 82.8 percent of the capital
used to make loans to eligible students through participating schools at 5 percent interest. The
schools provided the remaining 17.2 percent of program funding. For the latest academic year
ended June 30, 2014, approximately 538 thousand loans were made totaling $1.2 billion at
1,486 institutions, averaging $2,170 per loan. The Department’s equity interest was
approximately $6.7 billion as of September 30, 2014.
Federal Perkins Loan Program borrowers who meet statutory eligibility requirements—such as
those who provide service as teachers in low-income areas or as Peace Corps or AmeriCorps
VISTA volunteers, as well as those who serve in the military, law enforcement, nursing, or
family services—may receive partial loan forgiveness for each year of qualifying service.
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
FSA’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 FSA’s financial position.




                               Federal Student Aid Annual Report FY 2014                           120
                                                                                                          Financial Section
                                                                        Required Supplementary Stewardship Information



Required Supplementary Stewardship Information
  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.

  Year to date expenses incurred for human capital investments consisted of the following as of
  September 30, 2014 and the preceding four fiscal year ends:

                                  Summary of Human Capital Expenses
                                                (Dollars in Millions)

                                               2014               2013           2012         2011         2010
   Federal Student Aid Expense
    Direct Loan Subsidy                          $8,126          ($39,557)      ($10,720)    ($28,630)    ($1,567)
    FFEL Program Subsidy                         (6,585)            (8,753)      (14,381)     (16,126)    (14,344)
    Perkins Loans, Pell and Other Grant          33,098             33,542        34,310       39,008       26,799
    Recovery Act                                        0                  0            23           18      8,869
    Salaries and Administrative                       206                222         192          193         208
   Total                                        $34,845          ($14,546)        $9,424      ($5,537)     $19,965


  The William D. Ford Federal Direct Loan (Direct Loan) Program is a direct-lending program in
  which loan capital is provided to students by the federal government through borrowings from
  the United States (U.S.) Department of Treasury. This program has expanded dramatically
  since the passage of the SAFRA Act, which was included in the Health Care and Education
  Reconciliation Act of 2010 (HCERA), under which no new loan originations were permitted to
  be made from the Federal Family Education Loan (FFEL) program after June 30, 2010, so
  that loans that may have previously been made through the FFEL program are now made
  through the Direct Loan Program.

  The FFEL Loan Program has originated no new loans since June 30, 2010, but its permanent
  budget authority allows it to continue to operate with state and private nonprofit guaranty
  agencies to honor loan guarantees and for the Department to pay interest supplements on
  outstanding loans by private lenders to eligible students. The FFEL Loan Program expenses
  include the Loan Participation Purchase, Loan Purchase Commitment, and ABCP Conduit
  expenses of $1,152 million, $601 million and $203 million respectively.

  Perkins Loan and Grant programs include the Federal Pell Grant Program that awards direct
  grants through participating institutions to undergraduate students with financial need.
  Participating institutions either credit the appropriated funds to the student’s school account or
  pay the student directly once per term.

  The Teacher Education Assistance for College and Higher Education (TEACH) Grant program
  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 President’s Budget proposes to overhaul the TEACH Grant program, and replacing it with
  a new, targeted teacher recruitment and retention program called the Presidential Teaching
  Fellows. This new program would provide grants to states that meet certain conditions to


                                     Federal Student Aid Annual Report FY 2014                                        121
                                                                                      Financial Section
                                                        Required Supplementary Stewardship Information

supply scholarships of up to $10,000 to talented individuals attending the most effective
programs in the state. These individuals would commit to teaching for at least three years in a
high need school and subject. To be eligible for funds, states would measure the
effectiveness of their teacher preparation programs based on the student achievement data of
their graduates among other measures; hold teacher preparation programs accountable for
results; and upgrade licensure and certification standards.

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, 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.

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 include 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.




