oversight

Final Independent Auditors' Report - FSA's 2016 Financial Statements

Published by the Department of Education, Office of Inspector General on 2016-11-14.

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

2016 Annual Report
United States Department of Education
John B. King, Jr.
Secretary

Federal Student Aid
James W. Runcie
Chief Operating Officer

Finance Office
Jay Hurt
Chief Financial Officer

www.StudentAid.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 2016, Washington,
D.C., 2016
                                                                                        Contents




                                         Contents

         Letter from the Chief Operating Officer of Federal Student Aid


i        Introduction
         ii        About this Report
         iii       Federal Student Aid at a Glance
         iv        Guide to Federal Student Aid Programs
         vi        How the Federal Student Aid Annual Report is Organized


1        Management’s Discussion and Analysis
          2        Overview of the Management’s Discussion and Analysis
          3        FY 2016 Financial and Performance Highlights of Federal Student Aid
          4        Mission And Organizational Structure
                   8     Federal Student Financial Aid Programs
         13        Performance Management
                   15    FY 2016 Strategic Goals, Objectives, and Performance Metrics
                   27    Agency Priority Goal
                   28    Quality of Performance Data
         29        Financial Analysis
                   30    Balance Sheet
                   44    Statement of Net Cost
                   48    Statement of Changes in Net Position
                   48    Statement of Budgetary Resources
                   49    Financial Management Risks
         52        Analysis of Systems, Controls, and Legal Compliance
         56        Limitations of Financial Statements


57       Annual Performance Report
         58        Overview of the Annual Performance Report
         59        FY 2016 Performance Highlights of Federal Student Aid
         60        Introduction to the Annual Performance Report




Federal Student Aid FY 2016 Annual Report
Contents




                 Annual Performance Report (cont’d)
                 63      Performance Results by Strategic Goal
                                                  Improve quality of service for customers across the entire
                         64   Strategic Goal A:
                                                  student aid life cycle.
                                                  Proactively manage the student aid portfolio to mitigate
                         69   Strategic Goal B:
                                                  risk.
                         72   Strategic Goal C:   Improve operational efficiency and flexibility.
                         75   Strategic Goal D:   Foster trust and collaboration among stakeholders.
                         78   Strategic Goal E:   Invest in expanded workforce capability.
                 79      FY 2016 Accomplishments of Federal Student Aid
                 82      Legislative and Regulatory Recommendations
                 83      Annual Bonus Awards
                 84      Report of the Federal Student Aid Ombudsman


           95    Financial Section
                  96     Overview of the Financial Section
                  97     Message from the Chief Financial Officer
                  99     Financial Statements
                 103     Notes to the Financial Statements
                 132     Required Supplementary Stewardship Information
                 134     Required Supplementary Information
                 141     Independent Auditors’ Report


           165   Other Information
                 167     Schedule of Spending
                 168     Other Information Links


           169   Appendices
                 171     Appendix A: Discontinued Strategic Goals and Performance Metrics
                 172     Appendix B: Index of Tables and Charts
                 176     Appendix C: Glossary of Acronyms and Terms
                 180     Appendix D: Availability of the Federal Student Aid Annual Report




                                                        Federal Student Aid FY 2016 Annual Report
                     Letter from the Chief Operating Officer of Federal Student Aid




Letter from the Chief Operating
 Officer of Federal Student Aid




Federal Student Aid FY 2016 Annual Report
Letter from the Chief Operating Officer of Federal Student Aid




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                                                        Federal Student Aid FY 2016 Annual Report
                         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:

  I am pleased to provide the Fiscal Year (FY) 2016
  Annual Report for Federal Student Aid (FSA). This
  report contains the results of FSA’s performance
  throughout the past year and demonstrates our efforts
  to transform the Free Application for Federal Student
  Aid (FAFSA®) process, establish a robust enforcement
  unit, launch a feedback system for our customers, and
  continue to improve student loan servicing through our
  servicing recompetition.

  FSA achieved our core mission and objectives, and
  managed significant changes in our core business
  process, while operating under an administrative
  budget of $1.6 billion. We delivered nearly
  $125.7 billion in aid to more than 13 million students
  attending over 6,000 postsecondary educational
  institutions this year. The student loan portfolio                   James W. Runcie
  managed by Federal Student Aid now exceeds                         Chief Operating Officer
  $1 trillion.

  A key accomplishment for FSA was the change of the start date for the FAFSA. This
  change, articulated in the Student Aid Bill of Rights announced by President Obama in
  2015, involves moving the start date for applying for aid for the 2017–18 award year from
  January 1, 2017 to October 1, 2016. This will provide students and families with financial
  aid eligibility information much earlier in the application process and enable families to better
  assess the true cost of attendance and make informed decisions.

  A second change in the FAFSA process involves changing which tax year income borrowers
  report on the FAFSA. Starting with the 2017–18 FAFSA, applicants will provide income
  information from one tax year earlier, known as the “prior-prior” year. This means that the
  2017–18 FAFSA will collect income information from 2015 rather than income information
  from 2016. This change will allow more students and families to complete their FAFSA
  using income information imported electronically from the Internal Revenue Service (IRS),
  through our IRS Data Retrieval Tool. Electronically transferring data eliminates the need to
  correct estimated tax information and prevents families from having to wait to complete a
  FAFSA until the previous year’s tax return has been filed.

  This year, we advanced toward our goal to build a new state-of-the-art loan servicing
  system—one that creates incentives and guidelines that support a more user-friendly single
  online loan management platform with high-quality, one-on-one customer service that
  provides the help and guidance borrowers need when they have questions or their
  circumstances change. We will build a system that makes it easier for borrowers to navigate



  Federal Student Aid FY 2016 Annual Report
Letter from the Chief Operating Officer of Federal Student Aid


          loan repayment and clear enough to show how the system is performing and where
          improvements are needed. Our borrowers deserve world-class customer service and debt-
          management tools, and we are on track to provide them.

          In addition, we have continued expanding our push to enroll borrowers who would benefit
          most from income-driven repayment, or IDR, plans, and have advanced the implementation
          of Gainful Employment regulations. This past spring’s announcement that IDR growth will
          see enrollment of 2 million borrowers between April, 2016 and April, 2017 helped us
          become even more focused on meeting that goal. I am pleased to say we are on target,
          which will mean nearly 7 million borrowers will be in IDR plans by next April. The
          implementation of Gainful Employment resulted in draft debt-to-earnings rates being sent to
          schools in October 2016. These draft rates went to more than 2,500 schools that offer over
          8,500 programs to more than 1.2 million students. In addition to sending the draft rates to
          appropriate schools, the earnings data will be sent to schools and posted to the FSA Data
          Center by the end of 2016. Final Gainful Employment rates are anticipated early next year.

          Several recent cybersecurity incidents impacting major corporations and the federal
          government (e.g., at the Office of Personnel Management and the Internal Revenue
          Service) have heightened the issue of cybersecurity protection. As part of our ongoing
          efforts to ensure the security of FSA data systems, FSA has implemented a security protocol
          through which all users with enhanced privileges enter two forms of “authentication” to
          access FSA systems via the Internet. In addition, the FSA ID, which uses a user id and
          password, greatly enhances the security of access to FAFSA applicant data and increases
          protection for students and borrowers. We will continue working with the Department of
          Homeland Security, other federal agencies, and our multiple vendors as well as higher
          education institutions to increase security and reduce vulnerability across our systems.

          We also created a Student Aid Enforcement Unit to strengthen FSA's enforcement and
          oversight activities. The new unit collaborates with, and incorporates evidence gathered in
          investigations by, partner state and federal agencies, to respond more quickly and efficiently
          to allegations of illegal actions by for-profit higher education institutions. We will continue
          working with the Office of Inspector General, the Department of Homeland Security, other
          federal agencies, and our multiple vendors to increase security and reduce vulnerability
          across our systems. The Department remains strongly committed to investigating violations
          that harm students and taxpayers and will take swift and immediate action as necessary.
          The new enforcement resources will help ensure such activities are completed in an
          effective and efficient manner, including supporting more reviews of high-risk institutions,
          responding to concerns raised by states' and other federal agencies' investigations of such
          institutions, as well as to complaints by students.

          This summer, we launched the FSA Feedback System, an online portal that allows federal
          student aid customers to submit complaints, provide positive feedback, and report
          allegations of suspicious activity regarding their experience with the federal student aid
          programs. The creation of the FSA Feedback System fulfills one of the primary objectives of
          the President's 2015 Student Aid Bill of Rights—continuing the Obama Administration's work
          to help borrowers responsibly manage their federal student debt, improve federal student
          loan servicing, and protect taxpayers' investments in the student aid programs. Our
          customers can access the system at StudentAid.gov/feedback.




                                                             Federal Student Aid FY 2016 Annual Report
                       Letter from the Chief Operating Officer of Federal Student Aid


Our commitment to increased transparency and accountability is evidenced by our
expanded Federal Student Aid Data Center, which includes a breadth of information about
our programs and business operations, and enables the public to freely access this
information. This fiscal year, we again experienced some significant school closures,
including ITT Technical Institutes (ITT), which underscores the need for FSA to provide a
rapid response to school actions that could adversely impact our customers. By
communicating with ITT students frequently, and establishing instructional webinars and
online resources, we helped ITT students make informed decisions about how to proceed
with their educational efforts, or seek assistance to determine their eligibility for a student
loan discharge.

Federal Student Aid’s success is made possible through the dedication and hard work of
more than 1,300 employees and I am honored to work with them. Another 12,000
contracted employees create a public-private partnership that drives our results. The data in
this Annual Report highlights merely a few of the many accomplishments we have achieved,
together, as we seek to advance the mission of Federal Student Aid.


Sincerely,




James W. Runcie
Chief Operating Officer
Federal Student Aid
United States Department of Education
November 14, 2016




Federal Student Aid FY 2016 Annual Report
Letter from the Chief Operating Officer of Federal Student Aid




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                                                       Federal Student Aid FY 2016 Annual Report
                                                           Introduction




                         Introduction




• About this Report

• Federal Student Aid at a Glance

• Guide to Federal Student Aid Programs

• How the Federal Student Aid Annual Report is Organized




Federal Student Aid FY 2016 Annual Report                  Page i
About this Report



                                          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. This Federal Student Aid Annual Report is a
          comprehensive document that provides an analysis of Federal Student Aid’s financial and
          program performance results for Fiscal Year 2016. 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 Act of 1965, as amended
          •   Reports Consolidation Act of 2000
          •   Improper Payments Information Act of 2002, amended
          •   Federal Information Security Management Act of 2002
          •   Government Performance and Results Modernization Act of 2010
          •   Digital Accountability and Transparency Act of 2014

          The United States Department of Education produces the U.S. Department of Education
          FY 2016 Agency Financial Report. That 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 2016.

          This report is available at https://studentaid.ed.gov/sa/strategic-planning-and-reporting.




          Page ii                                           Federal Student Aid FY 2016 Annual Report
                                                              Federal Student Aid at a Glance




                     Federal Student Aid at a Glance
                                 (As of September 30, 2016)


History                                             Strategic Goals
Federal Student Aid is a principal office of        Strategic Goal A
the United States Department of Education,           Improve quality of service for customers
which seeks to ensure that all eligible              across the entire student aid life cycle.
individuals can benefit from federal financial      Strategic Goal B
assistance for education beyond high                 Proactively manage the student aid
school. Designated as a Performance-                 portfolio to mitigate risk.
Based Organization in 1998, Federal                 Strategic Goal C
Student Aid is the nation’s largest provider         Improve operational efficiency and
of student financial aid and is responsible          flexibility.
for implementing and managing the federal           Strategic Goal D
student financial assistance programs                Foster trust and collaboration among
authorized under the Higher Education Act            stakeholders.
of 1965, as amended. These programs                 Strategic Goal E
provide grants, loans, and work-study funds          Invest in expanded workforce capability.
to students attending college or career
school.


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



FY 2016 Administrative Budget                       Total Applications Processed
$1.6 billion                                        19.2 million


Regional Offices                                    Total Postsecondary Student Aid
10                                                  Recipients in 2016
                                                    13.2 million

Total Employees                                     Total Federal Student Aid Delivered
1,369                                               $125.7 billion




Location                                            Website:
830 First Street, NE                                www.StudentAid.gov
Washington, DC 20002




Federal Student Aid FY 2016 Annual Report                                           Page iii
Guide to Federal Student Aid Programs



                        Guide to Federal Student Aid Programs

       Federal Student Aid (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 that allow the borrower to combine one or more existing 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, which may result in a lower monthly payment.




       Page iv                                                 Federal Student Aid FY 2016 Annual Report
                                                       Guide to Federal Student Aid Programs



•   Federal Perkins Loans
     o Federal loans made by schools to undergraduate and graduate students who
         demonstrate financial need. Participating schools receive a certain amount of funds
         each year from FSA for distribution under this program, which supplement funds in a
         school’s 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. 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. This form of aid does
         not require repayment.

•   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. It is administered
   by the schools that participate in the Federal Work-Study program.

To obtain federal financial aid, prospective aid recipients must complete the Free Application for
Federal Student Aid. For more information on obtaining federal student aid, visit
StudentAid.gov.



Federal Student Aid FY 2016 Annual Report                                                  Page v
How the Federal Student Aid Annual Report is Organized



        How the Federal Student Aid Annual Report is Organized

       The Federal Student Aid Annual Report FY 2016 (Annual Report) is organized into five major
       sections, which includes a glossary of commonly used acronyms and terms used in the Annual
       Report.



       Management’s Discussion and Analysis
       This 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 concludes with a discussion of the organization’s systems, controls,
       and compliance with laws and regulations and the Limitations of Financial Statements.



       Annual Performance Report
       This section presents the strategic goals included in the Federal Student Aid: Strategic Plan,
       Fiscal Years 2015–19 and discusses the results of the various performance metrics as related
       to each strategic goal. These results 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. Concluding this section are 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.



       Financial Section
       This section provides a detailed view of FSA’s stewardship and accountability for its resources.
       The Message from the Chief Financial Officer begins the section and is followed by the audited
       financial statements, the accompanying Notes to the financial statements, Required
       Supplementary Stewardship Information, Required Supplementary Information, and the
       Independent Auditors’ Report.

       The Independent Auditors’ Report 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 closes with Management’s Response to the Audit, the official
       response of FSA’s executive management to the findings and recommendations contained in
       the audit report.




       Page vi                                                Federal Student Aid FY 2016 Annual Report
                               How the Federal Student Aid Annual Report is Organized



Other Information
This section includes the Schedule of Spending, which provides 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 2016 Agency Financial Report, which includes a discussion of
FSA’s improper payments, the Summary of Financial Statement Audit and Management
Assurances and FSA’s Management Challenges.



Appendices
This section includes a discussion on discontinued strategic goals and performance metrics, an
index of tables and charts, a glossary of acronyms and terms, and concludes with information
on the availability of the FSA Annual Report




Federal Student Aid FY 2016 Annual Report                                              Page vii
How the Federal Student Aid Annual Report is Organized




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       Page viii                                      Federal Student Aid FY 2016 Annual Report
                                            Management’s Discussion and Analysis




     Management’s Discussion
          and Analysis




• Overview of the Management’s Discussion and Analysis

• FY 2016 Financial and Performance Highlights of Federal Student Aid

• Mission and Organizational Structure

• Performance Management

• Financial Analysis

• Analysis of Systems, Controls, and Legal Compliance

• Limitations of Financial Statements




Federal Student Aid FY 2016 Annual Report                            Page 1
Overview of the Management’s Discussion and Analysis



          Overview of the Management’s Discussion and Analysis

       The Management’s Discussion and Analysis section is a required supplementary section that
       provides an overview of the Annual Report. It includes a synopsis of Federal Student Aid’s
       (FSA) mission and its organizational structure, as well as the organization’s fiscal year (FY)
       financial and performance highlights, which are discussed in more detail within the subsequent
       sections of this report. This section concludes with a discussion of the organization’s systems,
       controls, and compliance with laws and regulations and the Limitations of Financial Statements.

       Mission and Organizational Structure
       The Mission and Organizational Structure subsection provides the history of Federal Student
       Aid, along with a discussion of its federal student aid programs. It also highlights the mission,
       vision and values of FSA as presented in the FSA Strategic Plan.

       Performance Management
       The Performance Management subsection presents an overview of the FSA’s strategic and
       performance-planning framework, an overview of the Federal Student Aid: Strategic Plan, FY
       2015-19 and the results of the FY 2016 performance metrics.

       Financial Analysis
       The Financial Analysis subsection provides an overview of FSA’s financial data, which includes
       an analysis of the financial data presented in the audited financial statements and a discussion
       of the financial management risks faced by FSA.

       Analysis of Systems, Controls, and Legal Compliance
       The Analysis of Systems, Controls, and Legal Compliance subsection provides FSA’s
       management assessment in conjunction with the Department’s assessment on FSA’s internal
       controls related to the Federal Manager’s Financial Integrity Act of 1982 and discusses the
       organization’s compliance with the Federal Financial Management Improvement Act, Federal
       Information Security Management Act and other laws and regulations related to the compliance
       of financial systems with federal requirements.

       Limitations of Financial Statements
       The Limitation of Financial Statements sections is a required section that details the limitations
       of the financial statements and requires the financial statements be read and reviewed in
       conjunction with the Notes to the Financial Statements.




       Page 2                                                 Federal Student Aid FY 2016 Annual Report
                                                                 FY 2016 Financial and Performance Highlights



     Fiscal Year 2016 Financial and Performance Highlights of
                        Federal Student Aid
                                                Table 1: Operational Highlights

                                                            For the year ended,      For the year ended,                           Percentage
                                                                                                                   Difference
                                                            September 30, 2016       September 30, 2015                             Change

Total Student Aid Loan Portfolio 1                          $        1,292 billion   $         1,212 billion   $      80 billion             6.6%

Total Borrowers with Federal Student Loans Outstanding                 42 million                 42 million          0 million              0.0%

Total Number of Postsecondary Education Institutions                       6,051                      6,101                   50            (0.8)%

Audit Opinion                                                        Unmodified                 Unmodified     Not applicable      Not applicable%


                                                  Table 2: Financial Highlights

                                                            For the year ended,      For the year ended,                           Percentage
                       Dollars in Millions                                                                         Difference
                                                            September 30, 2016       September 30, 2015                             Change

Total Assets                                               $           1,136,919     $           1,086,058     $       50,861               4.7%


Total Liabilities                                          $           1,138,601     $           1,065,750     $        72,851              6.8%


Net Position                                               $              (1,682)    $                20,308   $      (21,990)        (108.3)%


Net Cost of Operations                                     $              58,772     $                27,953   $       30,819           110.3%

Total Budgetary Resources Available for Spending
(Budgetary)                                                $              54,951     $                69,669   $      (14,718)          (21.1)%
Total Budgetary Resources Available for Spending
(Non-Budgetary Credit Reform Financing Accounts)           $             231,455     $               231,957   $         (502)           (0.2)%

Total Outlays, Net
(Budgetary)                                                $              32,112     $                44,605   $      (12,493)          (28.0)%
Total Outlays, Net
(Non-Budgetary Credit Reform Financing Accounts)           $              82,610     $                76,935   $         5,675              7.4%


                                               Table 3: Performance Highlights
                                                                                           FY 2016                  FY 2016        Performance
                               Performance Measures
                                                                                            Target                   Actual          Results
A.3: Customer Visits to StudentAid.gov                                                   >=43.4 million        47.2 million             

B.2: Percent of Borrowers>90 Days Delinquent                                                 9.9%                   8.8%                

D.3: Collection rate                                                                        $51.79                  $53.07              




     1
      The amounts provided for the Total Federal Student Aid Portfolio include federal student loan amounts managed by Federal
     Student Aid and those held by lenders or schools.



     Federal Student Aid FY 2016 Annual Report                                                                                     Page 3
Mission and Organizational Structure




         Mission and Organizational Structure
       Federal Student Aid, 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.




       Page 4                                                     Federal Student Aid FY 2016 Annual Report
                                                               Mission and Organizational Structure


Significant Legislation that Directs Federal Student Aid’s Mission

Historically, there have been several legislative acts that have significantly impacted FSA’s
mission. The Higher Education Amendments of 1998 established FSA as a PBO, to administer
the Title IV programs at the Department. The table below, while not all-inclusive, details
additional significant pieces of legislation that have influenced FSA’s mission.




                                    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 PLUS Loan Program.

  • 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 of 2009
     Provided that beginning July 1, 2010, no new loans will be originated under the Federal Family
     Education 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.

  • 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 FY 2016 Annual Report                                                           Page 5
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




       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.


       Page 6                                                  Federal Student Aid FY 2016 Annual Report
                                                         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 re-appointed James W. Runcie as the COO in December 2015. The
following graphic illustrates the current functional organizational structure of FSA.




During Fiscal Year 2016, the organization operated on an annual administrative budget of
approximately $1.6 billion. FSA is staffed by 1,369 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.




Federal Student Aid FY 2016 Annual Report                                               Page 7
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 2016, FSA processed more
       than 19.2 million Free Applications for Federal Student Aid (FAFSA®), resulting in the delivery of
       approximately $125.7 billion in Title IV aid to over 13.2 million postsecondary students and their
       families. These students attend over 6,000 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 reduced
       the aid available to students for various programs and forced increases in origination
       fees. These reductions, along with numerous other factors, including economic conditions and
       decreases in student aid applicants, affected the student aid disbursement 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 2016 and 20152. A summary of each of the Title IV student
       assistance programs is presented in the paragraphs that follow the table.

                     Table 4: Summary of Federal Aid Disbursed to Students by Program 2
                                                            (Dollars in Millions)
                                                                 2016                      2015
       Programs                                                                                                                Percentage
                                                             Aid Disbursed            Aid Disbursed           Difference
                                                                                                                                Change
                                                              to Students              to Students
       Loan Programs

       William D. Ford Federal Direct Loan Program           $        94,685     $           95,853       $        (1,168)          (1.2)%
       Federal Perkins Loan Program                                    1,044                  1,158                  (114)          (9.8)%
       Subtotal Loan Programs                                $        95,729     $           97,011       $        (1,282)          (1.3)%
       Grant Programs

       Federal Pell Grant Program                            $        28,189      $           29,909      $        (1,720)          (5.8)%
       Federal Supplemental Educational Opportunity
       Grant Program                                                     729                     730                   (1)          (0.1)%
       The Teacher Education Assistance for College
       and Higher Education Grant Program                                  90                     91                   (1)          (1.1)%
       Other Grant Programs/Rounding                                        1                         -                    1         N/A%
       Subtotal Grant Programs                               $        29,009      $           30,730      $        (1,721)          (5.6)%
       Work-Study Programs

       Federal Work-Study Program                            $           964      $              950      $            14            1.5%
       Rounding                                                           (1)                         -                (1)           N/A%
       Grand Total                                           $       125,701      $         128,691       $        (2,990)          (2.3)%

       2
        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. The number of awards or recipients reported in the Management’s Discussion and Analysis section is derived from a
       variety of sources including FSA’s Common Origination and Disbursement System and amounts used to support the President’s
       Budget. Recipient counts are based on award year.



       Page 8                                                                   Federal Student Aid FY 2016 Annual Report
                                                             Mission and Organizational Structure


Federal Loan Programs
In fulfilling its program responsibilities, FSA directly manages or oversees almost $1.3 trillion in
outstanding loans—representing more than 199 million student loans to approximately
42 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, 2016, FSA’s portfolio of Direct Loans included
$958.9 billion in credit program receivables, net. In FY 2016, the Department made
$94.7 billion 3 in net loans to 9.8 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 $335.2 billion, as of September
30, 2016. Of this portfolio, $114.9 billion represented FSA’s credit program receivables, net. In
FY 2016, FSA made gross payments of approximately $0.8 billion to lenders for interest and
special allowance subsidies and $6.9 billion to guaranty agencies for reinsurance claims and
fees paid for account maintenance, default aversion, and collection activities. In addition, in
FY 2016, under authority granted in the Budget Reconciliation Act of 2014, guaranty agencies
began assigning rehabilitated loans to FSA that they were unsuccessful in selling to lenders.

The Ensuring Continued Access to Student Loans Act of 2008 (ECASLA) authorized the
Department to implement a number of programs to ensure that 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. The third
program that the Department implemented under the authority of ECASLA was the Asset-
Backed Commercial Paper (ABCP) Conduit Program (Conduit). This program, under which the
Department entered into forward purchase commitments with a Conduit, ended in
January 2014.

As of September 30, 2016, FSA-held FFEL credit program receivables, net totaled
$114.9 billion, comprising $32.0 billion acquired under the "traditional" (Non-ECASLA)
guaranteed loan program, and $82.9 billion in loans acquired under the ECASLA authorization.




3
Excludes consolidation loans of $45.5 billion.


Federal Student Aid FY 2016 Annual Report                                                     Page 9
Mission and Organizational Structure



       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 2016, approximately $1.0 billion were disbursed through approximately 421,000
       Perkins awards.

       The Federal Perkins Loan program was scheduled to officially end on September 30, 2015;
       however on December 18, 2015, the program was extended through September 30, 2017 due
       to the enactment of the Federal Perkins Loan Program Extension Act of 2015 (Extension Act).
       The Extension Act eliminated the Perkins Loan grandfathering provisions, Dear Colleague
       Letter (DCL) GEN-16-05, that the Department had put in place, and establishes new eligibility
       requirements for undergraduate and graduate students to receive Perkins Loans. The
       grandfathering guidance is no longer applicable to the Perkins Loan Program.

       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 (Pub. L. 113-76). This program enabled graduate students in schools
       of medicine, osteopathy, dentistry, veterinary medicine, optometry, podiatry, public health,
       pharmacy, or chiropractic or in programs in health administration and clinical psychology to
       obtain federally insured loans through participating lenders. Since September 30, 1998, no new
       loans 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 loans. 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 $335.7 million for FY 2016.

       Federal Grant Programs
       In its responsibility for administering Title IV aid, FSA oversaw the disbursement of $29.0 billion
       in grants to 7.3 million recipients. The following provides a summary for each grant program,
       including aid disbursed for FY 2016.

       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 2016, the Department
       disbursed $28.2 billion in Pell Grants averaging approximately $3,668 to more than 7.2 million
       students. The maximum Pell Grant award was $5,775 for the 2015–16 award year and
       increased to $5,815 for the 2016–17 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 2016, approximately $729.4 million were disbursed through
       approximately 1.5 million campus-based awards.




       Page 10                                                Federal Student Aid FY 2016 Annual Report
                                                          Mission and Organizational Structure


The Teacher Education Assistance for College and Higher Education (TEACH) Grant
Program 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, 2015 and before October 1, 2016, were reduced by 6.8 percent from the
award amount for which a recipient would otherwise have been eligible. The maximum award
of $4,000 was reduced by approximately $272, resulting in a maximum award amount of
$3,728. If students fail to fulfill the service requirements, their 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 2016, the Department disbursed
approximately 29,425 grants totaling $90.3 million under the 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, 2015 and before October 1, 2016 were reduced by 6.8 percent
from the award amount for which a recipient would otherwise have been entitled. For example,
the 2015–16 maximum award of $5,775 was reduced by approximately $393, resulting in a
maximum award amount of $5,382. The Department disbursed $362,100 to support
approximately 75 awards in FY 2016.

Federal Work-Study Program
The Federal Work-Study 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 2016,
approximately $963.6 million were disbursed through approximately 674,200 campus-based
awards.




Federal Student Aid FY 2016 Annual Report                                                 Page 11
Mission and Organizational Structure



       Mission, Vision and Core Values
       FSA’s mission is student-focused, which drives its vision to be a reliable provider of federal
       student financial aid and services, and to be a trusted source of postsecondary education
       information to students and their families to assist students and families in making better
       decisions about their postsecondary education funding options. The core values reflect a
       culture of integrity, excellence, and collaboration: key components in building a high-
       performing organization.

                                                  FSA MISSION

                                           Funding America’s Future,
                                             One Student at a Time

                                                   FSA VISION

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

                                             FSA CORE VALUES

        Integrity
           Do the right thing above other interests and hold everyone accountable

        Customer Service
          Know what our customers want and ensure we meet their expectations

        Excellence
          Strive to be the very best in all we do by embracing a culture of continuous
          improvement

        Respect
          Value individuals by acknowledging the diversity of their contributions, ideas, and
          beliefs

        Stewardship
          Uphold the sacred trust of taxpayers as we work to support the goals of Congress
          and the Administration

        Teamwork
          Work in collaboration with our colleagues and partners to produce the best
          possible results
       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.


       Page 12                                                 Federal Student Aid FY 2016 Annual Report
                                                                           Performance Management




    Performance Management

This section of the Federal Student Aid Annual Report FY 2016 (Annual Report) provides a general
overview of the performance management processes at FSA; a summary of FSA’s FY 2016
performance metrics, objectives, and results; discussion of FSA’s Agency Priority Goal (APG), if an
APG has been assigned; 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 attaining the established performance metric, while falling short of the target
indicates that FSA did not attain the performance metric. The following table summarizes the key
components of the Federal Student Aid: Strategic Plan, FY 2015–19 (FSA Strategic Plan, FY 2015–
19).




Federal Student Aid FY 2016 Annual Report                                                       Page 13
Performance Management


                    Key Components of the FSA Strategic Plan, FY 2015–19

                     Key Component                                        Description



                                                        Statements of long-term purpose outlined in the
                                                        FSA Strategic Plan, FY 2015–19 that define
      Strategic Goals                                   how FSA will accomplish its mission. These
                                                        goals are aligned to FSA’s responsibilities as a
                                                        PBO.
                                                        Statements that describe the tactical activities
      Objectives                                        FSA will perform to achieve the associated
                                                        strategic goal.
                                                        Levels of performance over a certain timeframe
                                                        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
      Targets                                           fiscal year. Targets are expressed in
                                                        quantifiable terms and are 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 U.S Department of Education Strategic Plan for Fiscal Years
    2014–18, Agency Priority Goals, the priorities of the principal offices, and other requirements of law
    and of the President. The OPR framework primarily focuses on process improvements and capacity
    building, providing principle offices an opportunity to establish specific milestones. FSA tracks the
    status of its OPR metrics and reports on its progress to the Department.




    Page 14                                                     Federal Student Aid FY 2016 Annual Report
                                                                             Performance Management


FY 2016 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 2015-2019 reflects Federal Student Aid’s
increased focus on quality of service as well as increasing analytical and research capabilities. As
part of the new strategic plan, FSA redefined a number of strategic objectives that will help meet the
goals set forth for FY 2015–2019. It is also important to note the key strategic drivers, listed below,
that influence FSA’s process and development when implementing a strategic plan.

               Key Strategic Drivers Relevant to FSA Strategic Planning
                                                 Relevance to FSA’s Strategic Planning
            Key Strategic Driver
                                                               Process


 The Higher Education Act of 1965 legislation   Prescribes Title IV program and PBO
                                                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 which
 aid environment                                FSA must operate. Listed below are key
                                                trends that may affect the financial aid
                                                environment.

                                                    •   Increasing demand for Federal
                                                        Student Aid.
                                                    •   Continued growth of student debt and
                                                        focus on delinquency and default.
                                                    •   Increasing pressure to improve
                                                        student interaction with the aid system.
                                                    •   Increasing demand for accountability
                                                        in the use of federal funds.
                                                    •   Increased attention to availability and
                                                        uses of data.




Federal Student Aid FY 2016 Annual Report                                                          Page 15
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 support
     that, by 2020, America will have the highest   to achieve the goal.
     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 2016 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: Improve quality of service for customers across the entire student aid life
                             cycle.
       •   Strategic Goal B: Proactively manage the student aid portfolio to mitigate risk.
       •   Strategic Goal C: Improve operational efficiency and flexibility.
       •   Strategic Goal D: Foster trust and collaboration among stakeholders.
       •   Strategic Goal E: Invest in expanded workforce capability.

    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.




    Page 16                                                       Federal Student Aid FY 2016 Annual Report
                                                                              Performance Management


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, prior year actual results, the current
                         reporting period target, the current year actual result, and the page
                         reference to the detailed discussion 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, 2016) 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 FY 2016 Annual Report                                                         Page 17
Performance Management



    Strategic Goal A: Improve quality of service for customers across the entire student aid life
                      cycle.


    FSA recognizes the importance of continuing to strive for improvements in quality of service.
    Connecting customers with the appropriate resources is a cornerstone of FSA’s mission. To achieve
    this goal, FSA continues to work on providing increased outreach and information on all aspects of
    the student loan environment. These efforts allow students and families to make decisions in the
    most well informed manner. FSA also takes great care to ascertain that high quality service does not
    begin and end with loan disbursement and ensures that customers remain connected to the best
    resources available at every stage of the student aid lifecycle.

    Strategic Goal A focuses directly on borrower awareness and giving individuals and families the best
    resources to ensure sound financial decisions while also working to identify patterns and trends to
    deliver information to customers proactively rather than reactively.

    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: Improve outreach and awareness efforts to support aid recipients and their
                         families in making sound financial decisions.
        •   Objective 2: Optimize the borrower service model to improve the customer experience.
        •   Objective 3: Predict, identify, and understand existing and emerging customer trends and
                         patterns.
        •   Objective 4: Enhance outreach, training, and tools to improve institutional performance and
                         help postsecondary institutions understand responsibilities and requirements
                         under the Higher Education Act.

    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 2016
    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 three of these performance metrics and did not meet the target for two of the
    performance metrics under this strategic goal.




    Page 18                                                       Federal Student Aid FY 2016 Annual Report
                                                                                       Performance Management




                          Table 5: Performance Summary for Strategic Goal A




                                    FY 2014        FY 2015         FY 2016         FY 2016       Result   Reference
Performance Metrics
                                     Actual         Actual          Target          Actual                  Page



A.1: Percent of First-Time
     FAFSA Filers among High
     School Seniors
                                     60.1%          60.5%        59.5%–61.5%        57.5%                   64


A.2: Persistence among First-
     Time Filing Aid Recipients
                                     79.6%          79.5%        78.5%–80.5%        79.7%                   65


A.3: Customer Visits to
     StudentAid.gov
                                   32.7 million   43.3 million   >=43.4 million   47.2 million              66


A.4: Social Media Channel
     Subscribership
                                    368,042        454,066         >454,000        528,251                  67



A.5: ACSI Aid Life Cycle Surveys      78.4           77.2             74             70.4                   68




Federal Student Aid FY 2016 Annual Report                                                                   Page 19
Performance Management



    Strategic Goal B: Proactively manage the student aid portfolio to mitigate risk.


    FSA has committed to an increased effort in the expansion and enhancement of analytical and data-
    driven processes. These efforts play a vital role in the mitigation of risk by identifying and resolving
    problematic elements. FSA’s risk mitigation effort also extends to students and families potentially
    affected by misleading practices within the student aid environment. Using increased analytical tools
    and data-driven resources, FSA continues its leadership role in the universe of postsecondary
    education funding to ensure that all system participants effectively serve the interests of students.

    Strategic Goal B aims to increase operational effectiveness and strengthen FSA’s role in working to
    ensure protection of customers and holding stakeholders accountable for their actions. FSA strives to
    provide the opportunity of postsecondary education for all Americans, and a critical element of this
    task is ensuring effective identification and mitigation of risks to ensure a safe and accountable
    environment surrounding the student aid lifecycle.

    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: Enhance analytical and research capabilities to proactively identify operational
                        and reputational risk.
       •   Objective 2: Develop robust, data-driven processes to manage identified risks.
       •   Objective 3: Provide access to resources to protect students and families from unfair,
                        deceptive, or fraudulent practices in the student aid marketplace.

    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 2016
    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 one performance metric.




    Page 20                                                       Federal Student Aid FY 2016 Annual Report
                                                                                       Performance Management



                          Table 6: Performance Summary for Strategic Goal B




                                                  FY 2014     FY 2015      FY 2016    FY 2016      Result     Reference
Performance Metrics
                                                   Actual      Actual       Target     Actual                   Page



                                                                       4
B.1: Improper Payment Rate*                           -        2.38%         N/A        4.85%        N/A          69



B.2: Percent of Borrowers > 90 days Delinquent*       -         9.8%        9.9%        8.8%                     71

*Note: These performance metrics were revised in FY 2015; prior-year data not available under revised method.




4
 The FY 2015 improper payment Target and Actual reported in the table above reflect the corrected improper payment rates
for FY 2015 as determined by the FY 2015 IPERA Compliance Audit Report published by OIG on May 10, 2016. The
corrected improper payment rate is prepared in accordance with the alternative sampling and estimation methodology
approved by OMB as of October 20, 2015. The rate reported in FSA’s FY 2015 Annual Report was 1.44 percent.


Federal Student Aid FY 2016 Annual Report                                                                      Page 21
Performance Management



    Strategic Goal C: Improve operational efficiency and flexibility.


    FSA continues to recognize the need for flexibility relating to changes in the environment of
    postsecondary education as well as the world itself. As part of the federal government push to
    migrate to more cost-effective operating models, FSA began implementation of new efficient
    governance processes that will enable the organization to more readily adapt to changing policies
    and needs, while continuing to effectively manage and deliver student aid programs.

    FSA has implemented a number of initiatives focused on developing mechanisms to facilitate
    collaboration and information sharing across the organization that will help the organization
    accurately and effectively analyze its data. FSA has also refined acquisition strategies to ensure the
    most efficient and economic acquisition of products and services.

    Recent technological improvements in processing and analyzing data have greatly increased FSA’s
    ability to serve its customers. However, the rising sophistication of external network threats
    necessitates a proactive approach to identify and prevent unauthorized access and accidental or
    deliberate data loss. FSA places a high priority on strengthening its Information Technology (IT)
    systems’ security in order to ensure appropriate identification and management of potential threats.

    Strategic Goal C aims to pursue further efficiencies and flexibilities on an enterprise level at FSA.
    These efforts will increase collaboration between business units and reduce waste resulting from
    outdated and inefficient processes.

    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: Link disparate data sources to improve cross-organizational information
                        exchange.
       •   Objective 2: Refine acquisition management to ensure that services and products are
                        consistent with business objectives.
       •   Objective 3: Enhance governance processes to support enterprise decision-making.
       •   Objective 4: Strengthen FSA’s information technology (IT) systems’ security.

    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 2016
    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 of these performance metrics.




    Page 22                                                       Federal Student Aid FY 2016 Annual Report
                                                                                   Performance Management



                           Table 7: Performance Summary for Strategic Goal C




                                            FY 2014   FY 2015   FY 2016      FY 2016      Result     Reference
  Performance Metrics
                                             Actual    Actual    Target       Actual                   Page




  C.1: Aid Delivery Costs per Application   $11.43    $10.73     $13.11       $11.53                    72


  C.2: Outstanding Direct Loan Portfolio
       in Current Repayment Status*
                                               -         -       85.3%        85.4%                     73

*Note: This performance metric is a new metric in FY 2016; prior-year data not available under revised method.




Federal Student Aid FY 2016 Annual Report                                                                Page 23
Performance Management



    Strategic Goal D: Foster trust and collaboration among stakeholders.


    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 $125 billion in aid
    and administers a loan portfolio valued at more than $1.3 trillion. FSA has increased collaboration
    with all stakeholders in the Title IV process and worked to promote its commitment to transparency
    and accountability.

    The education environment includes a significant number of stakeholders with a variety of needs,
    objectives, and priorities. This diversity presents opportunities for FSA to strengthen effective
    partnerships with internal partners in the federal government and external stakeholders in the field of
    higher education to address priorities that serve the best interest of students. FSA also understands
    that different stakeholders have different communication needs, interests, and familiarity with federal
    financial aid programs. This has resulted in the expansion of available resources as well as the use of
    an increasing number of outreach methods.

    Strategic Goal D aims to build trust between FSA and stakeholders through collaborative efforts and
    a continuous dialogue. Transparent operations allow stakeholders vastly improved accessibility to
    data and information from the student aid universe and help to foster well informed discussions and
    partnerships.

    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: Engage with stakeholders to be the most trusted and reliable source of
                        information on federal student aid.
       •   Objective 2: Provide timely and proactive communication to promote accurate, consistent
                        messaging on federal funding of postsecondary education.
       •   Objective 3: Promote transparency and accountability within FSA and across the higher
                        education environment.

    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 2016
    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 two of these performance metrics and did not meet the target for one of the
    performance metric under this strategic goal.




    Page 24                                                       Federal Student Aid FY 2016 Annual Report
                                                                       Performance Management



                        Table 8: Performance Summary for Strategic Goal D




                                 FY 2014    FY 2015    FY 2016      FY 2016   Result   Reference
 Performance Metrics
                                  Actual     Actual     Target       Actual              Page



 D.1: Ease of Doing Business
      with FSA
                                   77        75.8      74.3–77.3     72.3                75


 D.2: Percentage of Contract
      Dollars Competed by FSA
                                  88.7%      90.3%    89.3%–91.3%    92.9%               76



 D.3: Collection rate             $35.90    $51.58      $51.79      $53.07               77




Federal Student Aid FY 2016 Annual Report                                                 Page 25
Performance Management



    Strategic Goal E: Invest in expanded workforce capability.


    As the environment of postsecondary education and student aid continues to evolve, FSA must
    ensure that its workforce has the capabilities to adapt to changing business needs and priorities,
    which reflect the needs of FSA’s customers. Acquiring talent and maintaining a skilled workforce
    remain priority areas for FSA. FSA has launched a number of initiatives to increase the capability of
    its workforce ranging from a streamlined hiring process to coaching and competency based training
    programs.

    Strategic Goal E aims to build and maintain a diverse workforce that is well-versed in the specialty
    skill sets necessary to address evolving models of higher education delivery.

    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: Create an enterprise-wide workforce plan to attract, develop, and retain
                        employees with the skills required to meet evolving business needs.
       •   Objective 2: Develop a succession planning strategy to identify and create opportunities for
                        future leadership talent.

    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 metric, prior year actual results, FY 2016 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.


                            Table 9: Performance Summary for Strategic Goal E




                                    FY 2014    FY 2015       FY 2016       FY 2016   Result     Reference
      Performance Metrics
                                     Actual     Actual        Target        Actual                Page



     E.1: Employee Engagement
          Index
                                      67.7%      67.9%     66.9% - 68.9%    67.4%                  78




    Page 26                                                       Federal Student Aid FY 2016 Annual Report
                                                                            Performance Management



Agency Priority Goal

An Agency Priority Goal is a measurable commitment to a specific result the federal government will
deliver to the American people. These goals represent high priorities for both the administration as
well as for the Department and have high relevance to the public, or reflect the achievement of key
agency missions. As required by OMB’s guidance for implementing the Government Performance
and Results Modernization Act of 2010 (Pub. L. 111-352), the Department identified FSA’s APG for
FY 2016 during the budget, policy, and strategic planning processes.

For FY 2016–17, “Federal Student Aid Transparency” was established as an APG. Clear, consistent,
and timely information about FSA’s mission, objectives, and services to stakeholders enables FSA to
be the most trusted source of information on federal funding of postsecondary education. FSA has
built a rich database of Title IV related information and this data helps to inform discussion and
improve student outcomes

FSA understands that different stakeholders have different needs, interests, and familiarity with
federal financial aid programs. FSA has worked to increase the dissemination of useful information
through general channels, such as the FSA Data Center, meant to support transparency initiatives.
The increased availability of information to stakeholders will provide critical value to stakeholders
seeking a consistent and accurate understanding of the contours of the higher education
environment.

FSA currently releases a variety of financial aid information and data on a quarterly basis on the FSA
Data Center. The focus on “Federal Student Aid Transparency” also commits FSA to add new and
important information and data that will increase the general public’s understanding of the federal
student aid programs. The information and data will take the form of reports or datasets related to
one or more of the following categories:

   •   Student Aid Data, including information on income-driven repayment plans, the Federal
       student loan portfolio, aid eligibility and applications, default, and forgiveness;

   •   School Data, including information on school eligibility and participation as well as school
       compliance;

   •   Servicer Data; and/or

   •   Ad Hoc Studies and Reports.

FSA’s commitment to transparency will inform discussion and help stakeholders in the system of
higher education improve outcomes for students and borrowers.

Due to the specific focus of an APG, it does not fully reflect the agency’s strategic goals nor cover the
entire agency mission. 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 2016–17 Priority Performance Goals.




Federal Student Aid FY 2016 Annual Report                                                        Page 27
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.




    Page 28                                                      Federal Student Aid FY 2016 Annual Report
                                                                                    Financial Analysis




Financial Analysis

The Financial Analysis section provides an overview of FSA’s financial results for FY 2016.
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 explains major changes in assets, liabilities, costs, and
budgetary resources. It also includes comparisons of the current year to the four prior years
and discusses the relevance of significant balances, amounts, and trends 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 2016, FSA achieved an unmodified audit
opinion on its financial statements for the fifteenth 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 2016 and
FY 2015, 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 $1.3 trillion in federal student loans,
of which approximately $1.1 trillion is directly owned and managed by FSA. As described in
Note 1 and Note 5, FSA reports this portfolio on its Balance Sheet as the line item Credit
Program Receivables, net of allowances for loss, loan guaranty liability and subsidy cost, that
adjust the portfolio amount to its present value. As of September 30, 2016, FSA reported
$1.1 trillion in Credit Program Receivables, Net including an allowance for subsidy cost of
approximately $8.2 billion. FSA’s portfolio of Credit Program Receivables, Net has seen
significant growth, increasing by 5.8 percent over the FY 2015 net portfolio balance. This
growth continues to be driven by the expansion of the Direct Loan program. 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 FY 2016 Annual Report                                                  Page 29
Financial Analysis


        The FY 2016 FSA Financial Highlights tables presented below provide a condensed summary
        of the significant balances in FSA’s financial statements over a five year period, beginning with
        FY 2012 and the percentage change between the prior and current fiscal years as of September
        30, 2015 and 2016 respectively.

                                                Table 10: FSA Financial Highlights
                                                    Condensed Balance Sheet
                                                       Fiscal Years 2012–16
                                                                                                                                     Percentage
             (Dollars in millions)                  FY 2012           FY 2013         FY 2014          FY 2015          FY 2016              5
                                                                                                                                      Change
     Fund Balance with Treasury                 $     78,452      $     69,997    $      61,506    $    67,985      $    60,358           (11.2)%
     Credit Program Receivables, Net 6               672,835           825,660          922,418      1,016,425        1,075,227              5.8%
     Remaining Assets                                  1,451             1,588            1,596          1,648            1,334           (19.1)%
         Total Assets                           $    752,738      $    897,245    $     985,520    $ 1,086,058      $ 1,136,919              4.7%

     Debt                                       $    714,324      $    851,258    $     965,362    $ 1,050,344      $ 1,126,345               7.2%
     Subsidy due to Treasury General Fund 7             6,663            8,425            5,958            8,237            2,642         (67.9)%
     Remaining Liabilities                             8,978             7,568            7,530          7,169            9,614               34.1%
        Total Liabilities                       $    729,965      $    867,251    $     978,850    $ 1,065,750      $ 1,138,601                6.8%

     Unexpended Appropriations                  $     30,361      $     33,595    $      30,485    $    28,325      $    26,531             (6.3)%
     Cumulative Results of Operations                 (7,588)           (3,601)         (23,815)        (8,017)         (28,213)           251.9%
        Net Position                            $     22,773      $     29,994    $       6,670    $    20,308      $    (1,682)         (108.3)%
         Total Liabilities & Net Position       $    752,738      $    897,245    $     985,520    $ 1,086,058      $ 1,136,919               4.7%


                                            Table 11: Statement of Net Cost Summary
                                                      Fiscal Years 2012–16
                                                                                                                                     Percentage
             (Dollars in millions)                  FY 2012           FY 2013         FY 2014          FY 2015          FY 2016              6
                                                                                                                                      Change
     Gross Cost                                 $       35,989    $     13,266    $      65,470    $      59,500    $      93,032          56.4%
     Less: Earned Revenue                              (25,306)        (26,688)         (28,979)         (31,547)         (34,260)          8.6%
         Net Cost of Operations                 $       10,683    $    (13,422)   $      36,491    $      27,953    $      58,772         110.3%


        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.