                              Federal Student Aid Annual Report FY 2014                              122
                                                                                                                           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, 2014
                                                                    (Dollars in Millions)
                                                                                                           Health Education Assistance
                                                                                 Combined                            Loans
                                                                                        Non-Budgetary                          Non-Budgetary
                                                                                        Credit Reform                           Credit Reform
                                                                                          Financing                               Financing
                                                                        Budgetary         Accounts             Budgetary          Accounts
 Budgetary Resources:
 Unobligated Balance, Brought Forward, October 1                    $        13,950 $           11,072     $               -   $            -
 Recoveries of Prior Year Unpaid Obligations                                    464             97,274                     -                -
 Other Changes in Unobligated Balance (+ or -)                                 (148)           (99,806)                    -               62
 Unobligated Balance from Prior Year Budget Authority (Net)         $        14,266 $            8,540     $               -   $           62
 Appropriations (Discretionary and Mandatory)                                49,854                581                     -                -
 Borrowing Authority (Discretionary and Mandatory) (Note 16)                      -           182,749                      -                -
 Spending Authority from Offsetting Collections
 (Discretionary and Mandatory)                                                  411            51,281                      9                7
 Total Budgetary Resources (Note 16)                                $        64,531     $     243,151      $               9   $           69
 Status of Budgetary Resources:
 Obligations Incurred (Note 16)                                     $        51,889     $     233,294      $               -   $            1
 Unobligated Balance, End of Year:
  Apportioned                                                                10,617                69                      -                -
  Unapportioned                                                               2,025             9,788                      9               68
 Total Unobligated Balance, End of Year                             $        12,642     $       9,857      $               9   $           68
 Total Status of Budgetary Resources (Note 16)                      $        64,531     $     243,151      $               9   $           69
 Change in Obligated Balance:
  Unpaid Obligations:
   Unpaid Obligations, Brought Forward, October 1                   $         23,380 $         161,488     $               -   $            -
   Obligations Incurred                                                       51,889           233,294                     -                1
   Outlays (Gross) (-)                                                       (53,339)         (217,404)                    -               (1)
   Recoveries of Prior Year Unpaid Obligations (-)                              (464)           (97,274)                   -                -
   Unpaid Obligations, End of Year                                  $         21,466 $           80,104    $               -   $            -
  Uncollected Payments:
   Uncollected Payments, Federal Sources, Brought Forward,
   October 1 (-)                                                    $               -   $            (3)   $               -   $            -
   Change in Uncollected Payments, Federal Sources (+ or -)                         -                (1)                   -                -
   Uncollected Payments, Federal Sources, End of Year (-)           $               -   $            (4)   $               -   $            -
  Memorandum (Non-add) Entries:
   Obligated Balance, Start of Year (+ or -)                        $        23,380     $     161,485      $               -   $            -
   Obligated Balance, End of Year (+ or -)                          $        21,466     $      80,100      $               -   $            -
 Budget Authority and Outlays, Net:
  Budget Authority, Gross (Discretionary and Mandatory)             $        50,265 $         234,611      $            9 $                 7
  Actual Offsetting Collections (Discretionary and Mandatory) (-)              (542)          (97,375)                 (2)                 (3)
  Change in Uncollected Customer Payments from Federal
  Sources (Discretionary and Mandatory) (+ or -)                                  -                 (1)                    -                -
 Budget Authority, Net (Discretionary and Mandatory)                $        49,723     $     137,235      $               7   $            4
 Outlays, Gross (Discretionary and Mandatory)                       $         53,339 $        217,404      $             - $                1
 Actual Offsetting Collections (Discretionary and Mandatory) (-)                (542)         (97,375)                 (2)                 (3)
 Outlays, Net (Discretionary and Mandatory)                                   52,797          120,029                  (2)                 (2)
 Distributed Offsetting Receipts (-) (Note 16)                               (39,559)                -                   -                    -
 Agency Outlays, Net (Discretionary and Mandatory)
 (Note 16)                                                          $        13,238     $     120,029      $           (2) $               (2)




                                                  Federal Student Aid Annual Report FY 2014                                                     123
                                                                                                                         Financial Section
                                                                                                  Required Supplementary Information




                                          United States Department of Education
                                                     Federal Student Aid
                                         Combining Statement of Budgetary Resources
                                           For the Year Ended September 30, 2014
                                                                   (Dollars in Millions)

                                                                    Direct Student Loan Program                   Teach Program
                                                                                       Non-Budgetary                         Non-Budgetary
                                                                                       Credit Reform                          Credit Reform
                                                                                         Financing                              Financing
                                                                       Budgetary         Accounts            Budgetary          Accounts
Budgetary Resources:
Unobligated Balance, Brought Forward, October 1                    $             -     $       3,351     $            4      $            1
Recoveries of Prior Year Unpaid Obligations                                      -            25,397                  1                  20
Other Changes in Unobligated Balance (+ or -)                                    -           (28,047)                 -                (22)
Unobligated Balance from Prior Year Budget Authority (Net)         $             -     $         701     $            5      $          (1)
Appropriations (Discretionary and Mandatory)                                16,254                 -                 18                   -
Borrowing Authority (Discretionary and Mandatory) (Note 16)                      -           180,673                  -                108
Spending Authority from Offsetting Collections
(Discretionary and Mandatory)                                                    -            30,029                  -                 31
Total Budgetary Resources (Note 16)                                $        16,254     $     211,403     $           23      $         138
Status of Budgetary Resources:
Obligations Incurred (Note 16)                                     $        16,254     $     206,781     $           18      $         137
Unobligated Balance, End of Year:
Apportioned                                                                      -                 -                  -                  -
Unapportioned                                                                    -             4,622                  5                  1
Total Unobligated Balance, End of Year                             $             -     $       4,622     $            5      $           1
Total Status of Budgetary Resources (Note 16)                      $        16,254     $     211,403     $           23      $         138
Change in Obligated Balance:
 Unpaid Obligations:
  Unpaid Obligations, Brought Forward, October 1                   $              - $          87,616    $             4 $               75
  Obligations Incurred                                                       16,254           206,781                18                 137
  Outlays (Gross) (-)                                                       (16,254)         (191,672)              (16)               (128)
  Recoveries of Prior Year Unpaid Obligations (-)                                 -           (25,397)                (1)               (20)
  Unpaid Obligations, End of Year                                  $              - $          77,328    $             5 $               64
 Uncollected Payments:
  Uncollected Payments, Federal Sources, Brought Forward,
  October 1 (-)                                                    $               -   $            -    $               -   $           (3)
  Change in Uncollected Payments, Federal Sources (+ or -)                         -                -                    -               (1)
  Uncollected Payments, Federal Sources, End of Year (-)           $               -   $            -    $               -   $           (4)
 Memorandum (Non-add) Entries:
  Obligated Balance, Start of Year (+ or -)                        $               -   $      87,616     $               4   $           72
  Obligated Balance, End of Year (+ or -)                          $               -   $      77,328     $               5   $           60
Budget Authority and Outlays, Net:
 Budget Authority, Gross (Discretionary and Mandatory)             $        16,254     $     210,702     $           18      $         139
 Actual Offsetting Collections (Discretionary and Mandatory) (-)                 -           (68,701)                 -                (46)
 Change in Uncollected Customer Payments from Federal
 Sources (Discretionary and Mandatory) (+ or -)                                    -                -                    -               (1)
 Anticipated Offsetting Collections (Discretionary and
 Mandatory) (+ or -)                                                             -                 -                  -                       -
Budget Authority, Net (Discretionary and Mandatory)                $        16,254     $     142,001     $           18      $           92
Outlays, Gross (Discretionary and Mandatory)                       $         16,254 $        191,672     $           16 $              128
Actual Offsetting Collections (Discretionary and Mandatory) (-)                   -          (68,701)                 -                (46)
Outlays, Net (Discretionary and Mandatory)                                   16,254          122,971                 16                 82
Distributed Offsetting Receipts (-) (Note 16)                               (31,551)               -                (13)                 -
Agency Outlays, net (discretionary and mandatory)
(Note 16)                                                          $        (15,297) $       122,971     $               3   $           82