        5
         Note that the percentage change is calculated as the FY 2015–16 difference, divided by the FY 2015 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.

        6
         During FY 2013, as required by Treasury and Departmental guidance, excess collections from pre-1992 FFEL loan guarantees,
        which are payable to Treasury, were reported for the first time as non-current liabilities not covered by budgetary resources. This
        reclassification resulted in a $3 billion reduction of the FY 2012 reported balance of Intragovernmental Accounts Payable and a
        corresponding increase in the FY 2012 reported Other Liabilities balance.

        7
         Prior to FY 2016, Subsidy due to Treasury General Fund was included in the Condensed Balance Sheet line item, Other
        Intragovernmental Liabilities. Beginning in FY 2016, Subsidy due to Treasury General Fund is reported separately, while Other
        Intragovernmental Liabilities is now included in the category Remaining Liabilities. Data for the years FY 2012–15 have been
        restated using the FY 2016 format.



        Page 30                                                                    Federal Student Aid FY 2016 Annual Report
                                                                                     Financial Analysis


Composition of FSA Assets. The consolidated Balance Sheet shows that FSA had total
assets of $1.137 trillion as of September 30, 2016, an increase of $50.9 billion, or 4.7 percent
over the September 30, 2015 total assets balance of $1.086 trillion. The difference resulted
primarily from an increase in net Credit Program Receivables ($58.8 billion), less a decrease in
Fund Balance with Treasury ($7.6 billion). Together, FSA’s Fund Balance with Treasury and its
net Credit Program Receivables accounted for almost 99.9 percent of Total Assets as of
September 30, 2016, as illustrated in the Composition of Assets chart (Chart 1) below. Following
Chart 1 is the Comparison of Assets chart (Chart 2) that presents the growth of these two
principal Balance Sheet line items over the past five fiscal years.

                       Chart 1: Composition of Federal Student Aid Assets
                                    Fiscal Years 2012–16

                               100%

                                 80%

                                 60%

                                 40%

                                 20%

                                  0%
                                          FY 2012      FY 2013       FY 2014   FY 2015    FY 2016
     Credit Program Receivables, Net       89.4%        92.0%         93.6%     93.6%      94.6%
     Fund Balance with Treasury            10.4%         7.8%          6.2%      6.3%       5.3%
     Remaining Assets                       0.2%         0.2%          0.2%      0.1%       0.1%



                       Chart 2: Comparison of Federal Student Aid Assets
                                    Fiscal Years 2012–16
                                             (Dollars in Billions)

                              $1,200

                              $1,000

                                $800

                                $600

                                $400

                                $200

                                  $0
                                          FY 2013       FY 2013      FY 2014   FY 2015    FY 2016
        Credit Program Receivables, Net    $672.8        $825.7       $922.4   $1,016.4   $1,075.2
        Fund Balance with Treasury         $78.5         $70.0        $61.5     $68.0      $60.4
        Remaining Assets                    $1.4          $1.5         $1.6      $1.7       $1.4
        Total Assets                       $752.7        $897.2       $985.5   $1,086.1   $1,137.0




Federal Student Aid FY 2016 Annual Report                                                 Page 31
Financial Analysis


       Credit Program Receivables, Net. With a $1.075 trillion balance as of September 30, 2016,
       Credit Program Receivables, Net represent FSA’s most important asset category and
       accounted for 94.6 percent of Total Assets. This balance included $1,083.4 billion in principal,
       interest, and fees together with an allowance for subsidy cost of approximately $8.2 billion that
       adjusted the loan portfolio to its estimated present value. FSA reports the total amount under
       the three major program categories Direct Loan, FFEL, and Other, as illustrated in Chart 3
       below and discussed more fully in the following sections.

                              Chart 3: Total Federal Student Aid Loan Portfolio
                                            Fiscal Years 2012–16
                                                 (Dollars in Billions)

                            $1,200

                            $1,000

                             $800

           Credit Program $600
           Receivables, Net $400

                             $200

                                $0
                                       FY 2012      FY 2013         FY 2014    FY 2015      FY 2016
                      Direct Loans      $526.0       $679.1          $778.5     $880.6       $958.9
                      FFEL              $146.1       $145.8          $142.9     $134.7       $114.9
                      Other Programs     $0.7         $0.8            $1.0       $1.1         $1.4
                      Total             $672.8       $825.7          $922.4    $1,016.4     $1,075.2

       This chart also shows that over the five-year period FY 2012–16, FSA’s portfolio of Federal
       Student Aid net credit program receivables increased by $402.4 billion or 59.8 percent, with the
       Direct Loan program accounting for most of this change. In fact, the Direct Loan portfolio
       increased by a slightly greater amount, $432.8 billion or 82.3 percent, but the increase was
       offset by the $31.2 billion (21.4 percent) reduction of the FFEL Portfolio over the same period.

       The changes observed in both the Direct Loan and FFEL portfolios 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. Loan consolidation has also played a role.
       Consolidation is the process of combining one or more Federal education loans into one loan.
       It allows borrowers to potentially take advantage of features such as simplified repayment with
       only a single monthly bill to pay, an extended repayment period to reduce monthly payments
       and access to alternative repayment plans such as income based or income contingent
       repayment plans. For more information about which federal loans may be eligible for
       consolidation and other requirements please visit https://studentaid.ed.gov/sa/repay-
       loans/consolidation.

       Direct Loan Credit Program Receivables, Net. Direct Loan Credit Program receivables
       continue to be the major component of this portfolio and as of September 30, 2016 comprised
       89.2 percent of the net balance, a total of $958.9 billion. This total includes $953.6 billion in
       principal, interest, and fees, together with a negative subsidy allowance in the amount of
       $5.3 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.


       Page 32                                                  Federal Student Aid FY 2016 Annual Report
                                                                                                                         Financial Analysis


The $78.3 billion increase in Direct Loan Receivables during FY 2016 was mainly driven by the
growth in the outstanding amount owed by borrowers, principally resulting from new loan
originations ($94.7 billion), consolidation disbursements net of consolidation payoffs
($36.8 billion), and the net increase in interest and fees payable ($6.5 billion). This was offset
by reductions to principal due to loan payments by borrowers ($47.1 billion), loan discharge
($3.1 billion) and other adjustments. In addition, increased subsidy costs during FY 2016 that
reduced the estimated negative subsidy allowance by $30.2 billion, reduced Direct Loan Credit
Program Receivables, Net by the same amount, as explained in more detail in Note 5.

                                                    Chart 4: Components of Direct Loan Receivables, Net
                                                                  Fiscal Years 2012–168
                                                                            (Dollars in billions)
                                                 $1,200                                                                          35
               Credit Program Receivables, Net




                                                 $1,000                                                                          30




                                                                                                                                      Recipients in Millions
                                                                                                                                 25
                                                  $800
                                                                                                                                 20
                                                  $600
                                                                                                                                 15
                                                  $400
                                                                                                                                 10

                                                  $200                                                                           5

                                                    $0                                                                           0
                                                          FY 2012       FY 2013            FY 2014       FY 2015      FY 2016
             Principal                                     $472.9        $584.5             $694.0        $800.8       $902.8
             Accrued Interest                               $21.1         $29.3              $37.2         $44.3        $50.8
             Subsidy                                        $32.0         $65.3              $47.3         $35.5         $5.3
             Total Receivable                              $526.0        $679.1             $778.5        $880.6       $958.9
             Total Recipients                                22.8          25.6               27.9          29.9         31.5


 Table 12: Components of Direct Loan Credit Program Receivables, Net by Percentage
                               Fiscal Years 2012–16
 Direct Loan Component                                       FY 2012             FY 2013            FY 2014        FY 2015      FY 2016
 Principal                                                          89.9%              86.1%            89.1%          90.9%         94.1%
 Accrued Interest                                                   4.0%                4.3%             4.8%           5.0%         5.3%
 Subsidy                                                            6.1%                9.6%             6.1%           4.0%         0.6%
 Total Receivable                                               100.0%                100.0%           100.0%         100.0%      100.0%




Federal Student Aid FY 2016 Annual Report                                                                                       Page 33
Financial Analysis


           Table 13: Increase in Principal, Interest and Subsidy Components of Direct Loan Credit
                     Program Receivables, Net and Recipient Counts
                                                                                              FY 2012-16
           Direct Loan Component   FY 2012–13   FY 2013–14   FY 2014–15    FY 2015–16     Average Year-to-Year
                                                                                                change
           Principal                 23.6%        18.7%         15.4%         12.7%               17.6%
           Accrued Interest          38.9%        27.0%         19.1%         14.7%               24.9%
           Subsidy                  104.1%        -27.6%       -24.9%        -85.1%               -8.4%
           Total Receivable          29.1%        14.6%         13.1%         8.9%                16.4%
           Total Recipients          12.3%        9.0%          7.2%          5.4%                8.4%

       The growth in principal outstanding has accounted for virtually all of the growth of the Direct
       Loan portfolio over the past five years in dollar terms, as clearly seen in Chart 4 8. Over the
       same period accrued interest actually increased at a higher average annual rate than did
       principal outstanding (24.9 percent versus 17.6 percent), but accrued interest only increased
       from 4.0 percent to 5.3 percent of the net receivable amount, while principal outstanding
       increased from 89.9 percent to 94.1 percent of the total. By comparison, increased subsidy
       costs reduced the impact of the net negative subsidy (discussed in Note 5) from 6.1 percent to
       0.6 percent of the total amount over the FY 2012–16 period.

       Chart 4 also includes the number of recipients corresponding to the outstanding loan portfolio at
       each fiscal year end. Recipients are the students that benefit from the federal student loans. In
       most cases, the recipient is the borrower, but in Parent PLUS loans, the parent is the borrower
       and the child is the recipient. The chart shows that Direct Loan recipients grew from 22.8 million
       to 31.5 million over the five-year period, reflecting an average annual increase of 8.4 percent,
       well below the rate of increase of principal and interest described earlier. As a result, the
       average debt (principal and interest) balance outstanding per Direct Loan recipient increased by
       39.7 percent during this time, from $21,665 to $30,273, the higher debt burden per student likely
       an indication of increasing secondary education costs.

       While the Direct Loan portfolio has grown rapidly in recent years, it has also changed in
       character as an increasing proportion of students enter into the repayment phase of their loans.
       Under Title IV, each loan may pass through several distinct statuses as the student progresses
       from school to the workplace.

       Repayment on most federal student loans is not required while the student recipient is “In
       School” unless they drop below half-time enrollment. However, PLUS loans enter repayment as
       soon as the loan is fully disbursed (paid out). Then, after the student graduates, leaves school,
       or drops below half-time enrollment student borrowers are frequently entitled to a “Grace”
       period, a set period of time during which repayment is not required to begin on the loan. Not all
       federal student loans have a grace period and for most loans, interest will accrue during the
       grace period. At the end of any Grace period, the loan will enter “Repayment” status, and
       regular monthly payments will be required according to an agreed payment schedule. If the
       borrower continues to make timely payments such that no more than 30 days elapse after the
       due date without payment, then the loan is classified as “Current.” If more than 30 days elapse,
       then then loan will be reclassified as “Delinquent.” Under Title IV, if more than 270 days pass
       without payment being received to satisfy the oldest payment due, Direct Student Loans are

       8
        Recipients in Millions for FY 2012–16 are based on data published by the FSA Data Center, at:
       https://studentaid.ed.gov/sa/about/data-center/student/portfolio.


       Page 34                                                   Federal Student Aid FY 2016 Annual Report
                                                                                                                        Financial Analysis


technically considered to be “In Default”. However, FSA’s policy is to not transfer such loans to
the defaulted debt servicer until more than 360 days pass without payment being received, in
order to ensure parity of borrower treatment with that of FFEL borrowers by lenders and
guaranty agencies.

Chart 5 9 divides FSA’s portfolio of direct loans into two main categories, based on whether or
not payments have been temporarily suspended. The first of these, “not in repayment” includes
not only loans In School or In Grace but also loans where a deferment or forbearance has been
granted. The loan status “Deferment” includes loans in which payments have been postponed
due to certain circumstances, such as returning to school, military service, or economic
hardship. Similarly, “Forbearance” includes loans in which payments have been temporarily
suspended or reduced as a result of certain types of financial hardships. The second major
category, “In Repayment” includes not only loans identified as Current or Delinquent, but also
those that have defaulted, are in non-defaulted bankruptcy, in a disability status or not otherwise
categorized. For both categories Chart 5 reports the portfolio balance as the sum of principal
and interest balances owed by the borrower, and excludes any subsidy cost or allowance that
would adjust the outstanding balance to its net present value.

                                                               Chart 5: Direct Loan Portfolio by Repayment Status
                                                                           Principal and Interest Only
                                                                               Fiscal Years 2012–16
                                                                                (Dollars in Billions)
                                                                  $1,200
                     Loan Principal and Interest Outstanding




                                                                  $1,000


                                                                    $800


                                                                    $600


                                                                    $400


                                                                    $200


                                                                      $0
                                                                           FY 2012       FY 2013        FY 2014   FY 2015   FY 2016
          In Repayment Status*                                              $206.8        $277.8         $351.6    $457.8    $557.5
          Not in Repayment                                                  $287.2        $336.0         $379.6    $387.3    $396.1
          Total Direct Loan Portfolio*                                      $494.0        $613.8         $731.2    $845.1    $953.6
*Adjusted to eliminate differences in the total Direct Loan principal and Interest reported by FSA Data Center as
compared to the amount reported in FSA’s Financial Statements.



9
 FY 2013–16 based on data published by the FSA Data Center, https://studentaid.ed.gov/sa/about/data-
center/student/portfolio. The FY 2012 data was not available from the Data Center so an alternative
source was used.


Federal Student Aid FY 2016 Annual Report                                                                                    Page 35
Financial Analysis


       As can be seen in Chart 5, over the past five years the growth in principal and interest of the “In
       Repayment” segment increased from 41.9 percent to 58.5 percent of the total amount
       outstanding, increasing the need for FSA to focus on ensuring that it facilitates the ability of
       Direct Loan borrowers to meet their repayment obligations timely.

                          Chart 6: Direct Loan Portfolio Segment in Repayment by Status
                                               Fiscal Years 2012–16
                                            Principal and Interest only
                                                     Chart 6A - Dollars in Billions
                                  $450
                                  $400
                                  $350
                                  $300
                                  $250
                                  $200
                                  $150
                                  $100
                                   $50
                                    $0
                                             FY 2012           FY 2013          FY 2014          FY 2015           FY 2016
              Current                         $136.3            $188.5           $247.2           $332.0            $406.8
              Delinquent                      $40.4             $47.8            $54.6            $65.1             $71.8
              Default/Bankruptcy/Other*       $30.1             $41.5            $49.8            $60.7             $78.9

                                                    Chart 6B – Percentage of Total

                                  80%

                                  70%

                                  60%

                                  50%

                                  40%

                                  30%

                                  20%

                                  10%

                                    0%
                                             FY 2012           FY 2013          FY 2014          FY 2015           FY 2016
              Current                         65.9%             67.9%            70.3%            72.5%             73.0%
              Delinquent                      19.5%             17.2%            15.5%            14.2%             12.9%
              Default/Bankruptcy/Other*       14.6%             14.9%            14.2%            13.3%             14.2%
       *
       Adjusted to eliminate differences in the total Direct Loan principal and Interest reported by FSA Data Center as
       compared to the amount reported in FSA’s Financial Statements




       Page 36                                                           Federal Student Aid FY 2016 Annual Report
                                                                                    Financial Analysis


In Chart 6 10, the Direct Loan portfolio of “In Repayment” principal and interest has been
subdivided into three categories, “Current”, “Delinquent” and Default/Bankruptcy/Other, as those
terms are defined above. The chart reveals that, with a September 2016 principal and interest
balance of $406.8 billion, the current portion of the “In Repayment” segment is its largest
component and has grown faster in both dollar and percentage terms over the five years
FY 2012–16 than either of the other two components. This subcomponent grew from
65.9 percent to 73.0 percent of the In-Repayment Sector, a positive trend. In addition, while
both the Delinquent and Default/Bankruptcy/Other components of the portfolio also increased in
dollar terms over the past five years to $71.8 billion and $78.9 billion respectively, both declined
in percentage terms from 19.5 percent and 14.6 percent of the total outstanding at the end of
FY 2012, to 12.9 percent and 14.2 percent respectively as of September 30, 2016. However,
with respect to the Default/Bankruptcy/Other category, the downward trend reversed in FY 2016
with the proportion of In Repayment Direct Loan principal and interest in
Default/Bankruptcy/Other increasing from 13.3 percent to 14.2 percent of the total. In addition,
of the total $953.6 billion in Direct Loan principal and interest at the current fiscal year end,
$57.3 billion (6.0 percent of total receivables) in loan principal was in default and had been
transferred to the Department’s defaulted loan servicer, compared to $44.1 billion (5.2 percent
of total receivables) as of September 30, 2015. For related performance information about the
percentage of borrowers more than 90 days delinquent (FSA's performance metric B.2), please
see page 71.

The portfolio of Direct Loan principal and interest receivables “Not in Repayment” can also be
further subdivided based on the reason why the debt is not currently subject to repayment.
Chart 711 subdivides this segment into two such categories, “In School/Grace” and “In
Deferment/Forbearance, as defined earlier.

             Chart 7: Direct Loan Portfolio Segment not in Repayment by Status
                                 Principal and Interest only
                                    Fiscal Years 2012–16
                                     Chart 7A - Dollars in Billions

              $250


              $200


              $150


              $100


               $50


                $0
                       FY 2012         FY 2013            FY 2014       FY 2015         FY 2016
     In School/Grace    $183.0          $200.5             $203.8        $198.6          $192.6
     In Deferment/
                        $104.2          $135.5            $175.8         $188.7          $203.5
      Forbearance



10
 ibid.
11
 ibid.


Federal Student Aid FY 2016 Annual Report                                                   Page 37
Financial Analysis



                     Chart 7: Direct Loan Portfolio Segment not in Repayment by Status
                                         Principal and Interest only
                                            Fiscal Years 2012–16
                                          Chart 7B – Percentage of Total

                      70%


                      60%


                      50%


                      40%


                      30%


                      20%


                      10%


                       0%
                               FY 2012        FY 2013         FY 2014       FY 2015        FY 2016
             In School/Grace    63.7%          59.7%           53.7%         51.3%          48.6%
             In Deferment/
                                36.3%          40.3%           46.3%         48.7%          51.4%
              Forbearance


       Chart 7 shows that, after increasing from FY 2012–14, the amount of Direct Loan principal and
       interest categorized as In School/Grace, declined steadily from $203.8 billion in FY 2014 to
       $192.6 billion in the current year. This reflects both the decline in new Direct Loan
       disbursements over the period, and the aging of the Direct Loan portfolio of principal and
       interest receivable, as a greater proportion of debt moved from In School/Grace category to the
       “In Repayment” segment. Over the same five-year period, the In Deferment/Forbearance
       segment has grown from $104.2 billion to $203.5 billion, increasing from 36.3 percent to
       51.4 percent of the Not in Repayment segment. However, as a percentage of the total portfolio
       of Direct Loan principal and interest receivable, the In Deferment/Forbearance portion has
       remained close to 22 percent. This suggests that the underlying factors that result in a
       deferment or forbearance being granted have also remained fairly consistent.

       FFEL Credit Program Receivables, Net. FSA’s portfolio of FFEL loans includes debt acquired
       under the Conduit, Loan Participation Purchase, and Loan Purchase Commitment programs
       established through the 2008 ECASLA authorization and referred to collectively as the FFEL
       ECASLA Loan Programs. It also includes debt acquired under “traditional” (Non-ECASLA)
       defaulted guaranteed loan programs, known collectively as the “FFEL Guaranteed” portfolio
       segment. Changes in these FFEL loan portfolio segments over the past five fiscal years are
       shown in Chart 8.




       Page 38                                               Federal Student Aid FY 2016 Annual Report
                                                                                                                       Financial Analysis




                                                             Chart 8: Total FFEL Loan Portfolio
                                                                    Fiscal Years 2012–16
                                                                       (Dollars in Billions)

                                                          $160
                                                          $140
                                                          $120
                                                          $100
       FFEL Credit
        Program                                            $80
     Receivables, Net
                                                           $60
                                                           $40
                                                           $20
                                                            $0
                                                                  FY 2012        FY 2013       FY 2014       FY 2015        FY 2016
                                             FFEL, Guaranteed*     $32.3          $37.4         $39.9         $40.5          $32.0
                                             FFEL, ECASLA**       $113.8         $108.4        $103.0         $94.2          $82.9
                                             Total FFEL           $146.1         $145.8        $142.9        $134.7         $114.9




                                                    Chart 9: Components of FFEL Receivables, Net
                                                                Fiscal Years 2012–16
                                                                       (Dollars in Billions)

                                            $160                                                                                10
          Credit Program Receivables, Net




                                            $140                                                                                9
                                            $120                                                                                8




                                                                                                                                      Recipients in Millions
                                            $100                                                                                7
                                             $80                                                                                6
                                             $60                                                                                5
                                             $40                                                                                4
                                             $20                                                                                3
                                              $0                                                                                2
                                            ($20)                                                                               1
                                            ($40)                                                                               0
                                                      FY 2012        FY 2013         FY 2014       FY 2015        FY 2016
        Principal                                      $132.0         $127.8          $123.2        $114.7         $109.8
        Accrued Interest                               $15.1          $15.8           $16.6         $17.5          $18.2
        Subsidy                                        $(1.0)          $2.1            $3.1          $2.5         $(13.1)
        Total Receivable                               $146.1         $145.7          $142.9        $134.7         $114.9
        Total Recipients                                 9.2            8.7             8.4           7.9            7.5




Federal Student Aid FY 2016 Annual Report                                                                                   Page 39
Financial Analysis


       Chart 8 illustrates that although it is still the major component of the FFEL portfolio of credit
       program receivables, net, the ECASLA FFEL portfolio segment has declined throughout the
       five-year period shown, both in dollar terms (from $113.8 billion to $82.9 billion) and as a
       percentage of total FFEL (from 77.9 percent to 72.2 percent). This trend was mainly due to
       reductions in the principal balance outstanding as borrowers consolidated their loans to take
       advantage of features such as simplified repayment with a single bill to repay monthly, an
       extended repayment period to reduce monthly payments and access to alternative repayment
       plans. In addition, revised estimates of increased subsidy costs resulted in a further $6.8 billion
       reduction in the net credit program receivable balance outstanding. The latter is discussed
       more fully in the Statement of Next Cost section, and in Note 5.

       Over the same five year period, the much smaller FFEL Guaranteed portfolio segment first
       increased by $8.2 billion (25.4 percent) from FY 2012 to FY 2015 and then declined by
       $8.5 billion in the last twelve months. The initial increase was mainly due to the inclusion in
       FY 2015 of a $3.4 billion adjustment for negative liability for Loan Guarantee (not included in
       FY 2012) together with a $2.1 billion increase in interest and fees payable. The subsequent
       balance reduction was mostly attributable to a $7.5 billion reduction in negative subsidy (as for
       the ECASLA FEEL portfolio) together with a $1.9 billion increase in principal outstanding. The
       overall impact of changes in the principal, accrued interest and subsidy components of the
       FFEL portfolio are shown in Chart 9 12. The concurrent reduction in FFEL recipients during the
       period FY 2012–16 also demonstrates the impact of debt consolidations and refinancing on the
       outstanding portfolio balance.

       Other Credit Program Receivables, Net. TEACH Grants, Perkins loans, and HEAL loans
       make up the third and final segment of Credit Programs Receivable, net that FSA reports on its
       balance sheet. This segment more than doubled during the past five years but still accounted
       for only 0.1 percent of FSA’s total loan portfolio throughout that period and ended September
       2016 with a balance of just $1.5 billion.

                                                    Chart 10: Federal Student Aid Other Loan Portfolio
                                                                  Fiscal Years 2012–16
                                                                      (Dollars in Millions)
                  Credit Program Receivables, Net




                                                    $800
                                                    $700
                                                    $600
                                                    $500
                                                    $400
                                                    $300
                                                    $200
                                                    $100
                                                      $0
                                                            FY 2012       FY 2013        FY 2014     FY 2015    FY 2016
                  TEACH Grant Program                         $344         $453               $536    $631       $691
                  Perkins Loan Program                        $351         $369               $387    $410       $449
                  HEAL                                         $-            $-               $115    $123       $336


       12
         Recipients in Millions for FY 2012–16 are based on data published by the FSA Data Center, at:
       https://studentaid.ed.gov/sa/about/data-center/student/portfolio.


       Page 40                                                                        Federal Student Aid FY 2016 Annual Report
                                                                                   Financial Analysis


The TEACH program comprised $691 million of the “Other” loan portfolio, representing
46.8 percent of the September 2016 balance and $347 million or 44.4 percent of the increase in
the “Other” category over the past five years.

The Perkins program accounted for 30.4 percent of the September 2016 “Other” loan portfolio
balance, but only 12.5 percent of the “Other” category increase over the FY 2012–16 period.

The HEAL program, transferred to the Department and FSA from the U.S. Department of Health
and Human Services in FY 2014, reported a September 2016 ending balance of $336 million.
This represented an increase of $213 million compared to the prior-year, mostly due to
elimination of the $193 million Loan Guaranty Liability together with a reduction in the allowance
for subsidy ($28 million).

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 show in Chart 11, as of September 30, 2016, FSA reported
a Fund Balance with Treasury amount of $60.4 billion of which about 49 percent or $29.4 billion
represented general funds. Revolving funds comprised most of the remaining 51 percent or
$31.0 billion, derived from borrowings, as well as collections from the public and other federal
agencies. FSA also reported $15 million in Special funds (including fees collected on delinquent
or defaulted Perkins loans) that accounted for only 0.2 percent of the total.

                          Chart 11: Fund Balance with Treasury
                                     Fiscal Year 2016
                           (Amount in millions and percentage of total)

                                                  Special Funds
                                                       0%




                                 Revolving Funds
                                     $30,959     General Funds
                                      51%           $29,384
                                                     49%




The September 30, 2016 Fund Balance with Treasury amount was 11.2 percent below that at
FY 2015 year-end, a $7.6 billion decrease. The decrease was principally attributable to
increased activities in the Direct Loan program which decreased the year-end balance by
$7.9 billion. Activities included reduced net new borrowings compared to the prior year
($20.4 billion), increased net interest payments to Treasury ($2.9 billion) and increased
disbursements to borrowers ($1.3 billion) offset by increased collections ($8.5 billion). The
account beginning balance was also higher by $5.7 billion, accounting for most of the remaining
year-on-year variation. A further reduction of almost 1.0 billion was attributable to the combined
Perkins Loan and Grants Programs due to decreased program funding and reduced collections


Federal Student Aid FY 2016 Annual Report                                                 Page 41
Financial Analysis


       of defaulted Perkins principal and grant overpayments, net of a decrease in Pell Grant
       Disbursements and increased collection of miscellaneous receipts during FY 2016. These
       overall decreases were offset by FFEL-related activity ($1.2 billion increase), as a net result of
       where collections of principal, interest, and fees ($25.3 billion) and subsidy appropriations and
       borrowings ($1.6 billion) were offset by default claim payments ($6.8 billion), debt repayments
       ($8.6 billion), interest payments to Treasury ($5.0 billion), subsidy-related transactions
       ($2.5 billion) and other activity ($2.9 billion). Please refer to Note 3 for more details

       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, 2016, FSA
       had total liabilities of $1.1 trillion, an increase of $72.9 billion or 6.8 percent over the
       September 30, 2015 total, a higher rate of increase than the 4.7 percent growth in FSA’s total
       assets.

       Debt. With a September 30, 2016 balance of $1.1 trillion, FSA’s debt is the primary component
       of its liabilities, accounting for 98.9 percent of the total. FSA borrows funds from Treasury to
       support the disbursement of new loans, and for the payment of credit program outlays and
       related costs. FSA then makes repayments after considering its cash position and liability for
       future cash outflows, as mandated by the Federal Credit Reform Act of 1990. The net impact of
       these activities on the outstanding debt portfolio are illustrated for the Direct Loan and FFEL
       Programs in Charts 12 and 13.


                                  Chart 12: Direct Loan Program Net Financing Activity
                                                   Fiscal Years 2012–16
                                                    (Dollars in Billions)

                         $200
                         $150
                         $100
                          $50
                             $0
                         -$50
                        -$100
                                      FY 2012       FY 2013           FY 2014      FY 2015       FY 2016
                 Borrowing             $175.9        $177.7            $171.2       $159.7        $147.0
                 Repayments            $(18.9)      $(28.7)           $(50.6)      $(68.7)        $(62.6)
                 Accrued Interest        $-           $-                    $-       $-             $-
                 Net Change            $157.0       $149.0             $120.6       $90.9         $84.4



       FSA’s FY 2016 Debt ending balance was also 7.2 percent above the prior year amount,
       continuing the trend of increasing debt levels seen over the past five years. The Direct Loan
       program, as shown in Chart 14, was the principal debt component throughout the FY 2012–16
       period, and ended FY 2016 with a $994.3 billion balance, 9.3 percent above the prior year
       amount, representing 88.3 percent of total debt. Direct Loan net financing activity (Chart 12)
       also accounted for most of the overall increase in FSA’s outstanding debt level during the same
       five years. By comparison, in the absence of any borrowing for new loan disbursements, FFEL-
       related debt decreased consistently from FY 2012–16 (Chart 13). These changes in net


       Page 42                                                      Federal Student Aid FY 2016 Annual Report
                                                                                    Financial Analysis


financing activity for Direct Loan and FFEL programs reflect the impact of the SAFRA Act on
disbursements, interest-rate driven loan consolidations, and related changes in estimated
subsidy costs.

                           Chart 13: FFEL Loan Program Net Financing Activity
                                          Fiscal Years 2012–16
                                            (Dollars in Billions)

                 $20
                 $15
                 $10
                  $5
                  $0
                 -$5
                -$10
                -$15
                -$20
                               FY 2012      FY 2013           FY 2014    FY 2015      FY 2016
        Borrowing               $17.2        $2.1              $2.0       $2.6         $0.2
        Repayments              $(6.1)      $(14.3)            $(8.6)     $(8.6)       $(8.6)
        Accrued Interest         $-           $-                    $-      $-           $-
        Net Change              $11.0       $(12.2)            $(6.6)     $(6.0)       $(8.4)




                            Chart 14: Comparison of Federal Student Aid Debt
                                         Fiscal Years 2012–16
                                            (Dollars in Billions)

            $1,200

            $1,000

               $800

               $600

               $400

               $200

                     $0
                              FY 2012      FY 2013           FY 2014     FY 2015      FY 2016
        DL Program             $549.3       $698.4            $819.0      $909.9       $994.3
        FFEL Program           $164.6       $152.4            $145.8     $139.8        $131.3
        Other (TEACH)           $0.4         $0.5              $0.6       $0.6          $0.7
        Total Debt             $714.3       $851.3            $965.4     $1,050.3     $1,126.3




Federal Student Aid FY 2016 Annual Report                                                 Page 43
Financial Analysis


       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 exchange (i.e. earned) revenues earned from its activities. Gross cost is composed of the
       cost of credit programs, grant programs, and operating costs. Exchange revenues are primarily
       interest earned on credit program loans.
                                   Chart 15: Composition of FSA Net Cost
                                            Fiscal Years 2012–16
                                                (Dollars in Billions)

                         $100
                          $80
                          $60
                          $40
                          $20
                            $-
                         $(20)
                         $(40)
                         $(60)
                                   FY 2012        FY 2013          FY 2014     FY 2015       FY 2016
                 Gross Costs        $36.0          $13.3            $65.5       $59.5         $93.0
                 Earned Revenue    $(25.3)        $(26.7)          $(29.0)     $(31.5)       $(34.2)
                 Net Costs          $10.7         $(13.4)           $36.5       $28.0         $58.8


       As shown in Chart 15, FSA reported net costs for the year ended September 30, FY 2016 of
       $58.8 billion, compared to $28.0 billion for the twelve months ended September 30, FY 2015. In
       other words, FSA’s total costs exceeded its earned revenues in both years.

       The overall FY 2015–16 change in net costs was the result of a $33.5 billion increase in Gross
       Costs (of which $19.6 billion was attributable to the Direct Loan Program, and $14.4 billion was
       attributable to the FFEL program) offset by a $2.7 billion increase in Earned Revenue (of which
       $2.6 billion was attributable to the Direct Loan Program). Therefore the Direct Loan Program,
       which reported an FY 2016 net cost where Costs exceeded revenues by $16.1 billion,
       contributed $17.0 billion toward the $30.8 billion overall increase in net costs, while the FFEL
       program contributed $14.5 billion.

       Charts 16–20 demonstrate how different FSA programs have contributed to FSA’s total gross
       costs, earned revenues and net costs over the past five fiscal years. Over this period, grants
       programs have made the largest program contribution to total net costs annually, but this
       contribution has declined steadily, from $34.2 billion in FY2012 to only $30.5 billion in the year
       just ended. This contrasts to the net contribution from the direct loan program, which is highly
       variable due to the impact of subsidy transactions. Conversely, the contribution from the FFEL
       program to FSA’s overall net cost has trended decreasingly less negative (i.e. net costs have
       increased) from a negative net cost of $(14.0) billion in FY 2012 to $(3.9) billion in FY 2015 and
       $10.6 billion in FY 2016. The increase in FY 2016 was primarily due to collection rates on
       defaulted FFEL loans being lower than anticipated in FY 2016.




       Page 44                                                  Federal Student Aid FY 2016 Annual Report
                                                                                            Financial Analysis




                           Chart 16: Program Contributions to FSA Net Cost
                                        Fiscal Years 2012–16
                                             (Dollars in Billions)

                       $80

                       $60

                       $40

                       $20

                           $-

                      $(20)

                      $(40)

                      $(60)
                                  FY 2012      FY 2013         FY 2014       FY 2015       FY 2016
          DL Program              $(10.7)      $(39.6)           $8.1         $(0.9)        $16.1
          FFEL Program            $(14.0)       $(8.8)          $(6.0)        $(3.9)        $10.6
          *Grants Programs         $34.2         $33.5          $33.1         $31.4         $30.5
          **Other Programs         $1.2          $1.5            $1.3          $1.4         $1.6
          Total FSA Net Cost       $10.7        $(13.4)         $36.5         $28.0         $58.8
***Grants Programs include Federal Perkins Loan and Grants Programs
***Other Programs Include TEACH, Administrative Programs, Heal (from FY 2014) and Recovery Act (FY2012 only)


                Charts 17: Composition of FSA Direct Loan Program Net Costs
                                    Fiscal Years 2012–16
                                             (Dollars in Billions)

                    $60
                    $50
                    $40
                    $30
                    $20
                    $10
                      $-
                   $(10)
                   $(20)
                   $(30)
                   $(40)
                   $(50)
                                FY 2012       FY 2013          FY 2014        FY 2015         FY 2016
          Gross Costs            $9.9         $(16.9)           $33.3          $27.0           $46.6
          Earned Revenue        $(20.6)       $(22.7)          $(25.2)        $(27.9)         $(30.5)
          Net Costs             $(10.7)       $(39.6)           $8.1           $(0.9)          $16.1




Federal Student Aid FY 2016 Annual Report                                                            Page 45
Financial Analysis




                      Chart 18: Composition of FSA FFEL Loan Program Net Costs
                                         Fiscal Years 2012–16
                                              (Dollars in Billions)

                                     $20
                                     $15
                                     $10
                                      $5
                                      $-
                                     $(5)
                                    $(10)
                                    $(15)
                                    $(20)
                                             FY 2012     FY 2013      FY 2014   FY 2015   FY 2016
                            Gross Costs       $(9.4)      $(4.8)       $(2.2)    $(0.3)    $14.1
                            Earned Revenue    $(4.6)      $(4.0)       $(3.8)    $(3.6)    $(3.5)
                            Net Costs        $(14.0)      $(8.8)       $(6.0)    $(3.9)    $10.6




             Chart 19: Composition of FSA Perkins Loan Program and Grants Net Costs
                                       Fiscal Years 2012–16
                                              (Dollars in Billions)

                          $40
                          $35
                          $30
                          $25
                          $20
                          $15
                          $10
                           $5
                           $-
                          $(5)
                                  FY 2012       FY 2013          FY 2014        FY 2015     FY 2016
                 Gross Costs       $34.3         $33.6            $33.1          $31.4       $30.7
                 Earned Revenue      $-            $-               $-             $-        $(0.2)
                 Net Costs         $34.2         $33.5            $33.1          $31.4       $30.5




       Page 46                                                 Federal Student Aid FY 2016 Annual Report
                                                                                   Financial Analysis




                  Chart 20: Composition of FSA Other Program Net Costs
                                 Fiscal Years 2012–16
                                        (Dollars in Billions)

                   $2
                   $2
                   $1
                   $1
                    $-
                   $(1)
                           FY 2012        FY 2013          FY 2014     FY 2015       FY 2016
         Gross Costs        $1.2           $1.4             $1.3        $1.4           $1.6
         Earned Revenue       $-             $-               $-          $-          $(0.3)
         Net Costs          $1.2           $1.4             $1.3        $1.4           $1.6




The overall change in net costs during the five year period illustrated 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. Updated assumptions in FY 2016 reflect
lower collections on defaulted loans than expected and higher costs of collections due to more
borrowers than anticipated selecting income-based repayment plans that are more costly to
administer in terms of increased loan forgiveness costs. As discussed in Note 5, 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 2016 on the Direct Loan program was a
$21.8 billion upward adjustment of Direct Loan re-estimated subsidy cost compared to a
$4.6 billion downward adjustment for the prior year, an overall increase in the Direct Loan
Program subsidy cost of $26.5 billion. This year-on-year difference was reduced by a
$9.9 billion loan modification cost that occurred in FY2015 only, explaining the overall change in
Direct Loan net costs of $17.0. With respect to the FFEL program, the increased net costs
relates mainly to a $10.2 billion net upward adjustment to the FFEL guaranteed re-estimated
subsidy cost in FY 2016, compared to a $3.9 billion net downward adjustment the prior year.
The net upward re-estimate was primarily due to collection rates on defaulted loans being lower
than anticipated. Please refer to Note 5, for more details.



Federal Student Aid FY 2016 Annual Report                                                 Page 47
Financial Analysis


       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
       and is affected by changes in its two components, cumulative results of operations and
       unexpended appropriations, and 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, 2016 was $1.7 billion negative, a decrease of
       $22.0 billion, or 108 percent compared to the previous September 30 net position of
       $20.3 billion. The difference reflects a decrease in the cumulative results of operations by the
       amount of $20.2 billion, from $(8.0) billion, to $(28.2) billion, of which $(12.6) billion related to
       the Direct Loan Program and a further $7.5 billion was attributable to the FFEL program. In
       addition, unexpended appropriations also decreased by 1.8 billion, of which a $1.8 billion
       decrease was attributable to the combined Perkins Loan and Grants programs.

       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, 2016, FSA had $286.4 billion in combined
       budgetary resources, of which $16.5 billion remained unobligated and not apportioned. This
       compared to $301.6 billion in budgetary resources twelve months earlier of which $15.513 billion
       were unobligated and not apportioned. The $15.2 billion reduction in budgetary resources
       represented a 5.0 percent decrease. The Direct Loan Program accounted for $13.3 billion of
       this reduction, mainly due to a $13.8 billion decrease in appropriation upward subsidy re-
       estimates and modification. There was also another $1.2 billion reduction attributable to the
       Perkins Loan and Grants Programs.

       FSA’s Net Outlays after Distributed Offsetting Receipts as of September 30, 2016 were
       $114.7 billion, a decrease of $6.8 billion or 5.6 percent compared to the prior September 30
       amount of $121.5 billion. The Direct Loan Program accounted for $7.1 billion of this change,
       with an additional $1.9 billion reduction attributable to the combined Perkins Loan, and Grants
       Programs. These combined reductions were offset slightly by a $2.1 billion increase attributable
       to the FFEL Program. Additional information is provided in Note 12.

       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”




       13
        The FY 2015 Annual Report reported $15.9 billion in budgetary resources that were unobligated and not
       apportioned.


       Page 48                                                   Federal Student Aid FY 2016 Annual Report
                                                                                     Financial 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:

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 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.

As of the end of this fiscal year, the House and Senate are proposing to fund Student Aid
Administration loan-servicing activities at $855 million, $44 million short of the level proposed in
the FY 2017 President’s Budget. In addition, the anticipated FY 2017 costs of loan servicing
have increased by $17 million from the point in time when the FY 2017 President’s Budget was
established. This is in part because the Department has been more successful than expected
at keeping borrowers current on their loans, because under the terms of its servicing contracts,
the Department pays higher servicing rates on borrower loans that have a “current” status than
if they are in a delinquent or default status. In addition, more loans than originally forecasted
moved from an “in school” to an “in grace” status, which also resulted in higher overall costs
being incurred. In total, these changes will result in a $61 million loan servicing budget shortfall
that must be cut from other operations, given the risky budgeting process. These cuts would
have devastating impacts on the operations of Federal Student Aid. A few examples are listed
below:

•   Increases the likelihood of a data breach or system intrusion, which would place personally
    identifiable information of over 130 million students and borrowers at risk;

•   Increases the risk of school oversight failures and limits the ability to address school
    oversight challenges for over 6,000 schools;

•   Decreases ability to provide loan servicing oversight necessary to protect over 42 million
    borrowers and limits the ability to address contractor oversight and system implementation
    issues;

•   Increases the risk of a systems infrastructure failure and limits the ability to manage system
    change, which would jeopardize the delivery of over $125.7 billion of aid annually;

•   Decreases transparency to the public and limits the ability to support policy decisions with
    data;

•   Decreases the outreach and awareness efforts to tens of thousands of students that are
    most in need of assistance; and




Federal Student Aid FY 2016 Annual Report                                                      Page 49
Financial Analysis


       •   Eliminates plans to address thousands of Office of Inspector General (OIG) fraud referrals.
           In January 2013, OIG estimated there was $187 million in fraud from student aid fraud rings
           between Award Years 2009 and 2012.

       System/Service Implementations. Recent major system implementation efforts continue to be
       very successful, including the implementation of the FSA Feedback System, the StudentAid.gov
       re-competition, and the Title IV Origination and Disbursement system implementation. 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 servicing, 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.
       In addition, FSA continues to expand needed oversight and monitoring capacity
       throughout its operating environment.

       Improper Payments. Based on OMB criteria, programs susceptible to significant improper
       payments that are administered by FSA include the Direct Loan Program and the Pell Grant
       Program, both of which were designated as “high priority” by OMB. FY 2016 outlays for these
       programs were as follows:

       •   Direct Loan Program: $97.1 billion
       •   Pell Grant Program: $28.2 billion
        In FY 2016, FSA documented and assessed 328 improper payment related controls in its
        internal control framework and found that the risk of improper payments is effectively mitigated.
        FSA has implemented a framework of continuous controls monitoring and process evaluation,
        striving for zero improper payments. While zero percent improper payments is infeasible, that
        continues to be the goal until the Department, working with OMB, can establish the appropriate
        risk tolerance threshold.




       Page 50                                                Federal Student Aid FY 2016 Annual Report
                                                                                    Financial Analysis


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 2016 Agency Financial Report (AFR).

Debt Collection. As of September 30, 2016, the Department managed a Net Credit Program
Receivable portfolio of approximately $1,075.2 billion, an increase of 5.8 percent from
FY 2015. This portfolio includes the 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, 2015, the Department was responsible for administering
83 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.

FSA manages what can sometimes appear to be opposing outcomes of maximizing collections,
while minimizing negative borrower impacts. During FY 2016, FSA saw continued decline in the
portfolio’s three-year default rate, from 11.8 percent reported in FY 2015 for the FY 2012 three-
year cohort default rate to 11.3 percent reported in FY 2016 for the FY 2013 three-year cohort
default rate. FSA also increased its collection rate from $51.58 to $53.07. This demonstrates
continued progress in default rate reductions, while increasing the efficiency of funds spent on
collections and maintaining customer satisfaction along the entire aid lifecycle. More
information on FSA’s performance, as it relates to debt collection, can be found in the Annual
Performance Report section of this Annual Report.

While FSA is proud of these outcomes, the very size of the Federal student loan portfolio
presents a significant financial management risk to the Federal government. Therefore, FSA
continuously seeks to improve on these results. For example, FSA has been developing new
collection cost analysis to break this collection rate metric down by collection channel. This
more detailed performance metric will assist FSA, the Department, and the federal government
in making more informed debt collection decisions.

Guaranteed Loan Portfolio. As of September 30, 2016, the $259.2 billion guaranteed loan
portfolio (non-ECASLA FFEL) included principal balances owned by private lenders and the
guaranty agencies, and principal, interest and fees held by FSA (unassigned serviced by
guaranty agencies or assigned serviced by FSA). This is an overall decrease of 7.8 percent in
the guaranteed FFEL portfolio since the end of last fiscal year. Because the SAFRA Act ended
the origination of new 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 student loan
reserve funds (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.




Federal Student Aid FY 2016 Annual Report                                                  Page 51
Analysis of Systems, Controls, and Legal Compliance




            Analysis of Systems, Controls, and Legal Compliance

       FSA management adheres to the 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 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 controls should provide reasonable assurance that the objectives of the agency are
       being achieved in the following categories:

       •     Effective and efficient 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. 14

       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 and annually assessing 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 Enterprise Risk Management and
       Internal Control (OMB Circular A-123). On July 15, 2016, OMB updated OMB Circular A-123 to
       include requirements for Enterprise Risk Management. FSA is coordinating with the
       Department and internally on plans to execute these requirements in FY 2017. For example,
       FSA’s Chief Risk Officer and Chief Financial Officer are collaborating to leverage the Circular A-
       213 internal control assessment to identify financial and non-financial risks and to assist with
       building out the organization’s risk profile.

       Based on the results of this year’s assessment, FSA reported to the Department’s management
       that its internal control over operations, including internal controls intended to prevent, detect
       and recover improper payments, and compliance with applicable laws and regulations, for the
       year ended September 30, 2016, was operating effectively, except where noted in the Legal
       Compliance section of the Department’s AFR.




       14
           Government Accountability Office Standards for Internal Control in the Federal Government, GAO-14-704G, Sep 10, 2014, p.5.




       Page 52                                                                 Federal Student Aid FY 2016 Annual Report
                                    Analysis of Systems, Controls, and Legal Compliance



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*
•   Student Eligibility Service Group
•   Direct Loan Origination
•   Student Eligibility
•   Grant Program Operations (Pell Grant and TEACH*)
•   Financial Reporting (Analytics, Monthly Reconciliations, Preparation of FSA Annual Report,
    and Year-End Closing)
•   Funds Control Management (Automated Budget Entries, Budget Execution, Budget
    Formulation, Cross Validation Rules, Summary Templates, and Segment Value Updates)
•   Procurement Management (Contract Acquisition, Purchase cards, and Monthly Contract
    Accruals)
•   Human Resource Management (Time and Attendance, Personnel Transactions, and
    Personnel Security Management)
•   Servicing of Direct Loans and ECASLA-acquired FFEL Program Loans by four Title IV
    Additional Servicers (TIVAS)* and five Not-For-Profits (NFPs)*
•   Federal Perkins Loans*
•   Servicer Oversight
•   Borrower Defense
•   Entity-Level Controls
•   Information Technology Controls over the following systems: Financial Management
    System, Debt Management and Collections System*, Access and Identity Management
    System, Financial Partners Data Mart, Person Authentication Service, Participation
    Management, Student Aid Internet Gateway, Common Origination Disbursement*, the
    Virtual Data Center*, four TIVAS Servicing Systems*, five NFP Servicing Systems*, and the
    Federal Perkins Loan Servicing System*.