                                                 Federal Student Aid Annual Report FY 2014                                                        124
                                                                                                                             Financial Section
                                                                                                   Required Supplementary Information


                                              United States Department of Education
                                                     Federal Student Aid
                                         Combining Statement of Budgetary Resources
                                           For the Year Ended September 30, 2014
                                                                   (Dollars in Millions)

                                                                       Federal Family Education          Perkins Loans          Administrative
                                                                            Loan Program                  and Grants               Funds
                                                                                       Non-Budgetary
                                                                                       Credit Reform
                                                                                         Financing
                                                                       Budgetary         Accounts            Budgetary             Budgetary
Budgetary Resources:
Unobligated Balance, Brought Forward, October 1                    $         1,596 $            7,720    $        12,255       $            95
Recoveries of Prior Year Unpaid Obligations                                      6             71,857                418                    39
Other Changes in Unobligated Balance (+ or -)                                 (120)          (71,799)                (28)                    -
Unobligated Balance from Prior Year Budget Authority (Net)         $         1,482 $            7,778    $        12,645       $           134
Appropriations (Discretionary and Mandatory)                                 2,269                581             29,920                 1,393
Borrowing Authority (Discretionary and Mandatory) (Note 16)                      -              1,968                   -                    -
Spending Authority from Offsetting Collections
                                                                               402            21,214                  (1)                      1
(Discretionary and Mandatory)
Total Budgetary Resources (Note 16)                                $         4,153     $      31,541     $        42,564       $         1,528

Status of Budgetary Resources:
Obligations Incurred (Note 16)                                     $         2,572     $      26,375     $        31,643       $         1,402
Unobligated Balance, End of Year:
 Apportioned                                                                    45                69              10,514                    58
 Unapportioned                                                               1,536             5,097                 407                    68
Total Unobligated Balance, End of Year                             $         1,581     $       5,166     $        10,921       $           126
Total Status of Budgetary Resources (Note 16)                      $         4,153     $      31,541     $        42,564       $         1,528

Change in Obligated Balance:
 Unpaid Obligations:
  Unpaid Obligations, Brought Forward, October 1                   $             35 $          73,797    $        22,731       $            610
  Obligations Incurred                                                        2,572            26,375             31,643                  1,402
  Outlays (Gross) (-)                                                        (2,562)          (25,603)           (33,179)                (1,328)
  Recoveries of Prior Year Unpaid Obligations (-)                                (6)          (71,857)              (418)                   (39)
  Unpaid Obligations, End of Year                                  $             39 $           2,712    $        20,777       $            645
 Uncollected Payments:
  Uncollected Payments, Federal Sources, Brought Forward,
  October 1 (-)                                                    $               -   $            -    $               -     $               -
  Change in Uncollected Payments, Federal Sources (+ or -)                         -                -                    -                     -
  Uncollected Payments, Federal Sources, End of Year (-)           $               -   $            -    $               -     $               -
 Memorandum (Non-add) Entries:
  Obligated Balance, Start of Year (+ or -)                        $            35     $      73,797     $        22,731       $           610
  Obligated Balance, End of Year (+ or -)                          $            39     $       2,712     $        20,777       $           645
Budget Authority and Outlays, Net:
 Budget Authority, Gross (Discretionary and Mandatory)             $         2,671 $           23,763    $        29,919       $         1,394
 Actual Offsetting Collections (Discretionary and Mandatory) (-)              (540)           (28,625)                 -                     -
 Change in Uncollected Customer Payments from Federal
 Sources (Discretionary and Mandatory) (+ or -)                                    -                -                    -                     -
 Anticipated Offsetting Collections (Discretionary and
 Mandatory) (+ or -)                                                             -                  -                  -                     -
Budget Authority, Net (Discretionary and Mandatory)                $         2,131     $       (4,862)   $        29,919       $         1,394
Outlays, Gross (Discretionary and Mandatory)                       $          2,562 $          25,603    $        33,179       $         1,328
Actual Offsetting Collections (Discretionary and Mandatory) (-)                (540)          (28,625)                 -                     -
Outlays, Net (Discretionary and Mandatory)                                    2,022            (3,022)            33,179                 1,328
Distributed Offsetting Receipts (-) (Note 16)                                (7,945)                -                (50)                    -
Agency Outlays, net (discretionary and mandatory)
(Note 16)                                                          $         (5,923) $         (3,022)   $        33,129       $         1,328