In FY 2016, 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 SSAE16 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 2016 was 1,245 process and entity level controls. As illustrated in Chart 21, the breakdown
of this total number of key process controls assessed includes 850 controls covered by SSAE
16 SOC1s and 395 tested by the FSA self-assessment team. FSA utilizes a three-year rotation
plan as part of its A-123 framework to identify and test controls. This allows for a focused
approach on high-risk areas, while ensuring all controls are covered over a three year period.
As such, there was a decrease in the total number of controls assessed for operating
effectiveness, and consequently a decrease in identified deficiencies for the associated controls.
The table below illustrates the total number of controls assessed and deficiencies identified over
a three-year period. The number of deficiencies depicted below for FY 2016 (45) includes
deficiencies identified from both SSAE16 SOC1 reports (27) and A-123A testing (18). These


Federal Student Aid FY 2016 Annual Report                                                 Page 53
Analysis of Systems, Controls, and Legal Compliance


       deficiencies individually and taken together do not materially affect financial reporting.
       Corrective actions are in the process of being finalized to prevent reoccurrence and ensure
       control objectives are achieved.


          Chart 21: FSA A-123A Process and Entity Level Controls and Deficiencies Analysis
                                      Fiscal Years 2014–16

                                     1000
                                      900                                                               850
                                                                                  822
                                      800
                                      700                623
                                      600
                                      500                              470
                                              413                                            395
                                      400
                                      300
                                      200
                                      100           47         33            28         38                    27
                                                                                                   18
                                        0
                                                    FY 2014                  FY 2015               FY 2016
            Controls Tested by A-123A Team            413                      470                   395
            A-123A Deficiencies Identified            47                       28                    18
            Controls Tested by SSAE16 SOC1s           623                      822                   850
            SSAE16 SOC1 Deficiencies                  33                       38                    27


       As illustrated in Chart 22, the total number of IT controls subject to assessment increased from
       FY 2015 to FY 2016. This increase is the result of several additional systems being included in
       the scope for testing of operating effectiveness for FY 2016. The total number of IT controls
       assessed was 1,760 and includes 1,246 controls covered by SSAE16 SOC1s and 514 tested by
       the FSA self-assessment team. The number of deficiencies depicted below for FY 2016 (57)
       includes deficiencies identified from both SSAE16 SOC1 reports (26) and A-123A testing (31).
       The number of controls assessed increased, as did the total number of deficiencies identified in
       FY 2016. These deficiencies individually and taken together do not materially affect financial
       reporting. Corrective actions are in the process of being finalized to prevent reoccurrence and
       ensure control objectives are achieved.




       Page 54                                                      Federal Student Aid FY 2016 Annual Report
                                            Analysis of Systems, Controls, and Legal Compliance




                   Chart 22: FSA A-123A IT Controls
                                            FSA     and Deficiency Analysis
                                    Fiscal Years 2014–16



                                     3000    2797

                                     2500
                                                                                         2043
                                     2000                          1848
                                                1607
                                     1500                             1258                      1246

                                     1000
                                                                                                  514
                                      500            401                  326
                                                           26 18                 16 26                  31 26
                                        0
                                                    FY14                  FY15                   FY16
     Total IT Controls                              2797                  1848                   2043
     SSAE16 Assessed IT Controls                    1607                  1258                   1246
     A-123 Tested IT Controls                       401                   326                     514
     A-123 Deficiencies Identified                   26                    16                     31
     SSAE16 SOC1 Deficiencies Identified             18                    26                     26


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, 2016
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 FY 2016 Annual Report                                                                Page 55
Limitations of Financial Statements




         Limitations of Financial Statements

       Management has prepared the accompanying financial statements to report the financial
       position and operational results for FSA, for FY 2016 and FY 2015 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.




          Page 56                                          Federal Student Aid FY 2016 Annual Report
                                                  Annual Performance Report




   Annual Performance Report




• Overview of the Annual Performance Report

• FY 2016 Performance Highlights of Federal Student Aid

• Introduction to the Annual Performance Report

• Performance Results by Strategic Goal

       o   Strategic Goal A
       o   Strategic Goal B
       o   Strategic Goal C
       o   Strategic Goal D
       o   Strategic Goal E

• FY 2016 Accomplishments of Federal Student Aid

• Legislative and Regulatory Recommendations

• Annual Bonus Awards

• Report of the Federal Student Aid Ombudsman




Federal Student Aid FY 2016 Annual Report                        Page 57
Overview of the Annual Performance Report



                  Overview of the Annual Performance Report

      This section highlights information on the Federal Student Aid’s performance, financial
      statements, systems and controls, compliance with laws and regulations, and actions taken or
      planned to address select challenges.

      The Annual Performance Report of and the FSA Annual Report provides information on FSA’s
      progress in achieving the goals and objectives described in the Strategic Plan. It includes
      sections listed below.

      Introduction to the Annual Performance Report
      This subsection introduces the readers to the FSA’s Annual Performance Report and the
      subsequent performance metrics. It provides a summary of the performance metrics, the
      targets, and the actual performance results for the fiscal year.

      Performance Results by Strategic Goal
      This subsection details the results of the each overall strategic goal by performance metric.
      Each performance metric includes a table that presents five years of data results, where
      available, its current target and results. The performance metric section also includes a
      discussion of the metric’s target context, analysis of progress and data quality limitations.

      FY 2016 Accomplishments of Federal Student Aid
      The subsection describes additional accomplishments that were not measured specifically by
      the performance metrics included in the Strategic Plan, but were the result of initiatives that FSA
      undertook to support the implementation of the Strategic Plan or legislative changes.

      Legislative and Regulatory Recommendations
      This subsection details legislative and regulatory recommendations that FSA provided to the
      Department in support of the Department’s regulatory activities.

      Annual Bonus Awards
      This subsection discusses executive compensation at FSA in compliance with the legislative
      requirements under the PBO legislation that originated FSA.

      Report of the Federal Student Aid Ombudsman
      The Report of the Federal Student Aid Ombudsman is a required section that discusses its
      activities in accomplishing its statutory mission of addressing complaints about the Title IV
      financial aid programs.




      Page 58                                                Federal Student Aid FY 2016 Annual Report
                                                                     FY 2016 Performance Highlights



       Table 1: Fiscal Year 2016 Performance Highlights of
                        Federal Student Aid

               Performance Metrics                      FY 2016         FY 2016       Result   Reference
                                                         Target          Actual                  Page
 Strategic Goal A: Improve quality of service for customers across the entire student aid life cycle.

 A.1 Percent of First-Time FAFSA Filers among
    High School Seniors
                                                     59.5%–61.5%         57.5%                    64

 A.2 Persistence among First-Time Filing Aid
     Recipients
                                                     78.5%–80.5%         79.7%                    65


 A.3 Customer Visits to StudentAid.gov               >=43.4 million    47.2 million               66


 A.4 Social Media Channel Subscribership                >454,000        528,251                   67


 A.5 ACSI Aid Life Cycle Surveys                           74             70.4                    68

 Strategic Goal B: Proactively manage the student aid portfolio to mitigate risk.

 B.1 Improper Payment Rate                                N/A            4.85%         N/A         69


 B.2 Percent of Borrowers > 90 days Delinquent            9.9%            8.8%                    71

 Strategic Goal C: Improve operational efficiency and flexibility.

 C.1 Aid Delivery Costs per Application                  $13.11          $11.53                   72

C.2 Outstanding Direct Loan Portfolio in Current
    Repayment Status
                                                         85.3%           85.4%                    73

 Strategic Goal D: Foster trust and collaboration among stakeholders.

 D.1 Ease of Doing Business with FSA                   74.3–77.3          72.3                    75

 D.2 Percentage of Contract Dollars Competed by
     FSA
                                                     89.3%–91.3%         92.9%                    76


 D.3 Collection rate                                     $51.79          $53.07                   77

 Strategic Goal E: Invest in expanded workforce capability.

 E.1 Employee Engagement Index                       66.9%–68.9%         67.4%                    78




Federal Student Aid FY 2016 Annual Report                                                      Page 59
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 2015–19 was implemented at the beginning
      of FY 2016. This plan builds on the previous strategic plan by clarifying FSA’s objectives and
      updating organizational performance standards to reflect more clearly its progress in meeting
      the stated objectives. The strategic goals are as follows:

         •   Strategic Goal A: Improve quality of service for customers across the entire student aid
                               life cycle.
         •   Strategic Goal B: Proactively manage the student aid portfolio to mitigate risk.
         •   Strategic Goal C: Improve operational efficiency and flexibility.
         •   Strategic Goal D: Foster trust and collaboration among stakeholders.
         •   Strategic Goal E: Invest in expanded workforce capability.

      The table on the following page presents the current strategic plan and the objectives linked to
      each strategic goal. 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 2015–19.

                              StudentAid.gov/strategic-planning-reporting




      Page 60                                               Federal Student Aid FY 2016 Annual Report
                                                         Introduction to the Annual Performance Report



                                       FSA Strategic Plan, FY 2015–19

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

                                                        Vision
To be the most trusted and reliable source of student financial aid, information, and services in the nation
                  Strategic Goals                                                  Objectives
                    Strategic Goal A                         A.1: Improve outreach and awareness efforts to support
                                                                  aid recipients and their families in making sound
Improve quality of service for customers across the entire        financial decisions.
                   student aid life cycle.                   A.2: Optimize the borrower service model to improve the
                                                                  customer experience.
                                                             A.3: Predict, identify, and understand existing and
                                                                  emerging customer trends and patterns
                                                             A.4: Enhance outreach, t4raining and tools to improve
                                                                  institutional performance and help postsecondary
                                                                  institutions understand responsibilities and
                                                                  requirements under the Higher Education Act.


                    Strategic Goal B                         B.1: Enhance analytical and research capabilities to
                                                                  proactively identify operational and reputational
 Proactively manage the student aid portfolio to mitigate         risk.
                         risk.                               B.2: Develop robust, data-driven processes to manage
                                                                  identified risks.
                                                             B.3: Provide access to resources to protect students
                                                                  and families from unfair, deceptive or fraudulent
                                                                  practices in the student aid marketplace.


                    Strategic Goal C                         C.1: Link disparate data sources to improve cross-
                                                                  organizational information exchange.
      Improve operational efficiency and flexibility.        C.2: Refine acquisition management to ensure that
                                                                  services and products are consistent with business
                                                                  objectives.
                                                             C.3: Enhance governance processes to support
                                                                  enterprise decision-making.
                                                             C.4: Strengthen FSA’s information technology (IT)
                                                                  systems’ security.


                    Strategic Goal D                         D.1: Engage with stakeholders to be the most trusted
                                                                  and reliable source of information on federal
   Foster trust and collaboration among stakeholders.             student aid.
                                                             D.2: Provide timely and proactive communication to
                                                                  promote accurate, consistent messaging on federal
                                                                  funding of postsecondary education.
                                                             D.3: Promote transparency and accountability within
                                                                  FSA and across the higher education environment.


                    Strategic Goal E                         E.1: Create an enterprise-wide workforce plan to attract,
                                                                  develop, and retain employees with the skills
Invest in expanded workforce capability                           required to meet evolving business needs.
                                                             E.2: Develop a succession planning strategy to identify
                                                                  and create opportunities for future leadership talent.




Federal Student Aid FY 2016 Annual Report                                                                     Page 61
Introduction to the Annual Performance Report



      The following table provides a summary of results, by Strategic Goal, as measured by the
      FY 2016 performance metrics.

                  Table 2: Summary of Performance Results by Strategic Goal

      Strategic Goal                                                  Met     Not met   No target   N/A   Total

      Goal A:
      Improve quality of service for customers across the entire       3         2         –         –         5
      student aid life cycle.
      Goal B:
      Proactively manage the student aid portfolio to mitigate         1         –         –         1         2
      risk.

      Goal C:
                                                                       2         –         –         –         2
      Improve operational efficiency and flexibility.

      Goal D:
                                                                       2         1         –         –         3
      Foster trust and collaboration among stakeholders.

      Goal E:
                                                                       1         –         –         –         1
      Invest in expanded workforce capability


      Total                                                            9         3         –         1     13




      Page 62                                                      Federal Student Aid FY 2016 Annual 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, 2016)
     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 FY 2016 Annual Report                                                      Page 63
Performance Results by Strategic Goal


       Strategic Goal A: Improve quality of service for customers across the
                         entire student aid life cycle.


          Table 3: Performance Metric A.1: Percent of First-Time FAFSA Filers among High
                                           School Seniors

       Fiscal Year                Target          Actual         Target Achieved    Performance Result

       FY 2016                 59.5%–61.5%        57.5%                                 Not met

       FY 2015                 59.1%–61.1%         60.5%                                  Met

       FY 2014                 58.8%–60.8%         60.1%                                  Met

       FY 2013                 52.0%–54.0%         52.2%                                  Met

       FY 2012                    >=52%            54.0%                                  Met

       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 high school seniors who successfully file a FAFSA as a first step in furthering their
       education beyond the secondary level.

       Analysis of Progress:
       FSA did not meet its target for this metric with a result of 57.5 percent.

       The primary reason for the decrease is not that the number of high school seniors completing a
       FAFSA went down (in fact, the number of seniors filing a FAFSA went up by approximately
       6,000) but rather that National Center for Education Statistics (NCES) significantly increased the
       number of high school seniors they projected. Thanks to an unprecedented FSA awareness
       and outreach campaign and strong partnerships with college access organizations across the
       nation, instead of seeing the number of high school seniors who filed a FAFSA shrink, which
       was expected with improving economic conditions and shrinking college enrollment, the number
       of seniors who filed a FAFSA increased. FSA will continue to analyze the increasing number of
       graduating high school seniors to determine how it might more effectively target the outreach
       and awareness efforts to grow the number of first-time FAFSA filers at the same pace as the
       growing number of high school graduates.

       Data Quality and Limitations:
       The denominator is the number of graduating high school seniors according to the most recent
       projection by NCES. 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 50 states and
       Washington, DC.


       Page 64                                                 Federal Student Aid FY 2016 Annual Report
                                                           Performance Results by Strategic Goal




Table 4: Performance Metric A.2: Persistence among First-Time Filing Aid Recipients

Fiscal Year                Target          Actual         Target Achieved      Performance Result

FY 2016                 78.5%–80.5%         79.7%                                    Met

FY 2015                 78.6%–80.6%         79.5%                                    Met

FY 2014                 77.5%–79.5%         79.6%                                    Met

FY 2013                                                                               N/A
                           Performance metric established in FY 2014
                                  Prior-year data not available
FY 2012                                                                               N/A

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 met its target for this metric with a result of 79.7 percent.

FSA has continued the expansion of outreach initiatives to improve persistence levels among
aid filers. The increased efforts related to outreach and digital engagement campaigns have
resulted in FSA exceeding its target for a third consecutive year.

Data Quality and Limitations:
The denominator is the number of first-time FAFSA filers in the previous cycle with a program or
degree length greater than one year that received aid for that award year (grants and/or loans).
The numerator is the number of 2014–15 return applicants (by September 30 of the first year of
the application cycle) that were identified in the denominator.




Federal Student Aid FY 2016 Annual Report                                                   Page 65
Performance Results by Strategic Goal




                 Table 5: Performance Metric A.3: Customer Visits to StudentAid.gov

       Fiscal Year                Target          Actual         Target Achieved    Performance Result

       FY 2016                 >=43.4 million    47.2 million                              Met

       FY 2015                 >=32.7 million    43.3 million                              Met

       FY 2014                 >=30.7 million    32.7 million                              Met

       FY 2013                                                                              N/A
                                   Performance metric established in FY 2014
                                          Prior-year data not available
       FY 2012                                                                              N/A

       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 become the most trusted source for accurate and
       accessible student aid information for Americans nationwide.

       Analysis of Progress:
       FSA met its target with a result of 47.2 million.

       FSA continued to exceed its target on this metric again in FY 2016 with a result of 47.2 million
       customer visits. This represents a more than 9 percent increase in visits over the prior year.

       FSA’s performance on this metric is a testament to the success of its effort to consolidate
       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.

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




       Page 66                                                  Federal Student Aid FY 2016 Annual Report
                                                         Performance Results by Strategic Goal




          Table 6: Performance Metric A.4: Social Media Channel Subscribership

Fiscal Year               Target          Actual        Target Achieved      Performance Result

FY 2016                  >=454,000        528,251                                  Met

FY 2015                  >=368,000        454,066                                  Met

FY 2014                  >=296,000        368,042                                  Met

FY 2013                                                                             N/A
                           Performance metric established in FY 2014
                                  Prior-year data not available
FY 2012                                                                             N/A

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 met its target with a result of 528,251.

FSA greatly exceeded its target on this metric for the third year in a row, with over 528 thousand
subscribers to Facebook, Twitter, and YouTube social media channels. FY 2016 results show a
16 percent increase from FY 2015.

In today’s information age, digital media techniques are becoming increasingly critical for
effective customer engagement. Over the past several years, 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.

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 FY 2016 Annual Report                                                 Page 67
Performance Results by Strategic Goal




                     Table 7: Performance Metric A.5: ASCI Aid Life Cycle Surveys

       Fiscal Year                Target           Actual        Target Achieved      Performance Result

       FY 2016                      74              70.4                                  Not met

       FY 2015                   77.4–79.4          77.2                                  Not met

       FY 2014                   77.4–79.4          78.4                                     Met

       FY 2013                     78.0             78.4                                     Met

       FY 2012                     >=78             78                                       Met



       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 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 did not meet its target for this metric with a result of 70.4.

       FSA has seen a shift in scores following last year’s changes to the method used to conduct
       customer satisfaction surveys. The change from live interviewers to an online survey has
       produced lower satisfaction levels than past years. This is in line with longstanding findings in
       survey research regarding “social desirability bias”—the tendency of respondents to want to
       give live interviewers answers that are less conflictual, more like the ones they are “supposed”
       to give, in order to seem appealing to the interviewer. In the context of satisfaction research,
       this typically means that respondents will give higher ratings to live interviewers than they will on
       online forms. In FSA’s experience with the methodology used, scores tend to run 3–5 points
       lower on the 0 to 100 point scale that FSA uses though in some cases the effect is more
       extreme (e.g., 10-point declines or more). FSA is working to recalibrate its approach to ensure
       that this target can be met and exceeded in the future.”

       Data Quality and Limitations:
       The American Customer Satisfaction Index (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.




       Page 68                                                  Federal Student Aid FY 2016 Annual Report
                                                                  Performance Results by Strategic Goal



Strategic Goal B: Proactively manage the student aid portfolio to mitigate
                  risk.


                   Table 8: Performance Metric B.1: Improper Payment Rate

                                                                                                 Performance
Fiscal Year                   Target            Actual              Target Achieved
                                                                                                    Result
FY 2016                         N/A              4.85%                     N/A                       N/A

FY 2015                       1.65%
                                      1
                                                2.38%
                                                        15
                                                                                                  Not Met

FY 2014                                                                                              N/A
                                    Performance metric revised in FY 2015
FY 2013
                             Prior-year data not available under revised method.
                                                                                                     N/A

FY 2012                                                                                              N/A

Target Context:
FSA develops and reports annually in the AFR improper payment estimates for programs
determined to be susceptible to significant improper payments. The Improper Payment Rate
metric is a single ‘blended’ rate that divides aggregated estimated improper payments for all
programs identified as risk-susceptible for that year by aggregated estimated program outlays.
In FY 2015 and 2016, FSA identified the Pell Grant and Direct Loan programs as risk-
susceptible.

FSA convened a working group in 2016 with OIG and OMB participating in an advisory capacity
to identify, evaluate, and implement improvements to the baseline estimation methodology to
address improper payment risks not previously incorporated. At the time 2016 targets were set,
it was known that the estimation methodology would change, but not the impact. Accordingly,
no target was set for this measure for 2016.

Analysis of Progress:
As noted above and below, the underlying improper payment estimates were calculated using
an alternative methodology that was modified from the prior year to include new risks and data
sources.

The increase in the improper payment rate over the prior year can be attributed to changes to
and the imprecision of the alternative methodology, as opposed to a control failure or increase
in actual improper payments in the underlying programs. Nevertheless, FSA continues to
enhance its internal control framework to prevent and detect improper payments. For more
information on FSA’s improper payment program, including improper payment related internal
controls for the Pell and Direct Loan programs please see the Other Information section of the
Department’s AFR.
15
 The FY 2015 improper payment Target and Actual rates reported in the table above reflect the corrected improper
payment rates for FY 2015 as determined by the FY 2015 IPERA Compliance Audit Report published by OIG on
May 10, 2016. The corrected improper payment rates are prepared in accordance with the alternative sampling and
estimation methodology approved by OMB as of October 20, 2015. The rate reported in FSA’s FY 2015 Annual
Report was 1.44 percent.


Federal Student Aid FY 2016 Annual Report                                                               Page 69
Performance Results by Strategic Goal


       Data Quality and Limitations:
       The OMB-approved FY 2016 improper payment estimation methodology is an alternative, as
       opposed to 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 FY 2016 alternative methodology includes improvements over the prior year incorporating
       risks and sources previously not incorporated. These changes help improve the accuracy and
       completeness of the estimates.




       Page 70                                             Federal Student Aid FY 2016 Annual Report
                                                        Performance Results by Strategic Goal




     Table 9: Performance Metric B.2: Percent of Borrowers >90 Days Delinquent

Fiscal Year                Target          Actual      Target Achieved      Performance Result

FY 2016                     9.9%            8.8%                                 Met

FY 2015                    10.4%            9.8%                                 Met

FY 2014                                                                           N/A
                             Performance metric revised in FY 2015
FY 2013
                      Prior-year data not available under revised method.
                                                                                  N/A

FY 2012                                                                           N/A

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 result of 8.8 percent.

Reducing the percent of borrowers with loans in a delinquent status has been a major goal of
FSA, and success in this metric reflects FSA’s accomplishments in this area. Increased
utilization of income-based repayment plans and borrower awareness campaigns have helped
FSA build on the improvements in FY 2015 and continue to reduce delinquency. The number of
accounts between 90 and 270 days delinquent was 10 percent lower than anticipated, while the
number of accounts in repayment was about 1 percent higher than expected.

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 each year and divides this number by the average
number of borrowers in active repayment for the year.

This calculation was adjusted in FY 2015 to better measure all pre-default accounts over
90 days delinquent relative to all accounts where payments are anticipated. The previous
FY 2014 target and result were both 8.1 percent.




Federal Student Aid FY 2016 Annual Report                                               Page 71
Performance Results by Strategic Goal



       Strategic Goal C: Improve operational efficiency and flexibility.




                 Table 10: Performance Metric C.1: Aid Delivery Costs per Application

       Fiscal Year                Target          Actual         Target Achieved      Performance Result

       FY 2016                    $13.11             $11.53                                  Met

       FY 2015                    $12.28             $10.73                                  Met

       FY 2014                    $11.94             $11.43                                  Met

       FY 2013                    $11.23          $11.16                                     Met

       FY 2012                    $10.90          $10.85                                     Met




       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. Following the
       trends of prior fiscal years, the FY 2016 target expected FY 2016 costs to be somewhat higher
       than previous years. This rise is attributed to the Base Fixed Cost portion of the originations
       contract, which contains a 4–8 percent annual increase built into the multi-year contract

       Analysis of Progress:
       FSA met its target with a result of $11.53.

       Actual costs were 11 percent lower than projected due to a delay in incurring costs associated
       with newly negotiated call center services. The number of applications was essentially the
       same as forecasted.

       It is anticipated that the FY 2017 results will be significantly higher due to complexities with the
       new call center contracts.

       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.




       Page 72                                                 Federal Student Aid FY 2016 Annual Report
                                                           Performance Results by Strategic Goal




Table 11: Performance Metric C.2: Outstanding Direct Loan Portfolio in Current
                                  Repayment Status

Fiscal Year                Target          Actual        Target Achieved     Performance Result

FY 2016                    85.3%           85.4%                                    Met

FY 2015                                                                              N/A

FY 2014                                                                              N/A
                             Performance metric revised in FY 2016
                       Prior-year data not available under revised method
FY 2013                                                                              N/A

FY 2012                                                                              N/A

Target Context:
For FY 2016, FSA made the decision to establish a new metric to demonstrate efforts at
efficient and effective Direct Loan servicing. The former C2 metric “Loan servicing cost per
borrower” relied on an inverse relationship between cost and borrower status. Servicing costs
are higher for current borrowers than those in delinquency. Due to this inverse relationship, FSA
cost “exceeding” established goals for loan cost per borrower was actually a sign of success in
increasing the percentage of portfolio dollars in a current repayment status. A new metric was
needed that could more easily demonstrate an increase or decrease in the percentage of FSA
loan portfolio dollars in a current status.

FSA created the C2 metric and established the corresponding target in the second quarter of
FY 2016. The metric determines the percentage of Direct Loan principal and Interest identified
as being in an “active repayment” status that is considered “current”. For the purpose of the
metric, loans are defined as being in “Active Repayment Status” if they are being serviced by a
non-default servicer, payments have not been temporarily suspended (in school/grace or
deferment/forbearance) and if they have not been identified as being in non-defaulted
bankruptcy, at the default servicer or otherwise excluded (e.g. due to TPD disability). Direct
Loans are further categorized as being “current” if it is no more than 30 days have passed since
the next payment date.

Using the average percentage change (0.35 percent) in the four-quarter moving averages from
the preceding eight quarters, an FY 2016 fourth quarter target was set at 85.3 percent. To meet
the target would require a continued 0.35 percent increase in portfolio dollars current through
the third and fourth quarters of FY 2016.

Analysis of Progress:
FSA met its target for this metric with a result of 85.4 percent.

The continued improvement in portfolio dollars current is a direct result of an increased effort to
enroll borrowers in income-based repayment and the expanded efforts to provide information on
repayment options. Greater resources for borrowers help mitigate the risk of delinquency and
default as is evidenced by the results shown this year.




Federal Student Aid FY 2016 Annual Report                                                  Page 73
Performance Results by Strategic Goal


       Data Quality and Limitations:
       The new C2 metric is calculated using the Direct Loan Portfolio by Delinquency Status Report
       published by the Data Center using data provided by NSLDS. It is the outstanding principal and
       interest balance of “current” Direct Loans in the active Repayment status divided by the total
       principal and interest balance of Direct Loans in Active Repayment Status at the non-default
       servicers. The metric result is computed as a four-quarter moving average as of September 30
       of the current fiscal year. This allows FSA to account for changes relating to seasonality and
       indirect factors that could be false indicators of change. However, since Data Center report for
       FY 2016 Quarter 4 was not available as of the date of this report, portfolio values were
       estimated from alternative sources




       Page 74                                               Federal Student Aid FY 2016 Annual Report
                                                        Performance Results by Strategic Goal



Strategic Goal D: Foster trust and collaboration among stakeholders.



          Table 12: Performance Metric D.1: Ease of Doing Business with FSA

Fiscal Year                Target          Actual     Target Achieved      Performance Result

FY 2016                   74.3–77.3         72.3                               Not met

FY 2015                   75.9–77.9         75.8                               Not met

FY 2014                    73–75             77                                  Met

FY 2013                      74              74                                  Met

FY 2012                     >=72             74                                  Met

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 did not meet its target with a result of 72.3.

The lower score for this metric is the result of a number of high profile changes to FSA
programs and regulations in FY 2016. The implementation of gainful employment reporting
regulations has required a significant effort and coordination between multiple agencies. FSA
has also been implementing both prior-prior tax year and early filing pertaining to the FAFSA.
These changes will greatly benefit borrowers but also are a massive shift in the traditional
student loan landscape, which requires changes in the way postsecondary institutions typically
plan. The implementation of these new regulations and programmatic changes will have long-
term impacts on borrowers and the organization will see a notable increase in partner
experience into FY 2017.

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.




Federal Student Aid FY 2016 Annual Report                                                 Page 75
Performance Results by Strategic Goal




        Table 13: Performance Metric D.2: Percentage of Contract Dollars Competed by FSA

       Fiscal Year               Target         Actual       Target Achieved      Performance Result

       FY 2016                89.3%–91.3%        92.9%                                   Met

       FY 2015                87.7%–89.7%        90.3%                                   Met

       FY 2014                85.3%–87.3%        88.7%                                   Met

       FY 2013                                                                            N/A
                                 Performance metric established in FY 2014
                                        Prior-year data not available
       FY 2012                                                                            N/A

       Target Context:
       Federal acquisition regulations require agencies to compete contracts, unless otherwise justified
       and approved in accordance with regulation. Competition increases transparency, drives
       savings and quality, and helps maintain a supplier base for future acquisition needs. This metric
       tracks the percentage of contract dollars competed by FSA.

       Analysis of Progress:
       FSA exceeded this metric with a final score of 92.9 percent.

       FSA has continued improving the percent of contract dollars competed in each fiscal year and
       continues 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.




       Page 76                                               Federal Student Aid FY 2016 Annual Report
                                                              Performance Results by Strategic Goal




                         Table 14: Performance Metric D.3: Collection Rate

Fiscal Year                Target          Actual              Target Achieved      Performance Result

FY 2016                    $51.79          $53.07                                          Met

FY 2015                    $36.56          $51.58                                          Met

FY 2014                    $45.65          $35.90                                        Not met

FY 2013                    $34.31          $41.57                                          Met

FY 2012                 Set baseline       $31.90                                          Met

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 met its target for this metric with a result of $53.07.

The actual result exceeded the forecast due to lower costs from the implementation of a flat fee
for rehabilitations. Contract collection costs were approximately $74 million (or 8 percent) less
than anticipated, while loan servicing costs and total collections were at anticipated levels.

If fully implemented, FSA roughly estimates that the changes associated with this guidance may
significantly increase the annual cost of loan servicing in FY 2018. The current loan servicing
procurement effort will inform the FY 2018 estimate by early 2017. This would more than halve
the FY 2018 Collection Rate target to approximately $24.11, if all other costs are held
constant. The Department believes that the anticipated improvements to the borrower
experience for the 29 million borrowers currently in the portfolio justify the significant expected
increase in cost.

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.




Federal Student Aid FY 2016 Annual Report                                                  Page 77
Performance Results by Strategic Goal



       Strategic Goal E: Invest in expanded workforce capability.



                     Table 15: Performance Metric E.1: Employee Engagement Index

       Fiscal Year               Target          Actual       Target Achieved     Performance Result

       FY 2016                66.9%– 68.9%        67.4%                                  Met

       FY 2015                 66.7%–68.7%        67.9%                                  Met

       FY 2014                   >=64.2%          67.7%                                  Met

       FY 2013                                                                            N/A
                                  Performance metric established in FY 2014
                                         Prior-year data not available
       FY 2012                                                                            N/A

       Target Context:
       Beginning in FY 2014, FSA has measured its progress on Strategic Goal E via the Employee
       Engagement Index, based on a subset of questions from the government-wide Federal
       Employee Viewpoint Survey (FEVS). The Employee Engagement Index is 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.

       Analysis of Progress:
       FSA met its target with a result of 67.4 percent.

       The FY 2016 target for FSA’s Employee Engagement Index was 66.9–68.9 percent. This target
       provided a 1 percent plus or minus variance from the actual percentage (67.9 percent) achieved
       in FY 2015. FSA was able to exceed its target for the third consecutive year and saw positive
       gains in the employee engagement elements “Leaders Lead” and “Supervisors”. FSA also saw a
       5.5 percent increase in the EVS response rate, which builds on FY 2015 improvements and the
       overall 16.2 percent increase from FY 2014. More information about the FEVS and the
       questions included on the survey can be located 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 2016 FEVS located at
       Fedview.opm.gov.




       Page 78                                              Federal Student Aid FY 2016 Annual Report
                                             FY 2016 Accomplishments of Federal Student Aid




    FY 2016 Accomplishments of Federal Student Aid

During FY 2016, FSA realized additional accomplishments that were not measured specifically
by the performance metrics implemented to measure performance against FSA’s Strategic Plan,
FY 2015-19. Although not measured by FSA performance metrics, these 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:
Improve quality of service for customers across the entire student aid life cycle.

•    In FY 2016, FSA successfully launched the FSA Feedback System, a major element of the
     President’s Student Aid Bill of Rights. The feedback system unifies FSA’s tracking and
     reporting of complaints about all phases of the student aid life cycle in one system used by
     business units across FSA. Feedback is directed automatically to FSA support contractors
     to execute research and resolution activities, delivering more timely resolution of complaints
     to customers.

•    The second project, announced by President Obama in Fall 2015, is implementing the
     2017–18 FAFSA early—on October 1—and the use of tax information from the “prior-prior”
     year on the FAFSA. The early FAFSA and the use of “prior-prior”, which greatly simplifies
     applying for aid for families, are two of the most significant changes in federal aid in the last
     20 years; these changes help families better align applying for aid with their college decision
     timeframe.

•    To increase income-driven repayment (IDR) plan enrollment, FSA emailed 3.2 million
     borrowers expressing interest in IDR and borrowers struggling to make their payments. FSA
     emailed 100 percent of borrowers about to enter repayment (1.3 million) to make them
     aware of their repayment options, including IDR and Public Service Loan Forgiveness
     (PSLF), which should lead to more borrowers being in current repayment status. In the
     second quarter of FY 2016, the number of current borrowers had increased 12.5 percent
     over the second quarter of FY 2015.

•    Protecting disabled borrowers was also a key element of the Student Aid Bill of Rights. In
     FY 2016, the Department and the Social Security Administration (SSA) began working
     together to ensure that disability insurance recipients who are eligible for a loan discharge
     can avoid having their Social Security disability payments offset to repay defaulted loans.
     The two agencies are proactively identifying borrowers who may be eligible for loan
     discharge in order to protect their Social Security benefits from offset and ensure they are
     able to access the benefits to which they are entitled. At the direction of the President
     through the Student Aid Bill of Rights, SSA and the Department have established a new
     process that allows the Department to more easily identify borrowers who are eligible for a
     disability-related discharge and reach out to those borrowers to help them apply for and
     receive the benefit. The new process greatly simplifies the steps needed to obtain a
     disability discharge.




Federal Student Aid FY 2016 Annual Report                                                     Page 79
FY 2016 Accomplishments of Federal Student Aid


       FSA realized the following additional accomplishments in support of Strategic Goal B:
       Proactively manage the student aid portfolio to mitigate risk.

       •   FSA oversaw the creation and implementation of its Student Aid Enforcement Office. The
           Enforcement Office, which consists of four units (Investigations, Borrower Defense,
           Administrative Actions and Appeals, and Clery), will enhance FSA’s ability to enforce the
           laws and regulations governing Title IV. The Borrower Defense unit has been actively
           processing claims as indicated in its periodic reports. It also recently posted a universal
           borrower defense application form for public comment to compliment other improved
           outreach efforts to affected borrowers.

       •   FSA developed a segmentation strategy to inform decision making on the nature and
           aggressiveness of oversight activities of large corporate schools. This effort produced a
           consolidated risk assessment for each school group that gives FSA a critical tool to
           proactively manage large schools based on the risk factors associated with each unique
           school group. FSA’s segmentation strategy will impact all students and borrowers at these
           schools by ensuring increased compliance and targeted oversight.

       FSA realized the following additional accomplishments in support of Strategic Goal C:
       Improve operational efficiency and flexibility.

       •   Policies and practices for the FSA ID were improved for customer-facing websites, providing
           greater access and identity management for 36 million students and borrowers using
           stronger encryption. More than 36 million FSA IDs have been created, and FSA IDs were
           used to log in to FSA websites more than 210 million times. These efforts have played an
           integral role in safeguarding the personally identifiable information of millions of students
           and borrowers within the vast array of FSA systems.

       •   FSA continued enhancement of the Enterprise Data Warehouse and Analytics (EDWA).
           EDWA serves as a single repository containing data from source systems within the FSA
           universe. By bringing data under one system, FSA is able to streamline the process of
           leveraging that data for reporting and analytical purposes, as well as work to relieve the
           burden on operational systems. The EDWA expansion in FY 2016 included additional
           servicing and collections data as well as the retirement of the Aid Datamart, which will
           culminate in FY 2017. Data from the FSA Feedback System is also being transmitted to the
           EDWA to allow FSA to identify areas for operational improvement based on customer
           feedback.

       FSA realized the following additional accomplishments in support of Strategic Goal D:
       Foster trust and collaboration among stakeholders.

       •   To improve transparency of information about the student loan portfolio for taxpayers,
           researchers, and the public, FSA published 15 new releases of data points and other reports
           in FY 2016. These releases have been added to the FSA Data Center and included:
           Location of FFEL Program Loans, Annual FAFSA Demographics Reports, ED-held FFEL
           Portfolio by Repayment Plan, FAFSA Completion by School District, Top Audit and Program
           Review Findings, and many other valuable resources for information on FSA operations and
           outcomes.




       Page 80                                                Federal Student Aid FY 2016 Annual Report
                                            FY 2016 Accomplishments of Federal Student Aid


•   FSA conducted more than 280 outreach events and made a conscious decision to hold 40
    via webinar to increase the reach of the information; webinars are recorded and posted on
    StudentAid.gov to increase accessibility. FSA also distributed more than 6.8 million
    publications, fact sheets, and forms in conjunction with the production of more than 16 new
    publications in English and 6 in Spanish to provide even greater resources to customers and
    stakeholders. These efforts provided critical information on aid availability, repayment
    options, and other useful information on the student aid universe. Ensuring that customers
    and stakeholders are as informed as possible helps to facilitate the most effective use of
    resources.

FSA realized the following additional accomplishments in support of Strategic Goal E:
Invest in expanded workforce capability.

•   Equity Management Workshop (EMW) for all FSA supervisors was a key addition this year
    that explored managing equitably in the workplace, while emphasizing the potential impact
    of fairness on employees' motivation and performance. EMW reinforces balance in
    employees' perceived input/output ratios and presents relevant topics, including Adam's
    Equity Theory, Merit System Principles, and Prohibited Personnel Practices. More than 160
    people participated in the workshop, including 100 percent of senior leadership. EMW efforts
    align closely with FSA’s leadership in the Department’s Diversity and Inclusion program,
    where FSA’s senior leadership is represented on the Department’s council as well as
    providing a co-chair for the Diversity and Inclusion Change Agent’s Program.

•   In FY 2016, FSA expanded participation in the Cornerstones of Supervision program. The
    Cornerstones of Supervision program is a frontline supervisory skills program that every
    FSA employee holding first-time supervisory responsibilities is required to complete. The
    training is designed to give employees insight into different facets of their own management
    style, as well as tools and techniques for expanding their repertoire. Increased awareness
    campaigns and outreach efforts resulted in high utilization of this critical employee
    development tool.

•   FSA began an advanced effort to increase employee engagement by defining a specific
    mission and vision to help achieve this goal; this initiative provided an opportunity to include
    FSA employees in describing critical FEVS elements, such as “who we are, what we do, and
    how we do it,” and providing a look at “where we are going.” Employee Engagement staff
    expanded opportunities for FSA employees to become more involved in the organization
    through increased charitable and community outreach activities.




Federal Student Aid FY 2016 Annual Report                                                  Page 81
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 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 federal student assistance 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 provides this input and recommendations by direct contact with colleagues in the
      various policy offices within the Department, including the Office of the Under Secretary, the
      Office of Postsecondary Education, and the Office of Planning, Evaluation and Policy
      Development at both the senior policy level and at the staff level. During the past year, FSA
      provided specific recommendations to policy officials on the following issues: transition to the
      “Early FAFSA” and the use of “prior-prior” year FAFSA information; developing the expansion of
      the Experimental Sites Initiative to address the Administration’s higher education priorities;
      developing policies relating to the regulations for the eligibility of gainful employment programs
      at institutions of higher education; participating in the development of the Department’s recent
      Cash Management and Borrower Defense regulations; and developing and implementing
      policies to address the expiration of the Federal Perkins Loan Program.




      Page 82                                                Federal Student Aid FY 2016 Annual Report
                                                                             Annual Bonus Awards




Annual Bonus Awards

As required by the 1998 Amendments to the Higher Education Act of 1965, this Annual Report
includes performance ratings and related awards for FSA senior managers and Senior Executive
Service staff. Included in this section are the number of senior managers and Senior Executive Staff on
board as of the end of FY 2016. However, because FY 2016 performance results were not finalized at the
time this report was prepared, the section also discusses FY 2015 performance results.

At the end of FY 2016, there were 50 FSA senior managers and 9 Senior Executive Service
members. Twelve of the 50 senior managers and 2 of the 9 Senior Executive Service staff served on
the FSA Operating Committee and reported directly to the COO. The remaining 38 senior managers
and 7 Senior Executive Service staff served in a variety of senior positions and capacities within FSA.

The following section discusses FY 2015 performance results.

For performance year 2015, the composition of ratings for the 33 senior managers who did not serve
on the Operating Committee last year were as follows: 14 achieved a performance rating of
Exceptional Results, 14 achieved a performance rating of High Results and 3 achieved a
performance rating of Results Achieved, and 2 were not eligible for a rating.

Award amounts for those senior managers achieving an Exceptional Results rating ranged from a low
of $5,204 to a high of $28,800 with a median award of $8,440. Award amounts for those achieving a
High Results rating ranged from a low of $1,315 to a high of $16,308 with a median award of $4,854.

There were also 2015 performance ratings and awards for 9 senior manager members of the
Operating Committee. The composition of those rated includes: 6 achieved a performance rating of
Exceptional Results; 3 achieved a performance rating of High Results. 2 of the 9 Senior Executive
Service members are on the Operating Committee and achieved a performance rating of Exceptional
Results. The composition of ratings for the remaining 7 Senior Executive Service members not on
the Operating Committee were as follows: 2 achieved a performance rating of Exceptional, 3
achieved a performance rating of High Results, and 2 achieved a performance rating of Results
Achieved.

Award amounts for the Operating Committee ranged from approximately $10,405 to $32,994,
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




Federal Student Aid FY 2016 Annual Report                                                Page 83
Report of the Federal Student Aid Ombudsman




       Report of the Federal Student Aid Ombudsman

       The FSA Ombudsman Group entered its 17th year of service to federal student aid recipients in
       FY 2016. 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
       Group employs a collaborative approach in working with institutions of higher education,
       lenders, guaranty agencies, loan servicers, and other participants in 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.
       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 395,925 customer contacts, including 29,068 in
       FY 2016. In most of its years of operation, the Ombudsman Group has received a greater
       number of customer contacts than in the previous year, reaching a peak in FY 2014. This is the
       second consecutive year that the number of contacts has declined.

       A factor in the reduction of overall Ombudsman Group case volume is the establishment in
       FY 2016 of the FSA Feedback System, which will be discussed later in this report. The
       Feedback System provides a portal for federal student loan borrowers to submit complaints and
       issues relating to their student loans. The anticipation is that in the future customers will now
       use the Feedback System, which became operational late in FY 2016, to submit their complaint.

                                    Table 16: Total Volume of Contacts

           FY            New Customer Contacts         Percentage Change from Previous Fiscal Year
          2016                   29,068                                   -14.5%
          2015                   34,008                                   -12.0%
          2014                   38,665                                   +14.0%
          2013                   33,916                                    -2.8%

       The Ombudsman Group classifies customer contacts as one of two types: General Assistance
       (GenAssist) cases, which typically are resolved almost immediately through the provision of
       information or referral to the appropriate entity within the student loan community; and Research
       cases, which present a more complex problem requiring the engagement of multiple parties and
       a series of contacts. Research cases 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 Table 17 demonstrates, this trend
       reversed in FY 2013 and continues.


       Page 84                                               Federal Student Aid FY 2016 Annual Report
                                                      Report of the Federal Student Aid Ombudsman



                                  Table 17: Research Contacts Received

                                                                                   Research Cases as
                                         Percentage Change in Research
    FY           Research Cases                                                    Percentage of Total
                                         Cases from Previous Fiscal Year
                                                                                   Customer Contacts
   2016                3,758                           -37.8%                               12.9%
   2015                6,046                           -22.7%                               17.8%
   2014                7,819                           -16.9%                               20.2%
   2013                9,414                           -18.6%                               27.8%

Borrowers contacting the Ombudsman Group who have not exhausted the problem resolution
options available through their loan servicer are referred specifically to an escalated issues
team at the loan servicer, and counseled to re-contact the Ombudsman Group if resolution is
not achieved or is unsatisfactory. To the extent that the servicer is able to resolve the
borrower’s issue there can be a corresponding reduction in demands on the time and resources
of the Ombudsman Group.

Issues Reported to the Ombudsman Group
The Ombudsman Group uses issue categories and issue sub-categories to classify the nature
of the question, issue, or observation brought to it by customers. The Table 18 shows the total
volume of customer contacts by each of the 16 major issues categories along with a brief
description of the category.

                Table 18: Fiscal Year 2016 Customer Contacts by Original Issue

                                                                                       FY 2016 Volume
    Issue Category
                                                 Description                                         General
        Name                                                                       Research
                                                                                                    Assistance
                               Questions/disagreement about the balance being
Account Balance                collected, balance dispute, school refund,             839             4,647
                               disbursement
Bankruptcy                     Bankruptcy related issues from a bankruptcy             26              76
                               court filing
Closed School                  Issues related to a post-secondary school's             59              762
                               closure
Collection Practices           Actions taken by collectors deemed excessive,           48              520
                               abusive, unreasonable, or illegal by borrower
                               Question/complaint about terms and processes
Consolidation                  for consolidating FFEL, Federal Direct Loan,           266              955
                               Perkins, or HEAL Loans
Credit Reporting               A report detailing all outstanding consumer-           243             1,253
                               related debt, including bad student loan debt
Default                        Assertion that the default status is wrong, or is      305             2,146
                               asking for options for default removal
Deferment/Forbearance          Deferment, Deferment Rejected, Forbearance,            107              940
                               Forbearance Granted
FSA Assistance                 General Information Request, Pell Grant, Not a         105             3,056
                               Loan Question, Other, Other Aid Issue


Federal Student Aid FY 2016 Annual Report                                                             Page 85
Report of the Federal Student Aid Ombudsman


                                                                                          FY 2016 Volume
          Issue Category
                                                    Description                                       General
              Name                                                                     Research
                                                                                                     Assistance
                                  Loan Cancellation, Disability Discharge,
      Loan
                                  Discharge – Death, Discharge Denied, Loan              666             3,616
      Cancellation/Discharge
                                  Discharge, False Certification, ID Theft
      NSLDS                       NSLDS is incorrect                                      57             222
      Repayment                   Customer wants to establish, revise, or comment
                                                                                         547             2,688
      Plans/Amounts               on available repayment plans/amounts
      Service Quality             Complaints about loan servicing, service quality,      257             1,875
                                  due diligence, quality of education
                                  Borrower cannot receive Title IV funds because
      Student Eligibility         of regulatory or school imposed                         52             1,413
                                  policy/procedures
      Tax Refund/(Federal)        Borrower wants to avoid tax or other Federal           104             689
      Offset                      offset
                                  Borrower objects to administrative wage
      Wage Garnishment            garnishment, wants to avoid it, reduce amount,          75             452
                                  or complain about how the agency implements
                                  administrative wage garnishment.
      Issue Not Yet Classified                                                            2               0


       Case Volume – Research
       As noted above, Research contacts or “cases”—those requiring more intensive effort 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.”
       But, it is fair to say that Research cases most often result from a customer’s dissatisfaction with
       previous efforts to resolve an issue. As such, we share in this section more information about
       the cause and types of issues identified as Research cases.