                                                 Federal Student Aid Annual Report FY 2014                                                         125
                                                                                                                                 Financial Section
                                                                                                         Required Supplementary Information


                                              United States Department of Education
                                                          Federal Student Aid
                                              Combining Statement of Budgetary Resources
                                                For the Year Ended September 30, 2013
                                                                       (Dollars in Millions)
                                                                                                       American
                                                                                                     Recovery and
                                                                                                     Reinvestment
                                                                            Combined                      Act                  Non-ARRA Combined
                                                                             Non-Budgetary                                           Non-Budgetary
                                                                             Credit Reform                                            Credit Reform
                                                                               Financing                                                Financing
                                                                   Budgetary   Accounts                  Budgetary         Budgetary    Accounts
Budgetary Resources:
Unobligated Balance, Brought Forward, October 1                    $    10,366 $           18,579    $                -    $    10,366 $      18,579
Recoveries of Prior Year Unpaid Obligations                                359             35,425                     1            358        35,425
Other Changes in Unobligated Balance (+ or -)                             (266)           (39,189)                    -           (266)      (39,189)
Unobligated Balance from Prior Year Budget Authority (Net)         $    10,459 $           14,815    $                1    $    10,458 $      14,815
Appropriations (Discretionary and Mandatory)                            44,578                  -                     -         44,578             -
Borrowing Authority (Discretionary and Mandatory) (Note 16)                  -            194,970                     -              -       194,970
Spending Authority from Offsetting Collections
(Discretionary and Mandatory)                                              711             46,926                     -            711        46,926
Total Budgetary Resources (Note 16)                                $    55,748     $      256,711    $                1    $    55,747   $   256,711
Status of Budgetary Resources:
Obligations Incurred (Note 16)                                     $    41,798     $      245,639    $                1    $    41,797   $   245,639
Unobligated Balance, End of Year:
 Apportioned                                                            11,952                  -                     -         11,952             -
 Unapportioned                                                           1,998             11,072                     -          1,998        11,072
Total Unobligated Balance, End of Year                             $    13,950     $       11,072    $                -    $    13,950   $    11,072
Total Status of Budgetary Resources (Note 16)                      $    55,748     $      256,711    $                1    $    55,747   $   256,711
Change in Obligated Balance:
 Unpaid Obligations:
  Unpaid Obligations, Brought Forward, October 1                   $  24,094 $            171,959    $                1    $  24,093 $        171,959
  Obligations Incurred                                                41,798              245,639                     1       41,797          245,639
  Outlays (Gross) (-)                                                (42,153)            (220,685)                     -     (42,153)        (220,685)
  Recoveries of Prior Year Unpaid Obligations (-)                       (359)             (35,425)                   (1)        (358)         (35,425)
  Unpaid Obligations, End of Year                                  $ 23,380 $             161,488    $                1    $ 23,379 $         161,488
 Uncollected Payments:
  Uncollected Payments, Federal Sources, Brought Forward,
  October 1 (-)                                                    $           -   $           (4)   $                -    $         -   $         (4)

  Change in Uncollected Payments, Federal Sources (+ or -)                     -                1                     -              -              1
  Uncollected Payments, Federal Sources, End of Year (-)           $           -   $           (3)   $                -    $         -   $         (3)
 Memorandum (Non-add) Entries:
  Obligated Balance, Start of Year (+ or -)                        $    24,094     $      171,955    $                1    $    24,093   $   171,955
  Obligated Balance, End of Year (+ or -)                          $    23,380     $      161,485    $                1    $    23,379   $   161,485
Budget Authority and Outlays, Net:
 Budget Authority, Gross (Discretionary and Mandatory)             $    45,289 $          241,896    $                -    $    45,289 $     241,896
 Actual Offsetting Collections (Discretionary and Mandatory) (-)          (844)           (72,601)                    -           (844)      (72,601)
 Change in Uncollected Customer Payments from Federal
 Sources (Discretionary and Mandatory) (+ or -)                            -                    1                     -               -            1
Budget Authority, Net (Discretionary and Mandatory)                $  44,445 $            169,296    $                -    $     44,445 $    169,296
Outlays, Gross (Discretionary and Mandatory)                       $ 42,153 $             220,685    $                -    $     42,153 $    220,685
Actual Offsetting Collections (Discretionary and Mandatory) (-)         (844)             (72,601)                    -            (844)     (72,601)
Outlays, Net (Discretionary and Mandatory)                            41,309              148,084                     -          41,309      148,084
Distributed Offsetting Receipts (-) (Note 16)                        (48,445)                   -                     -         (48,445)           -
Agency Outlays, net (Discretionary and Mandatory)
(Note 16)                                                          $    (7,136) $         148,084    $                -    $     (7,136) $   148,084




                                                   Federal Student Aid Annual Report FY 2014                                                        126
                                                                                                                            Financial Section
                                                                                                          Required Supplementary Information


                                              United States Department of Education
                                                      Federal Student Aid
                                          Combining Statement of Budgetary Resources
                                            For the Year Ended September 30, 2013
                                                                      (Dollars in Millions)