       In FY 2016, the top five issues for Research cases mirrored the previous year. Account
       Balance, Loan Cancellation/Discharge, Repayment Plans/Amounts, and Default occupied the
       top four positions. Consolidation, which returned as a top five issue in FY 2015, replacing
       Credit Reporting, remained in the number five position.

                                   Table 19: Top Five Research Case Issues

         FY 2016                                             FY 2015         FY 2014           FY 2013
                                 Issue Category
          Rank                                                Rank            Rank              Rank
            1           Account Balance                         1               1                 1
            2           Loan Cancellation/Discharge             2               2                 2
            3           Repayment Plans/Amounts                 3               3                 3
            4           Credit Reporting                        4               5                 5
            5           Consolidation                           5              n/a               n/a

       Analysis of Outcomes
       Resolutions of the problems customers present are rarely binary, in other words, the customer
       receives or does not receive the outcome sought. Customers sometimes seek outcomes which
       statute and regulation do not authorize, e.g., discharge of a loan because of economic


       Page 86                                                    Federal Student Aid FY 2016 Annual Report
                                               Report of the Federal Student Aid Ombudsman


hardship—or for which they are not eligible due to their circumstances. Customers are often
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 Group is to create awareness of
the options, and assist the customer in making a selection.

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

   •   Action: Ombudsman Group activity results in a change to the customer’s account.

   •   Confirmation: No change occurred on the customer’s account and research confirms
       the current status.

   •   Information: The customer was provided with information or guidance on the available
       options for managing their student loan account and empowered to take the next steps,
       e.g., loan servicer identified, PSLF 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 Group research to continue.

Analysis of these data, in the context of the outcome definitions, increases understanding of the
nature of the issues customers present, point out areas where service quality can be improved,
and identify systemic issues that lead to customer complaints.

Outcomes vary significantly between Research and GenAssist cases. The former are assigned
to a specialist for research and are more likely to result in an outcome of Action or Confirmation.
GenAssist cases are most commonly referred to an escalated issues team at a loan servicer or
other resource for resolution because, as discussed earlier, customers are encouraged to
resolve their issues at the lowest possible level before seeking Ombudsman Group assistance.

   Table 20: Outcomes for Research and GenAssist Cases Closed in Fiscal Year 2016

                                                                                          Total
Case Type        Action      Confirmation     Information     Referral       Other
                                                                                          Cases
Research         29.1%           32.9%           26.0%          7.1%         4.8%         5,370
General
                  0.8%           1.1%            4.5%          79.5%         14.1%        26,605
Assistance

Outcomes for Research Cases Closed in FY 2016 by Original Issue Category
Since Research contacts are more complex and time consuming, there are many different paths
to resolving the customer’s issue. The Ombudsman Group leverages its role as a neutral third
party to review the matter and facilitate a resolution that is mutually agreeable to all parties, and
is consistent with applicable law and regulation. In FY 2016, for about 32.9 percent of Research
cases, Confirmation was the result. With less frequency, the Ombudsman Group’s engagement
results in an Action—29.1 percent of Research cases.



Federal Student Aid FY 2016 Annual Report                                                   Page 87
Report of the Federal Student Aid Ombudsman



            Table 21: Fiscal Year 2016 Research Case Outcome Category by Issue Category


       Original Issue Category    Action     Confirmation    Information   Referral     Other     Total Closed


       Account Balance            22.6%         50.5%           15.2%        6.5%       5.3%           100.0%
       Bankruptcy                 27.3%         45.5%           13.6%        6.8%       6.8%           100.0%
       Closed School              14.8%         39.5%           25.9%       13.6%       6.2%           100.0%
       Collection Practices       14.9%         31.3%           35.8%       10.4%       7.5%           100.0%
       Consolidation              28.1%         30.8%           33.1%        5.3%       2.8%           100.0%
       Credit Reporting           17.5%         33.8%           43.3%        2.0%       3.4%           100.0%
       Default                    22.1%         27.8%           37.9%        8.2%       4.0%           100.0%
       Deferment/Forbearance      35.3%         28.7%           22.8%        7.4%       5.9%           100.0%
       FSA Assistance             29.8%         12.6%           21.2%       21.2%      15.2%           100.0%
       Loan
       Cancellation/Discharge     40.8%         25.1%           22.6%        7.1%       4.3%           100.0%
       NSLDS                      73.3%         12.0%           6.7%         5.3%       2.7%           100.0%
       Repayment
       Plans/Amounts              35.2%         24.7%           31.1%        5.1%       3.8%           100.0%
       Service Quality            31.1%         36.5%           16.3%        9.8%       6.3%           100.0%
       Student Eligibility        30.1%         21.7%           22.9%       20.5%       4.8%           100.0%
       Tax Refund/Offset          15.7%         10.4%           68.7%        3.0%       2.2%           100.0%
       Wage Garnishment           35.3%         23.3%           29.3%        6.9%       5.2%           100.0%

       As the Table 21 demonstrates, an “Action” or change in the customer’s student loan situation
       because of their contact to the Ombudsman Group does not always occur. Even more clearly,
       certain issue categories result in Actions more frequently than others. To illustrate the variety of
       outcomes that can be achieved on complaints that come to the Ombudsman Group, the
       following discusses cases received during FY 2016 and are representative of the most common
       types of Research cases worked by the Ombudsman Group.




       Page 88                                                 Federal Student Aid FY 2016 Annual Report
                                               Report of the Federal Student Aid Ombudsman


Account Balance: Account Balance is the most frequent category of Research case. Account
Balance cases typically involve a dispute about the validity of a debt, or the accuracy of the total
balance requested to be repaid. Account
balance also includes those customers who         Caller says they contacted [servicer] last
request a reapplication of payments or            year to find out how to pay the loan in full.
believe the interest is calculated or             They were referred to [servicer website]
capitalized incorrectly. Interest capitalization  and pay the payoff amount, which they did
persists as a common basis for customer           in the amount of $44,842.99. ... On July
complaints to the Ombudsman Group. Many           they got a statement from [servicer] saying
who contact the office are dismayed to learn      they had an outstanding balance of
that prior deferment or forbearance time lead     $1,271.15.
to interest capitalization and an increase in
the total amount to be repaid.

This variety of root causes for Account Balance complaints means it can be challenging to
achieve an outcome most favorable to an individual borrower. In the case cited, the
Ombudsman Group worked with the servicer and two offices within FSA and determined that a
loan disbursement was reported after the borrower paid the balance due. Although the
outcome was that the borrower owed the additional disbursed amount, FSA agreed to waive all
accrued interest associated with that disbursement, and the borrower repaid the remaining
amount.

Loan Cancellation Discharge: Customers assert their loans should be cancelled or
discharged because of existing conditions or services performed.

Historically, discharge for total and permanent disability (TPD) has been the primary
subcategory of discharge contacts to the Ombudsman Group. Beginning in 2009, changes to
                                                statute and regulations coupled with significant
  “In 2013 I received a … Total and             improvements in servicing have resulted in a
  Permanent Disability Discharge … Every        noticeable reduction in TPD cases. Most
  month I [have] a reduction in my              recently, additional statutory changes created an
  Disability check. Can you please help         expedited path to discharge for disabled
  me with this? I need some additional          veterans and for some recipients of Social
  health care and the monthly deduction         Security disability benefits. Simplification of the
  from my disability check has kept me          application process and a TPD servicer placing a
  from getting it.”                             greater emphasis on customer service reduced
                                                the burdens for disabled borrowers seeking
discharge. But, qualifying for TPD can still be a challenge for many borrowers who apply.

Customer contacts in FY 2016 concerning disability discharge more often dealt with difficulties
associated with getting necessary documentation from other federal agencies. For example,
borrowers who receive disability benefits through the SSA can make expedited applications for
TPD by providing documentation from SSA that they are reviewed for eligibility for continued
benefits on a five to seven year cycle. Borrowers who experience difficulty in securing the
necessary documentation from SSA will contact the Ombudsman Group for assistance. In
response to this problem, in FY 2016, the Department conducted a data match with SSA to
identify individuals in the five to seven year review cycle and match it with the database of
student loan borrowers. Student loan borrowers in the eligible SSA category who had not
applied for TPD received communication from the Department informing them of their eligibility
for loan discharge and providing direction on the steps they would need to take.



Federal Student Aid FY 2016 Annual Report                                                   Page 89
Report of the Federal Student Aid Ombudsman


       In the case above, the borrower applied for TPD several years ago during the tenure of the
       Department’s previous TPD servicer, and before ED began a single application submission
       process for TPD applicants. The result was that not all of her loans were included in the original
       discharge. Those loans defaulted, resulting in the offset of her disability benefits. Working with
       the customer and the TPD servicer, the Ombudsman Group research specialist was able to
       identify the customer’s outstanding loans and have them recalled to the TPD servicer. Her
       outstanding loans were discharged effective on the date of the original approval, the offset of
       her disability benefits ended, and the customer received a refund of over $7,500.

       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 during the entire history of the Ombudsman Group. The array of repayment plan options
       has expanded significantly in recent
       years, in some ways, taxing customer          “I applied to re-certify my IBR plan … On
       and servicer abilities to comprehend the      November 4, 2015, I received an email letter …
       perceived advantages and benefits of          that showed my monthly payment had been
       each. Certainly, the 10-year standard         recalculated from $38/month to $2,055/month.
       repayment plan is no longer the optimal       … they told me my original loan application had
       plan for many borrowers as they enter         never been processed because a formal
       repayment. Helping individual                 application had not been received.”
       borrowers select the best alternative to
       the 10-year plan involves not only the 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.

       For some borrowers, selecting the ideal repayment plan may be the easiest part of the process.
       Submitting a properly completed application and the correct income documentation can present
       challenges that lead to an undesirable outcome from the borrower’s perspective. In the case
       quoted above, the borrower had faxed documents to renew his IDR plan. However, his
       submission did not include the required application form to renew IDR. The borrower was
       returned to IDR upon submission of the required application, but, because of the lapse in his
       income driven repayment plan, nearly $33,000 of accrued interest was capitalized and added to
       the outstanding principal balance of his loans. Because the removal from IDR was consistent
       with applicable regulations and procedures, the Ombudsman Group was not able to reverse the
       servicer’s decision. Our engagement on this particular case confirmed the loan servicer took
       the correct processing steps in response to the documents the customer submitted.

       Default: Customers assert the default status of their loans is wrong, or customers are asking
       for options for resolving the defaulted status of their loans. Most customers in this category
       have interacted with the entity performing collection activities on the debt, but have not been
       satisfied with the outcome of the interactions, or are seeking an alternative to the options
       offered. The most common outcome for Research cases involving default is information—the
       customer is provided with the options available to resolve the default status of their loans. The
       role of the Ombudsman is frequently one of facilitating the customer’s interaction with the loan
       holder or collection agency. Depending on the customer’s circumstances, the resolution may be
       assisting the customer with entering into a mutually agreeable repayment plan for the purpose
       of loan rehabilitation.




       Page 90                                               Federal Student Aid FY 2016 Annual Report
                                               Report of the Federal Student Aid Ombudsman


The highlighted case is an example of the approximately 22 percent of the time when the
Ombudsman Group is able to provide an outcome that results in a change in the customer’s
                                              loan status. The customer had two groups of
 “Today I received 4 letters saying that I am loans with the servicer, subsidized and
 in default with my student loans. I called   unsubsidized loans for undergraduate education
 [servicer] and they had no record of any     and PLUS loans for graduate school. The first
 forbearance being filed with them …”         group of loans was in good standing, but the
                                              Grad PLUS loans were in default.

Research by the Ombudsman Group showed that, after the customer graduated, the servicer
placed the customer’s Grad PLUS loans into repayment 30 days before it put the other loans
into repayment. When the research specialist pointed out that this action violated the servicer’s
policies and procedures for due date alignment, which requires setting a common repayment
date for all of a customer’s loans, the servicer agreed to reverse the default and correct the
repayment dates.

Consolidation: After an absence of several years, Consolidation returned as a top five
Research issue in FY 2015. Customers contact the Ombudsman seeking information about
options for consolidation of their student loans or to seek assistance when they believe there
are errors in their consolidation
loan. The increase in                  “A scandalous and fraudulent organization forwarded
consolidation cases is driven by       my loan to the Dept. of Education using false
the emergence of third party           information including the wrong telephone and a phony
firms that contact student loan        signature. This group … also scammed me out of
borrowers with promises of debt        $500.00 and made promises to consolidation and lower
relief. These firms typically          my monthly payment. Well the loan was consolidated
charge an upfront fee and a            however, the payments were definitely not lowered…
monthly charge to consolidate          the DOE sent me a bill for over 1,000.00 dollars, which
the borrower’s loans and promise       I cannot afford. My loan is for $160000. I can only
to enroll the borrower in a loan       afford to pay about $300.00 monthly...”
forgiveness or income-driven
repayment program, services available at no charge from loan servicers. In 2016 the
Department sent cease and desist orders to third party marketing firms that were illegally using
the Department’s seal in their communication.

In the cited example, the third party marketer made promises to the customer that included a
lower payment plan. In working with the loan servicer, the Ombudsman Group helped support
the customer’s statements and the consolidation was reversed.

Joint (or “spousal”) consolidation loans remain among the most troubling due to the legal
inability to provide relief to the customer. During FY 2016, the Ombudsman Group received 59
contacts concerning joint consolidation loans, nearly one-quarter of the total in this category.
For a period of time, married couples who both had federal student loans were able to combine
their individual loans into a single consolidation loan. Under the provisions of these loans, both
parties to it are “jointly and severally” responsible for the debt, meaning that if one spouse fails
to make payments, the other spouse is responsible for the entire debt. Subsequent statutory
changes eliminated authorization to make new joint consolidation loans, but did not address
existing joint consolidation loans by allowing for dissolution of a loan, under certain
circumstances, and the assignment of the remaining balance on a proportional basis to the
original borrowers.



Federal Student Aid FY 2016 Annual Report                                                    Page 91
Report of the Federal Student Aid Ombudsman


       The lack of a dissolution option has downstream implications. Changes to the terms of a loan,
       e.g., a new repayment plan, require the concurrence of both parties. If a co-borrower refuses to
       collaborate with the other borrower on making payments, establishing an affordable repayment
       plan (including for loan rehabilitation), or documenting eligibility for other loan benefits, the other
       borrower can be placed in a precarious financial position. The Ombudsman Group looks
       forward to action that could provide relief to this small population of borrowers.

       Other FY 2016 Highlights

       Customer Satisfaction Survey
       On a weekly basis, a survey is sent by email to all customers whose cases were closed during
       the previous time period. Participation in the survey is voluntary, and respondents are assured
       confidentiality, so that they can provide candid feedback without fear of consequences.
       Responses to a standardized questionnaire are converted to a score on a 0 to 100 scale, and
       reported using the metrics of the ACSI.

       The overall ACSI score for the Ombudsman Group for FY 2016 is 38. While not as high as
       desired, analysis of the numbers reveals unusual aspects that may reflect the nature of the
       Ombudsman’s work. Large data sets, when graphically displayed, typically present in the
       classic Bell Curve—lowest on the scale at the respective tails and highest in the middle. The
       Ombudsman Group’s ACSI scores present as an inverted Bell Curve—highest at the tails and
       lowest in the middle.

       The ACSI score for survey respondents with a Research request is 42, and 36 for general
       assistance in FY 2016. Additionally, customers with Research Cases are nearly twice as likely
       to respond to the customer satisfaction survey as customers with GenAssist Cases. This is not
       surprising, as the Ombudsman Group staff work with the Research customer more extensively
       and have frequent interaction, as their issues are more complex. With GenAssist customers,
       most are referred to the appropriate external entity, as Ombudsman Group does not perform
       loan servicing actions such as processing deferments/forbearances/repayment plans, granting
       student loan discharges, etc. Some survey respondents provide scores for the Ombudsman
       Group based on the customer service of the external, non-Ombudsman entity.

       The Ombudsman functions as a neutral party in attempting to resolve disputes. Customers
       sometimes express dissatisfaction because they expect the Ombudsman to be an advocate for
       their position and as a result give low customer satisfaction scores. For example, this comment
       from a customer—“You did nothing for me but take my complaint. You didn’t fight for me in any
       way, shape or form.”—was received from a customer who gave the Ombudsman Group an
       overall ACSI score of zero.

       In other cases, the customer accepts the necessary neutrality of the Ombudsman Group and
       rates the office on the quality of information or service provided. A customer who gave the
       Ombudsman Group a score of 82 also left the following comment: “I wasn’t sure what the role
       of the Ombudsman Group was before I made the initial contact. I had assumed it was an
       advocacy group. Even though the person who assisted me remained neutral concerning my
       issue she provided me with excellent information and helped me understand what options I
       had…”

       It is believed that the Ombudsman Group’s inability to provide customers with outcomes that are
       outside of law and regulation contribute to the ACSI scores they assign to the Ombudsman
       Group’s work. Customers generally contact the Ombudsman Group because of a perceived


       Page 92                                                  Federal Student Aid FY 2016 Annual Report
                                             Report of the Federal Student Aid Ombudsman


problem with their student loan account and often have a desired outcome in mind. If the
customer’s account has been administered in a manner consistent with applicable procedures,
the Ombudsman cannot provide an outcome that is inconsistent with current statutory and
regulatory requirements. The data suggest that customers may be, in effect, rating the
Ombudsman Group based on the outcome of their case instead of the quality of service
provided. Note this sample comment: “The representative of the Ombudsman Group worked
hard and attempted to help my situation! However the Ombudsman Group appears to have
little or no authority when helping victims of Student loan fraud!” This customer provided an
overall ACSI score of seven.

Conversely, the data suggests customers rate the work of the Ombudsman Group more highly
when an action or change occurs because of the Ombudsman Group’s review and engagement
on the customer’s issue. The following customer gave the Ombudsman Group an overall ACSI
score of 100. “The representatives were very helpful, professional and understanding. I’m so
grateful for their assistance. Thank you.”

As noted above, the Ombudsman Group is the service of last resort. If the customer has not
exhausted all of the opportunities for resolution with their current loan holder, the Ombudsman
Group treats their situation as a GenAssist case and refers them to an escalated level of
assistance at the current loan holder. Analysis of the data shows that 72.7 percent of the
customers who gave the Ombudsman Group an ACSI score of zero had GenAssist cases.
When the scores of zero are removed from the total, the Ombudsman Group receives an
average ACSI score of 60.

Nonetheless, the Ombudsman Group is unsatisfied with its current ACSI scores and committed
to improving them, continuing to dissect and review the survey data with the goal of identifying
improvements to processes that could enhance customer satisfaction. For example, analysis
revealed that customer satisfaction scores declined as GenAssist cases aged. The more time
that elapsed before the Ombudsman Group put the customer in touch with the entity able to
resolve their issue, the lower the ACSI score they gave. As a result, changes were made in
FY 2016 to the process for referring customers to their loan holder. Steps were implemented to
speed up the referral. The Ombudsman Group communicates the customer’s issues and
information directly to an escalated issues team at the loan holder; clearly communicates the
referral information to the customer; advises the customer of a timeframe in which to expect to
hear from the loan holder; and invites the customer to re-contact the Ombudsman Group if
expectations are not met.

FSA Feedback System
In March 2015, President Obama proposed a Student and Borrower Bill of Rights. A part of the
proposal was the development of “a state-of-the-art—and simple—process for borrowers to file
complaints involving their federal student aid.”

Leadership within FSA took up the challenge and working with its business units, including the
Ombudsman Group, developed an online portal (www.studentaid.gov/feedback) where
postsecondary students and federal aid recipients can submit a complaint about their
experience with the student aid process. The system began online operation in a pilot phase in
April 2016. It began full operations on July 1, 2016.

Customer complaints are routed to the FSA business unit best situated to respond to the
borrower’s issue. Complaints are also routed to loan servicers and collection agencies under
contract to the Department.


Federal Student Aid FY 2016 Annual Report                                                Page 93
Report of the Federal Student Aid Ombudsman



       Consumer Financial Protection Bureau
       The Ombudsman Group continued its collaboration with the Consumer Financial Protection
       Bureau (CFPB) Private Student Loan Ombudsman. The FSA Ombudsman Group’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
       Group. In FY 2016, 1,014 of the new customers reported they were referred by CFPB. During
       FY 2016, the Ombudsman Group referred 773 customers to CFPB. Beginning in FY 2017,
       complaints received through the FSA Feedback System will be automatically uploaded to the
       Federal Trade Commission Consumer Sentinel database. CFPB and other federal agencies
       have access to the Consumer Sentinel system.

       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 regarding the
       servicing of federal student loans 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.

       Conference calls this year covered topics including the rollout of the Revised Pay As You Earn
       repayment plan offering; updates concerning the FSA Feedback System implementation; and
       an overview of activities executed by FSA staff in connection with school closures. In addition,
       the Ombudsman Group facilitated the participation by representatives of group in providing
       helpful, constructive input in the development and implementation of the FSA Feedback
       System.

       Student Loan Ombudsman Caucus
       The Ombudsman Group hosted the annual meeting of the Student Loan Ombudsman Caucus
       in May 2016. The Caucus, under the aegis of the National Council of Higher Education
       Resources, is an informal group of individuals who serve as ombudsmen, or in an informal
       dispute resolution capacity at lenders, loan servicers, and guaranty agencies. The Caucus
       meets on a bi-monthly basis via conference call, and annually in a face-to-face session.

       This year, during the annual meeting, attendees reviewed case studies in connection with
       training on engaging with difficult, challenging complainants; heard presentations on recent and
       upcoming regulatory changes, including the FY 2017–18 FAFSA implementation, and on the
       new FSA Enforcement Unit; and engaged with a representative from the CFPB on credit
       reporting and the effect of credit repair/debt relief marketers.




       Page 94                                               Federal Student Aid FY 2016 Annual Report
                                                   Financial Section




                  Financial Section




• Overview of the Financial Section

• Message from the Chief Financial Officer

• Financial Statements

• Notes to the Financial Statements

• Required Supplementary Stewardship Information

• Required Supplementary Information

• Independent Auditors’ Report




Federal Student Aid FY 2016 Annual Report               Page 95
Overview of the Financial Section



                            Overview of the Financial Section

       This section provides a detailed view of FSA’s stewardship and accountability for its resources.
       The Message from the Chief Financial Officer begins the section and is followed by the audited
       financial statements, the accompanying notes to the financial statements, required
       supplementary Information, and the Independent Auditors’ Report.

       Message from the Chief Financial Officer
       The Message from the Chief Financial Officer discusses the financial accomplishments, as well
       as the challenges that FSA has encountered during the performance of its mission.

       Financial Statements
       The Financial Statements subsection contains the following comparative statements: the
       Balance Sheet, Statement of Net Cost, Statement of Changes in Net Position and Statement of
       Budgetary Resources.

       Notes to the Financial Statements
       The Notes to the Financial Statements provide a description of significant accounting policies
       and detailed information on select statement line items.

       Required Supplementary Stewardship Information
       The Required Supplementary Stewardship Information provides information on the stewardship
       of the resources entrusted to FSA (human capital) and the subsequent responsibilities which
       cannot be measured in traditional financial reports.

       Required Supplementary Information
       The Required Supplementary Stewardship Information presents the Combining Statements of
       Budgetary Resources by Program.