                                                                  Direct Student Loan Program                        Teach Grant Program
                                                                                              Non-Budgetary                         Non-Budgetary
                                                                                              Credit Reform                         Credit Reform
                                                                                                Financing                             Financing
                                                                        Budgetary                Accounts           Budgetary          Accounts
Budgetary Resources:
Unobligated Balance, Brought Forward, October 1                   $                 -     $           3,016     $             9 $               -
Recoveries of Prior Year Unpaid Obligations                                         -                23,229                   1                20
Other Changes in Unobligated Balance (+ or -)                                       -               (26,086)                 (6)              (20)
Unobligated Balance from Prior Year Budget Authority (Net)        $                 -     $             159     $             4 $               -
Appropriations (Discretionary and Mandatory)                                    3,274                     -                 15                  -
Borrowing Authority (Discretionary and Mandatory) (Note 16)                         -               193,721                   -               128
Spending Authority from Offsetting Collections
(Discretionary and Mandatory)                                                       -                25,917                  -                 26
Total Budgetary Resources (Note 16)                               $             3,274     $         219,797     $           19      $         154
Status of Budgetary Resources:
Obligations Incurred (Note 16)                                    $             3,274     $         216,446     $           15      $         153
Unobligated Balance, End of Year:
 Apportioned                                                                          -                   -                     -               -
 Unapportioned                                                                        -               3,351                     4               1
Total Unobligated Balance, End of Year                            $                   -   $           3,351     $               4   $           1
Total Status of Budgetary Resources (Note 16)                     $             3,274     $         219,797     $           19      $         154
Change in Obligated Balance:
 Unpaid Obligations:
  Unpaid Obligations, Brought Forward, October 1                  $                 - $               86,011    $             5 $              82
  Obligations Incurred                                                          3,274                216,446                15                153
  Outlays (Gross) (-)                                                          (3,274)              (191,612)              (15)              (140)
  Recoveries of Prior Year Unpaid Obligations (-)                                   -                (23,229)                (1)              (20)
  Unpaid Obligations, End of Year                                 $                 - $               87,616    $             4 $              75
 Uncollected Payments:
  Uncollected Payments, Federal Sources, Brought Forward,
  October 1 (-)                                                   $                   -   $                -    $               -   $          (4)
  Change in Uncollected Payments, Federal Sources (+ or -)                            -                    -                    -               1
  Uncollected Payments, Federal Sources, End of Year (-)          $                   -   $                -    $               -   $          (3)
 Memorandum (Non-add) Entries:
  Obligated Balance, Start of Year (+ or -)                       $                   -   $          86,011     $               5   $          78
  Obligated Balance, End of Year (+ or -)                         $                   -   $          87,616     $               4   $          72
Budget Authority and Outlays, Net:
Budget Authority, Gross (Discretionary and Mandatory)             $             3,274     $         219,638     $           15      $         154
Actual Offsetting Collections (Discretionary and Mandatory) (-)                     -               (42,913)                 -                (30)
Change in Uncollected Customer Payments from Federal
Sources (Discretionary and Mandatory) (+ or -)                                      -                     -                  -                  1
Budget Authority, Net (Discretionary and Mandatory)               $             3,274 $             176,725     $           15 $              125
Outlays, Gross (Discretionary and Mandatory)                      $             3,274 $             191,612     $           15 $              140
Actual Offsetting Collections (Discretionary and Mandatory) (-)                     -               (42,913)                 -                (30)
Outlays, Net (Discretionary and Mandatory)                                      3,274               148,699                 15                110
Distributed Offsetting Receipts (-) (Note 16)                                 (38,436)                    -                (17)                 -
Agency Outlays, net (Discretionary and Mandatory)
(Note 16)                                                         $           (35,162) $            148,699     $           (2) $             110




                                                 Federal Student Aid Annual Report FY 2014                                                          127
                                                                                                                            Financial Section
                                                                                                      Required Supplementary Information



                                              United States Department of Education
                                                          Federal Student Aid
                                              Combining Statement of Budgetary Resources
                                                For the Year Ended September 30, 2013
                                                                  (Dollars in Millions)


                                                                       Federal Family Education             Perkins Loans       Administrative
                                                                            Loan Program                     and Grants            Funds
                                                                                          Non-Budgetary
                                                                                          Credit Reform
                                                                                            Financing
                                                                       Budgetary             Accounts           Budgetary           Budgetary
Budgetary Resources:
Unobligated Balance, Brought Forward, October 1                    $        1,511 $               15,563    $         8,741     $           105
Recoveries of Prior Year Unpaid Obligations                                    19                 12,176                308                  30
Other Changes in Unobligated Balance (+ or -)                                (222)               (13,083)               (38)                  -
Unobligated Balance from Prior Year Budget Authority (Net)         $        1,308 $               14,656    $         9,011     $           135
Appropriations (Discretionary and Mandatory)                                3,102                      -             36,853               1,334
Borrowing Authority (Discretionary and Mandatory) (Note 16)                     -                  1,121                  -                   -
Spending Authority from Offsetting Collections
(Discretionary and Mandatory)                                                 711                20,983                   -                   -
Total Budgetary Resources (Note 16)                                $        5,121     $          36,760     $        45,864     $         1,469
Status of Budgetary Resources:
Obligations Incurred (Note 16)                                     $        3,525     $          29,040     $        33,609     $         1,374
Unobligated Balance, End of Year:
 Apportioned                                                                    -                     -              11,896                 56
 Unapportioned                                                              1,596                 7,720                 359                 39
Total Unobligated Balance, End of Year                             $        1,596     $           7,720     $        12,255     $           95
Total Status of Budgetary Resources (Note 16)                      $        5,121     $          36,760     $        45,864     $         1,469
Change in Obligated Balance:
 Unpaid Obligations:
  Unpaid Obligations, Brought Forward, October 1                   $           36 $               85,866    $        23,471     $           581
  Obligations Incurred                                                      3,525                 29,040             33,609               1,374
  Outlays (Gross) (-)                                                      (3,507)               (28,933)           (34,042)             (1,315)
  Recoveries of Prior Year Unpaid Obligations (-)                             (19)               (12,176)              (308)                (30)
  Unpaid Obligations, End of Year                                  $           35 $               73,797    $        22,730     $           610
 Uncollected Payments:
  Uncollected Payments, Federal Sources, Brought Forward,
  October 1 (-)                                                    $              -   $                -    $               -   $               -
  Change in Uncollected Payments, Federal Sources (+ or -)                        -                    -                    -                   -
  Uncollected Payments, Federal Sources, End of Year (-)           $              -   $                -    $               -   $               -
 Memorandum (Non-add) Entries:
  Obligated Balance, Start of Year (+ or -)                        $            36    $          85,866     $        23,471     $          581
  Obligated Balance, End of Year (+ or -)                          $            35    $          73,797     $        22,730     $          610
Budget Authority and Outlays, Net:
Budget Authority, Gross (Discretionary and Mandatory)              $        3,813 $               22,104    $        36,853     $         1,334
Actual Offsetting Collections (Discretionary and Mandatory) (-)              (844)               (29,658)                 -                   -
Change in Uncollected Customer Payments from Federal Sources
(Discretionary and Mandatory) (+ or -)                                          -                      -                  -                   -
Budget Authority, Net (Discretionary and Mandatory)                $        2,969 $               (7,554)   $        36,853     $         1,334
Outlays, Gross (Discretionary and Mandatory)                       $        3,507 $               28,933    $        34,042     $         1,315
Actual Offsetting Collections (Discretionary and Mandatory) (-)              (844)               (29,658)                 -                   -
Outlays, Net (Discretionary and Mandatory)                                  2,663                   (725)            34,042               1,315
Distributed Offsetting Receipts (-) (Note 16)                              (9,946)                     -                (46)                  -
Agency Outlays, net (Discretionary and Mandatory)
(Note 16)                                                          $       (7,283) $               (725)    $        33,996     $         1,315




                                                  Federal Student Aid Annual Report FY 2014                                                     128
                                                 Independent Auditors’ Report




Independent Auditors’
       Report




     Federal Student Aid Annual Report FY 2014                        129
                                            Independent Auditors’ Report




 This page intentionally left blank.




Federal Student Aid Annual Report FY 2014                        130
                                              Independent Auditors’ Report
                           Office of Inspector General Audit Transmittal Letter




Federal Student Aid Annual Report FY 2014                              131
                                              Independent Auditors’ Report
                           Office of Inspector General Audit Transmittal Letter




Federal Student Aid Annual Report FY 2014                              132
                                            Independent Auditors’ Report
                                              Independent Auditors’ Report




Federal Student Aid Annual Report FY 2014                         133
                                            Independent Auditors’ Report
                                              Independent Auditors’ Report




Federal Student Aid Annual Report FY 2014                         134
                                            Independent Auditors’ Report
                                              Independent Auditors’ Report




Federal Student Aid Annual Report FY 2014                         135
                                            Independent Auditors’ Report
                                              Independent Auditors’ Report




Federal Student Aid Annual Report FY 2014                         136
                                            Independent Auditors’ Report
                                              Independent Auditors’ Report




Federal Student Aid Annual Report FY 2014                         137
                                            Independent Auditors’ Report
                                              Independent Auditors’ Report




Federal Student Aid Annual Report FY 2014                         138
                                            Independent Auditors’ Report
                                              Independent Auditors’ Report




Federal Student Aid Annual Report FY 2014                         139
                                            Independent Auditors’ Report
                                              Independent Auditors’ Report




Federal Student Aid Annual Report FY 2014                         140
                                            Independent Auditors’ Report
                                              Independent Auditors’ Report




Federal Student Aid Annual Report FY 2014                         141
                                            Independent Auditors’ Report
                                              Independent Auditors’ Report




Federal Student Aid Annual Report FY 2014                         142
                                            Independent Auditors’ Report
                                              Independent Auditors’ Report




Federal Student Aid Annual Report FY 2014                         143
                                            Independent Auditors’ Report
                                              Independent Auditors’ Report




Federal Student Aid Annual Report FY 2014                         144
                                            Independent Auditors’ Report
                                              Independent Auditors’ Report




Federal Student Aid Annual Report FY 2014                         145
                                            Independent Auditors’ Report
                                              Independent Auditors’ Report




Federal Student Aid Annual Report FY 2014                         146
                                            Independent Auditors’ Report
                                              Independent Auditors’ Report




Federal Student Aid Annual Report FY 2014                         147
                                            Independent Auditors’ Report
                                        Management’s Response to Findings




Federal Student Aid Annual Report FY 2014                         148
                                              Other Information




Other Information




  Federal Student Aid Annual Report FY 2014                149
                                            Other Information




   This page left blank intentionally.




Federal Student Aid Annual Report FY 2014                150
                                                                                                                                            Other Information




Other Information

                                                            Department of Education
                                                               Federal Student Aid
                                                              Schedule of Spending
                                                For the Years Ended September 30, 2014 and 2013
                                                                     (Dollars in Millions)



                                                                                                 FY 2014                             FY 2013
                                                                                                           Non-
                                                                                                         Budgetary                        Non-Budgetary
                                                                                                       Credit Reform                      Credit Reform
                                                                                                         Financing                          Financing
                                                                                   Budgetary             Accounts        Budgetary          Accounts


Section I: What Money is Available to Spend?
This section presents resources that were available to spend by the Department.
    Total Resources                                                       $               64,531             243,151 $         55,748           256,711
    Amount Available but Not Agreed to be Spent                                          (10,617)                (69)         (11,952)              -
    Amount Not Available to be Spent                                                      (2,025)             (9,788)          (1,998)          (11,072)
Total Amounts Agreed to be Spent                                              $          51,889             233,294 $         41,798           245,639

Section II: How was the Money Spent?
This section presents services and items purchased, is grouped by major program, and is based on outlays.

Increase College Access, Quality, and Completion
   Credit Program Loan Disbursements and Claim Payments                        $              65             144,772 $             79           141,500
   Credit Program Subsidy Transfers                                                       18,539              39,510            6,391            48,399
   Federal Interest Payments                                                                   -              30,592              -              28,423
   Other Credit Program Payments                                                               3               1,423                 3            1,692
   Federal Student Loan Reserve Fund Valuation                                               194                   -              279               -
   Grants                                                                                 33,174                   -           34,038               -
   Personnel Compensation and Benefits                                                       187                   -              174               -
   Contractual Services                                                                    1,155               1,107            1,165               671
   Other 1/                                                                                   22                   -                24              -
   Total Program Spending                                                     $          53,339             217,404 $         42,153           220,685

Total Spending                                                                $          53,339             217,404 $         42,153           220,685
      Amounts Remaining to be Spent   2/                                                     (1,450)          15,890              (355)          24,954
Total Amounts Agreed to be Spent                                              $          51,889             233,294 $         41,798           245,639


Section III: Who did the money go to?
This section identifies with whom the Department is spending money based on obligations incurred.
   Non-Federal Obligations                                                    $           51,802             233,294 $         41,713           245,639
   Federal Obligations                                                                        87                 -                 85               -
Total Amounts Agreed to be Spent - Section III                                $          51,889             233,294 $         41,798           245,639


1/
     Other primarily consists of payments for rent, utilities, communication, land, structures, equipment, travel, and transportation.
2/
  The “Amounts Remaining to be Spent” line is the difference between Total Spending and Amounts Total Amounts Agreed to be Spent. Actual
spending in the current FY may include spending associated with amounts agreed to be spent during previous FY, which may result in negative
amounts shown for the “Amounts Remaining to be Spent” line.




                                               Federal Student Aid Annual Report FY 2014                                                                   151
                                                                                  Other Information



Improper Payment Information Act Reporting Details

For improper payments information, FSA’s activities are part of an overall Departmental
integrated reporting effort. Please refer to the Improper Payments Reporting Details
narrative found in the Other Information section located within the Department's AFR.


Summary of Financial Statement Audit and Management Assurances

For details on FSA programs, please refer to the Analysis of Systems, Controls and
Legal Compliance discussion found in the Management’s Discussion and Analysis
section of this document as well as the Summary of Financial Statement Audit and
Management Assurances narrative located in the Other Information section of the
Department’s AFR.

Management Challenges

For details on FSA Management Challenges, please refer to relevant items included in
the Office of Inspector General’s Management Challenges for FY 2015 Executive
Summary found in the Other Information section located within the Department’s AFR.




                        Federal Student Aid Annual Report FY 2014                              152
                                            Appendices




 Appendices




Federal Student Aid Annual Report FY 2014          153
                                            Appendices




   This page intentionally left blank.




Federal Student Aid Annual Report FY 2014          154
                                                                                                  Appendices
                                                                    Appendix A: Discontinued Performance Metrics




 Appendix A: Discontinued Performance Metrics


   Discontinued Performance Metrics from the FSA Strategic Plan FY 2012–2016
   During FY 2014, FSA reviewed its strategic plan to identify revisions that would enable FSA to
   better address the challenges of the economic environment and improve the delivery of its
   mission–“Funding America’s Future, One Student at a Time”. Because of this review, FSA
   revised several of the performance metrics found in its strategic plan to reflect better the
   organization’s performance. The strategic goals and performance metrics for FY 2014 are
   presented in the FSA Strategic Plan FY 2012–16. Implementation of the revised metrics
   resulted in the discontinuation of certain performance metrics, which are listed in the following
   table.


Strategic Goal/Performance Metric                               Description

Strategic Goal A                      Provide superior service and information to students and
                                      borrowers.
    Performance Metric A.2              % of first-time FAFSA filers aged 19-24 among those in
                                        population that are high school graduates, no college
    Performance Metric A.3              % of first-time FAFSA filers among workforce aged 25+, high
                                        school graduates, no college
     Performance Metric A.4             % of first-time FAFSA filers among low-income students
Strategic Goal D                      Ensure program integrity and safeguard taxpayers’ interests.
     Performance Metric D.2             Direct Loan default rate
Strategic Objective E                 Strengthen FSA’s performance culture and become one of
                                      the best places to work in the federal government.
    Performance Metric E.1              FSA Morale Index
                                        (Subset of questions from Government-wide View Point
                                        Survey) - % of positive responses to survey (does not include
                                        neutral responses)




                              Federal Student Aid Annual Report FY 2014                                     155
                                                                                       Appendices
                                                          Appendix B: Glossary of Acronyms and Terms




 Appendix B: Glossary of Acronyms and Terms


Acronym          Description
A
ABCP Conduit     Asset-Backed Commercial Paper Conduit
ACSI             American Customer Satisfaction Index
AFR              U.S. Department of Education FY 2014 Agency Financial Report

Annual Report    Federal Student Aid Annual Report FY 2014

ARRA             American Recovery and Reinvestment Act of 2009

C
CCRAA            College Cost Reduction and Access Act of 2007
CFPB             Consumer Financial Protection Bureau
Clery Act        Jeanne Clery Disclosure of Campus Security Policy and Campus Crime
                 Statistics Act
Conduit          Asset-Backed Commercial Paper Conduit
COO              Chief Operating Officer
CSRS             Civil Service Retirement System
D
the Department   U.S. Department of Education
Direct Loan      William D. Ford Federal Direct Loan
DMCS             Debt Management and Collection System
DOL              U.S. Department of Labor
DRG              Default Resolution Group
E
ECASLA           Ensuring Continued Access to Student Loans Act of 2008
ED               U.S. Department of Education

F
FACT             Financial Awareness Counseling Tool

                     Federal Student Aid Annual Report FY 2014                                  156
                                                                                              Appendices
                                                                 Appendix B: Glossary of Acronyms and Terms


Acronym               Description
FAFSA                 Free Application for Federal Student Aid
FASAB                 Financial Accounting Standards Advisory Board
FECA                  Federal Employees’ Compensation Act
Federal Fund          Federal Student Loan Reserve Fund
FERS                  Federal Employees Retirement System
FEVS                  Federal Employee Viewpoint Survey
FFEL                  Federal Family Education Loan
FFELP                 Federal Family Education Loan Program
FCRA                  Federal Credit Reform Act of 1990
FSA                   Federal Student Aid
FSA Strategic Plan,   Federal Student Aid: Strategic Plan, Fiscal Years 2012–16
FY 2012–16
FSEOG                 Federal Supplemental Educational Opportunity Grant
FWS                   Federal Work-Study
FY                    Fiscal Year
G
GAAP                  Generally Accepted Accounting Principles
GAO                   U.S. Government Accountability Office

H

HCERA                 Health Care and Education Reconciliation Act of 2010
HEA                   Higher Education Act of 1965, as amended
HEAL                  Health Education Assistance Loan
HHS                   U.S. Department of Health and Human Services
I
IBR                   Income Based Repayment
IT                    Information Technology
M
Met                   Performance result met or exceeded target




                          Federal Student Aid Annual Report FY 2014                                    157
                                                                                            Appendices
                                                               Appendix B: Glossary of Acronyms and Terms


Acronym              Description
N
N/A                  Performance result is not applicable because the performance metric
                     was not developed, the performance metric was not implemented, or the
                     required data were not available in time for inclusion.
NFP                  Not-For-Profit
Not met              Performance result did not meet target
NSLDS                National Student Loan Data System
O
OCTS                 Ombudsman Case Tracking System
OIG                  Office of Inspector General
OMB                  U.S. Office of Management and Budget
OMB Circular A-123   OMB Circular A-123, Management’s Responsibility for Internal Control
OPM                  U.S. Office of Personnel Management
OPR                  Organizational Performance Review
P
PBO                  Performance-Based Organization
Pell Grant           Federal Pell Grant Program
S
SBR                  Statement of Budgetary Resources
Secretary            Secretary of Education
SSAE                 Statement on Standards for Attestation Engagements
SOC1                 Service Organization Control 1
T
TEACH                Teacher Education Assistance for College and Higher Education Grant
Title IV             Title IV of the Higher Education Act of 1965, as amended
TIVAS                Title IV Additional Servicers
TPD                  Total and Permanent Disability
Treasury             U. S. Department of the Treasury
U
U.S.                 United States


                          Federal Student Aid Annual Report FY 2014                                  158
                                                                                                     Appendices
                                                  Appendix C: Availability of the Federal Student Aid Annual Report



Appendix C: Availability of the Federal Student Aid
            Annual Report
 FSA’s publicly available Annual Report FY 2014 is accessible on FSA’s and the
 Department’s websites at:


                       StudentAid.gov/strategic-planning-reporting

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



 The Federal Student Aid: Strategic Plan, Fiscal Years 2012–16 and previous years’ Annual
 Reports are available also on the websites listed above.

 To become connected to Federal Student Aid through social media, visit the Federal
 Student Aid website at Studentaid.ed.gov.




 This report is in the public domain. Authorization to reproduce it in whole or in part is
 granted. While permission to reprint this publication is not necessary, the citation should be:
 U.S. Department of Education, Federal Student Aid, Annual Report FY 2014, Washington,
 D.C., 2014.

                           Federal Student Aid Annual Report FY 2014                                          159