       Independent Auditors’ Report
       The Independent Auditors’ Report presents the combined audit report issued by the
       Independent Auditors. Included in the combined audit report are the Report on the Financial
       Statements, the Report on Internal Control, and the Report on Compliance and Other Matters.
       The subsection also includes the Office of Inspector General Audit Transmittal Letter and
       Management’s Response to the Audit.




       Page 96                                               Federal Student Aid FY 2016 Annual Report
                                                    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 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 to achieve this mission while
protecting taxpayers’ interests and minimizing costs.

In fiscal year (FY) 2016, FSA spent $1.6 billion to deliver
$125.7 billion of federal aid to more than 13.2 million postsecondary
students and their families as well as to oversee a loan portfolio of
42 million borrowers with $1.3 trillion in federal student loan debt.
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 talented staff at the United States
Department of Education (the Department) and FSA, we met the               John W. Hurt, III
unprecedented challenges presented by this financial responsibility     Chief Financial Officer
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 effective investment
management process and an internal control framework.

The $1.6 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 implemented an upgrade of FSA’s Financial Management
System to Oracle Federal Financials Release R12, the FSA Feedback System, and an Early
Free Application for Federal Student Aid using “prior-prior” tax year information, along with
numerous other operational changes from new policy direction. These changes were
implemented on-time and within budget, improving the customer experience for millions of
Americans. According to a 2015 Standish Group report, an average 16.2 percent of U.S.
corporate and government software projects are completed on-time and on-budget. When
compared to the average, we believe that the staff of FSA far exceeds expectations.

As part of the internal control framework, FSA documented and tested 1,245 key process
controls (including 1,002 business process and 243 entity level controls) and 1,760 Information
Technology (IT) system internal controls across 38 business processes (and sub-processes)
and 20 integrated IT systems, respectively. In FY 2016, we assessed that 97 percent of the
controls tested are designed and operating effectively. The other 3 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


Federal Student Aid FY 2016 Annual Report                                                Page 97
Message from the Chief Financial Officer


       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.

       I am honored 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, 2016




       Page 98                                              Federal Student Aid FY 2016 Annual Report
                                                                                        Financial Statements
                                                                                  Consolidated Balance Sheet




Financial Statements

                                United States Department of Education
                                         Federal Student Aid
                                     Consolidated Balance Sheet
                                       As of September 30, 2016 and 2015
                                                  (Dollars in Millions)


                                                                               FY 2016         FY 2015
  Assets:
   Intragovernmental:
        Fund Balance with Treasury (Note 3)                               $     60,358     $     67,985
        Other Intragovernmental Assets (Note 4)                                      8                -
     Total Intragovernmental                                                    60,366           67,985

   Credit Program Receivables, Net (Note 5)
       Direct Loan Program                                                      958,881          880,557
       FFEL Program                                                             114,870          134,704
       Other Credit Programs for Higher Education                                 1,476            1,164
    Other Assets (Note 4)                                                         1,326            1,648
  Total Assets (Note 2)                                                   $   1,136,919    $   1,086,058


  Liabilities:
   Intragovernmental:
      Debt (Note 7)
        Direct Loan Program                                               $     994,285    $     909,927
        FFEL Program                                                            131,347          139,771
        Other Credit Programs for Higher Education                                  713              646
      Subsidy Due to Treasury General Fund (Note 8)                               2,642            8,237
      Other Intragovernmental Liabilities (Note 9)                                1,721            2,009
   Total Intragovernmental                                                    1,130,708        1,060,590

   Other Liabilities (Note 9)                                                     7,893            5,160
  Total Liabilities (Note 6)                                              $   1,138,601    $   1,065,750

   Commitments and Contingencies (Note 14)

  Net Position:
   Unexpended Appropriations                                              $      26,531    $     28,325
   Cumulative Results of Operations                                             (28,213)         (8,017)

  Total Net Position                                                      $      (1,682)   $     20,308

  Total Liabilities and Net Position                                      $   1,136,919    $   1,086,058

  The accompanying notes are an integral part of these statements.




 Federal Student Aid FY 2016 Annual Report                                                          Page 99
Financial Statements
Consolidated Statement of Net Cost



                                       United States Department of Education
                                                Federal Student Aid
                                        Consolidated Statement of Net Cost
                                   For the Years Ended September 30, 2016 and 2015
                                                      (Dollars in Millions)




                                                                                        FY 2016            FY 2015
         Program Costs:



            Increase College Access, Quality, and Completion
            Gross Costs                                                             $       93,032     $       59,500
            Earned Revenue                                                                  (34,260)          (31,547)
                 Net Program Costs                                                  $       58,772     $       27,953



         Net Cost of Operations (Notes 10 & 13)                                     $       58,772     $      27,953

         The accompanying notes are an integral part of these statements.




          Page 100                                                      Federal Student Aid FY 2016 Annual Report
                                                                        Financial Statements
                                            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, 2016 and 2015
                                                   (Dollars in Millions)


                                                                 FY 2016                               FY 2015
                                                        Cumulative                            Cumulative
                                                        Results of    Unexpended              Results of    Unexpended
                                                        Operations Appropriations             Operations Appropriations


Beginning Balances:
 Beginning Balances                                 $          (8,017)     $   28,325     $       (23,815)   $      30,485

Budgetary Financing Sources:
 Appropriations Received                            $              -       $   41,985     $            -     $      55,792
 Appropriations Transferred – In/Out                              -                  -                -                 (13)
 Other Adjustments (Rescissions, etc.)                            -               (180)               -                 (47)
 Appropriations Used                                         43,599            (43,599)          57,892             (57,892)
 Nonexchange Revenue                                              9                  -                8                   -
Other Financing Sources:
 Imputed Financing from Costs Absorbed by Others                   26               -                10                     -
 Negative Subsidy Transfers, Downward Subsidy
 Re-Estimates, and Other                                       (5,058)              -             (14,159)                  -
Total Financing Sources                             $        38,576        $   (1,794)    $      43,751      $       (2,160)


Net Cost of Operations:                             $        (58,772)      $        -     $       (27,953)   $              -


Net Change:                                         $        (20,196)      $   (1,794)    $        15,798    $       (2,160)


Net Position                                         $       (28,213)      $   26,531     $        (8,017)   $       28,325

The accompanying notes are an integral part of these statements.




  Federal Student Aid FY 2016 Annual Report                                                                      Page 101
Financial Statements
Combined Statement of Budgetary Resources



                                                     United States Department of Education
                                                              Federal Student Aid
                                                   Combined Statement of Budgetary Resources
                                                   For the Years Ended September 30, 2016 and 2015
                                                                         (Dollars in Millions)



                                                                                          FY 2016                                          FY 2015
                                                                                                    Non-Budgetary                            Non-Budgetary Credit
                                                                                                    Credit Reform                              Reform Financing
                                                                             Budgetary           Financing Accounts       Budgetary                Accounts

     Budgetary Resources:
     Unobligated Balance, Brought Forward, October 1                     $           12,719 $               14,236    $       12,642 $                     9,857
     Recoveries of Prior Year Unpaid Obligations                                        188                 21,047               921                      20,727
     Other Changes in Unobligated Balance (+ or -)                                     (374)              (24,687)              (194)                   (23,978)
     Unobligated Balance from Prior Year Budget Authority, Net           $           12,533 $               10,596    $       13,369 $                     6,606
     Appropriations (Discretionary and Mandatory)                                    41,948                     24            55,798                         904
     Borrowing Authority (Discretionary and Mandatory) (Note 12)                          -               167,272                  -                    171,624
     Spending Authority from Offsetting Collections
     (Discretionary and Mandatory)                                                      470                53,563                502                     52,823
     Total Budgetary Resources (Note 12)                                 $           54,951      $        231,455     $       69,669         $          231,957

     Status of Budgetary Resources:
     New Obligations Incurred and Upward Adjustments (Total) (Note 12)   $           44,567      $        216,152     $       56,950         $          217,721
     Unobligated Balance, End of Year:
      Apportioned, Unexpired Accounts                                                 8,782                     -             10,473                        550
      Unapportioned, Unexpired Accounts                                               1,212                15,303              1,771                     13,686
     Unexpired Unobligated Balance, End of year                          $            9,994                15,303     $       12,244                     14,236
     Expired Unobligated Balance, End of Year                                           390                     -                475                          -
     Unobligated Balance, End of Year (Total)                            $           10,384      $         15,303     $       12,719         $           14,236
     Total Status of Budgetary Resources (Note 12)                       $           54,951      $        231,455     $       69,669         $          231,957

     Change in Obligated Balance:
      Unpaid Obligations:
       Unpaid Obligations, Brought Forward, October 1                    $           19,286 $              77,880     $        21,466 $                    80,104
       New Obligations and Upward Adjustments                                        44,567               216,152              56,950                    217,721
       Outlays (Gross) (-)                                                          (43,449)             (196,596)            (58,209)                  (199,218)
       Recoveries of Prior Year Unpaid Obligations (-)                                 (188)              (21,047)               (921)                    (20,727)
       Unpaid Obligations, End of Year                                   $           20,216 $              76,389     $        19,286 $                    77,880
      Uncollected Payments:
       Uncollected Payments, Federal Sources, Brought Forward,
       October 1 (-)                                                     $                  -    $              (4)   $                -     $                (4)
       Change in Uncollected Payments, Federal Sources (+ or -)                             -                    -                     -                        -
       Uncollected Payments, Federal Sources, End of Year (-)            $                  -    $              (4)   $                -     $                (4)
      Memorandum (Non-add) Entries:
       Obligated Balance, Start of Year (+ or -)                         $           19,286      $         77,876     $       21,466         $           80,100
       Obligated Balance, End of Year (+ or -)                           $           20,216      $         76,385     $       19,286         $           77,876
     Budget Authority and Outlays, Net:
      Budget Authority, Gross (Discretionary and Mandatory)              $           42,418 $             220,859     $       56,300 $                   225,351
      Actual Offsetting Collections (Discretionary and Mandatory) (-)                  (653)             (113,986)              (647)                   (122,283)
      Recoveries of Prior Year Paid Obligations (Discretionary and
      Mandatory) (+ or -)                                                                  (1)               (516)                    (2)                   (542)
     Budget Authority, Net (Discretionary and Mandatory)                 $           41,764      $        106,357     $       55,651         $          102,526
     Outlays, Gross (Discretionary and Mandatory)                        $           43,449 $             196,596     $       58,209 $                   199,218
     Actual Offsetting Collections (Discretionary and Mandatory) (-)                   (653)             (113,986)               (647)                  (122,283)
     Outlays, Net (Discretionary and Mandatory)                                      42,796                82,610              57,562                     76,935
     Distributed Offsetting Receipts (-) (Note 16)                                  (10,684)                    -             (12,957)                         -
     Agency Outlays, Net (Discretionary and Mandatory)
     (Note 12)                                                           $           32,112      $         82,610     $        44,605 $                  76,935

     The accompanying notes are an integral part of these statements.




              Page 102                                                                     Federal Student Aid FY 2016 Annual Report
                                                               Notes to the Financial Statements




Notes to the Financial Statements for the Periods Ended
September 30, 2016 and 2015

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
U.S. Department of Education (the Department) in 1998, as a result of amendments to 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 the William D. Ford
Federal Direct Loan (Direct Loan) program, the Federal Family Education Loan (FFEL)
program, the Health Education Assistance Loan program (HEAL), and the Federal Perkins Loan
program to help students and their families finance the costs of postsecondary education. A
direct loan is any debt instrument issued to the public by the federal government. A FFEL loan
guarantee is a guarantee, insurance, or other pledge with respect to the payment of all or part of
the principal or interest on any debt obligation of a non-federal borrower to a non-federal lender.
The Direct Loan program, added to the HEA in 1993 by the Student Loan Reform Act of 1993,
authorizes the Department to make loans through participating schools to eligible
undergraduate and graduate students and their parents. The SAFRA Act, which was included in
the Health Care and Education Reconciliation Act of 2010 (HCERA), stated that no new FFEL
loans would be made effective July 1, 2010.
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), Teacher Education Assistance for
College and Higher Education (TEACH) Grants, 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 the
Department and 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 FY 2016 Annual Report                                                Page 103
Notes to the Financial Statements


       FSA’s financial statements should be read with the realization that they are for the 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.
       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 subsidy
       cost of direct loans and loan guarantees at the time the loan is disbursed. Components of
       subsidy costs for loans and guarantees include defaults (net of recoveries); contractual
       payments to third-party private loan collectors who receive a set percentage of amounts
       collected; and, as an offset, origination and other fees collected. For direct loans, the difference
       between interest rates incurred by the Department on its borrowings from Treasury and interest
       rates charged to particular borrowers is also subsidized (or may provide an offset to subsidy if
       the Department’s rate is less).
       Under the FCRA, subsidy cost is estimated using the net present value of future cash flows to
       and from the Department. In accordance with the FCRA, credit programs either estimate a
       subsidy cost to the government (a “positive” subsidy), breakeven (zero subsidy cost), or
       estimate a negative subsidy cost. Negative subsidy occurs when the estimated cost of providing
       loans to borrowers from Treasury borrowing, collection costs and loan forgiveness is less than
       the value of collections from borrowers for interest and fees, in present value terms.
       The subsidy 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.
       Amortization accounts for the differences in interest rates, accruals, and cash flows over the life
       of a cohort, ensuring that cost is reflected in subsidy estimates and re-estimates.




       Page 104                                                Federal Student Aid FY 2016 Annual Report
                                                               Notes to the Financial Statements


The FCRA establishes the use of financing, program, and Treasury General Fund receipt
accounts for loan guarantees committed and direct loans obligated after September 30, 1991.
   •   Financing accounts borrow funds from Treasury, make direct loan disbursements, collect
       fees from lenders and borrowers, pay claims on guaranteed loans, collect principal and
       interest from borrowers, earn interest from Treasury on any uninvested funds, and
       transfer excess subsidy to Treasury General Fund receipt accounts. Financing accounts
       are presented separately in the combined statement of budgetary resources (SBR) as
       non-budgetary credit reform accounts to allow for a clear distinction from all other
       budgetary accounts. This facilitates reconciliation of the SBR to the Budget of the United
       States Government.
   •   Program accounts receive and obligate appropriations to cover the positive subsidy cost
       of a direct loan or loan guarantee when the loan is approved and disburses the subsidy
       cost to the financing account when the loan is issued. Program accounts also receive
       appropriations for administrative expenses.
   •   Treasury General Fund receipt accounts receive amounts paid from financing accounts
       when there are negative subsidies for new loan disbursements or downward re-
       estimates of existing loans.
Budgetary Resources
Budgetary resources are amounts available to enter into new obligations and to liquidate them.
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 Treasury, and spending authority from collections.
Borrowing authority is an indefinite budgetary resource authorized under the FCRA. This
resource, when realized, finances the unsubsidized portion of the Direct Loan, FFEL, and other
loan programs. In addition, borrowing authority is requested to cover the cost of the initial loan
disbursement as well as any related negative subsidy to be transferred to Treasury General
Fund receipt accounts. Treasury prescribes the terms and conditions of borrowing authority and
lends to the financing account amounts as appropriate. Amounts borrowed, but not yet
disbursed, are included in uninvested funds and earn interest. Treasury uses the same
weighted average interest rates for both the interest charged on borrowed funds and the interest
earned on uninvested funds. Treasury sets a different fixed interest rate to be used for each
loan cohort once the loans are substantially disbursed. 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.
Authority to borrow from Treasury provides most of the funding for disbursements made under
the Direct Loan program, FFEL, and other loan programs. Subsidy and administrative costs of
the programs are funded by appropriations. Borrowings are repaid using collections from
borrowers, fees and interest on uninvested funds.
Unobligated balances represent the cumulative amount of budgetary resources that are not
obligated and that remain available for obligation under law, unless otherwise restricted.
Resources expiring at the end of the fiscal year remain available for five years, but only for
upward adjustments of prior year obligations, after which they are canceled and may not be
used. Resources that have not expired at year-end are available for new obligations, as well as
upward adjustments of prior-year obligations. Funds are appropriated on an annual, multi-year,
or no-year basis. Appropriated funds shall expire on the last day of availability and are no longer



Federal Student Aid FY 2016 Annual Report                                                 Page 105
Notes to the Financial Statements


       available for new obligations. Amounts in expired funds are unavailable for new obligations, but
       may be used to adjust previously established obligations.
       Permanent Indefinite Budget Authority. The Direct Loan, FFEL, and other loan programs
       have permanent indefinite budget authority through legislation. 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 per congressional budgeting rules. (See
       Note 12)
       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’s estimates are based on management’s best knowledge of
       current events, historical experiences, and other assumptions that are believed to be
       reasonable under the circumstances. Significant estimates reported on the financial statements
       include: allocation of Department administrative overhead costs; allowance for subsidy for
       direct, defaulted guaranteed and acquired loans; the liability for loan guarantees; the amount
       payable or receivable from annual credit program re-estimates and modifications of subsidy cost
       (general program administration cost); and grant liability and advance accruals. (See Notes 4, 5,
       9, and 10)
       Entity and Non-Entity Assets
       Assets are classified as either entity or non-entity assets. Entity assets are those that 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 FSA and the Department’s
       accounts with Treasury available to pay current liabilities and finance authorized purchases, as
       well as funds restricted until future appropriations are received: (1) general funds which consist
       of expenditure accounts used to record financial transactions funded by congressional
       appropriations (which include amounts appropriated to fund subsidy and administrative costs of
       loan programs); (2) revolving funds which manage the activity of self-funding programs whether
       through fees, sales or other income (which include financing accounts for loan programs); (3)
       special funds which collect funds from sources that are authorized by law for a specific
       purpose—these receipts are available for expenditure for special programs; and (4) other funds
       include deposit funds, agency receipt funds, and clearing accounts. Treasury processes cash
       receipts and cash disbursements for the Department and FSA. The Department’s and FSA’s
       records are reconciled with Treasury’s. (See Note 3)




       Page 106                                               Federal Student Aid FY 2016 Annual Report
                                                                Notes to the Financial Statements


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. (See Note 4)
Guaranty Agencies’ Federal Funds
Guaranty agencies’ federal funds are primarily comprised of the federal government’s interest in
the program assets held by state and nonprofit FFEL program guaranty agencies. Section 422A
of the HEA required FFEL guaranty agencies to establish federal student loan reserve funds
(federal funds). Federal funds include initial federal start-up funds, receipts of federal
reinsurance payments, insurance premiums, guaranty agency share of collections on defaulted
loans, investment income, administrative cost allowances, and other assets.
The balance in the Federal Fund represents consolidated reserve balances of the 27 guaranty
agencies based on the Guaranty Agency Financial Reports that each agency submits annually
to the Department. Although FSA and the guaranty agencies operate on different fiscal years,
all guaranty agencies are subject to an annual audit based on form of organization. A year-end
valuation adjustment is made to adjust FSA’s balances in order to comply with federal
accounting principles and disclose funds held outside of Treasury.
Guaranty agencies’ federal funds are classified as non-entity assets with the public and are
offset by a corresponding liability due to Treasury. The federal funds are held by the guaranty
agencies but can only be used for certain specified purposes listed in the Department’s
regulations. The federal funds are the property of the U.S. and are reflected in the Budget of the
United States Government. Payments made to the FSA from guaranty agencies’ federal funds
through a statutory recall or agency closures represent capital transfers and are credited to the
Department’s Fund Balance with Treasury account. (See Notes 2, 4, and 9)
Credit Program Receivables, Net and Liabilities for Loan Guarantees
The financial statements reflect the Department and FSA’s estimate of the long-term subsidy
cost of direct and guaranteed loans in accordance with the FCRA. Loans and interest receivable
are valued at their gross amounts less an allowance for the present value of amounts not
expected to be recovered and thus having to be subsidized—called an “allowance for subsidy.”
The difference between the gross amount and the allowance for subsidy is the present value of
the cash flows to, and from, 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 guarantees is positive, the amount is reported as a
component of credit program receivables, net.
The liability for loan guarantees presents the net present value of all future cash flows from
currently insured FFEL loans, including claim payments, interest assistance, allowance
payments, and recoveries from assigned loans. Guaranteed loans that default are initially turned
over to guaranty agencies for collection. Defaulted FFEL loans are accounted for and reported
in the financial statements under credit reform rules, similar to direct loans, although they are


Federal Student Aid FY 2016 Annual Report                                                 Page 107
Notes to the Financial Statements


       legally not direct student loans. Negative balances are reported as a component of credit
       program receivables, net. Credit program receivables, net includes defaulted FFEL loans owned
       by FSA and held by FSA or guaranty agencies. In most cases, after approximately four years,
       defaulted guaranteed loans not in repayment are turned over to FSA for collection.
       FFEL program receivables include purchased loans and other interests acquired under an
       expired program. The cash flows related to these receivables include collections on purchased
       loans and other activities, including transfers of re-estimated subsidy. The cash flows of these
       authorities also include inflows and outflows associated with the underlying or purchased loans
       and other related activities, including any positive or negative subsidy transfers. (See Note 5)
       Property and Equipment, Net and Leases
       FSA has very limited acquisition costs associated with buildings, furniture and equipment as all
       federal and contractor staff are housed in leased buildings. The Department and FSA also lease
       information technology and telecommunications equipment, as part of a contractor-owned,
       contractor-operated services contract. Lease payments associated with this equipment have
       been determined to be operating leases and, as such, are expensed as incurred. The
       noncancellable lease term is one year, with the Department holding the right to extend the lease
       term by exercising additional one-year options. (See Note 4)
       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 6)
       Accounts Payable
       Accounts payable include amounts owed by FSA for goods and services received from other
       entities and scheduled payments transmitted but not yet processed. Accounts payable to the
       public primarily consists of in-process grant and loan disbursements, including an accrued
       liability for schools that have disbursed loans prior to requesting funds. (See Note 9)
       Debt
       FSA borrows from Treasury to provide funding for the Direct Loan, FFEL, and other credit
       programs for higher education. The liability to Treasury from borrowings represents unpaid
       principal at year-end. FSA repays the principal based on available fund balances. Interest rates
       are based on the corresponding rate for 10-year Treasury securities and are set for those
       borrowings supporting each cohort of loans once the loans for that cohort are substantially
       disbursed. Interest is paid to Treasury at September 30. (See Note 7)
       Net Cost
       Net cost consists of gross costs and earned revenue. Gross costs and earned revenue are
       classified as intragovernmental (exchange transactions between FSA and other entities within
       the federal government) or with the public (exchange transactions between FSA and nonfederal
       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.




       Page 108                                               Federal Student Aid FY 2016 Annual Report
                                                               Notes to the Financial Statements


Administrative overhead costs of funds unassigned are allocated based on full-time employee
equivalents of each program. (See Note 10)
Credit Program Interest Expense and Interest Revenue
FSA accrues interest receivable and records interest revenue on performing direct loans and
FFEL loans purchased by FSA. FSA recognizes interest income when interest is accrued on
loans to the public for the Direct Loan, FFEL, and other loan programs. Interest accrual under
the FFEL Financing and Liquidating Accounts is recognized in allowance for subsidy. Interest
receivables are established upon accrual and satisfied upon the collection or capitalization of
interest. Interest accruals are calculated by the loan servicers and the debt collection
management system at least monthly. Federal interest revenue is recognized on fund balance
with Treasury for the Direct Loan FFEL, and other loan programs.
Federal interest expense is recognized on the outstanding borrowing from Treasury (debt) used
to finance loans. The interest rate for federal interest expense is the same as the rate used for
federal interest revenue.
Interest expense and interest revenue are equal for all credit programs due to subsidy
amortization. Subsidy amortization is required by the FCRA and accounts for the difference
between interest accruals and interest cash flows. For direct loans, the allowance for subsidy is
adjusted with the offset to interest revenue. For guaranteed loans, the liability for loan
guarantees is adjusted with the offset to interest expense. (See Note 11)
Net Position
Net position consists of unexpended appropriations and cumulative results of operations.
Unexpended appropriations include undelivered orders and unobligated balances, except for
federal credit financing and liquidating funds and trust funds. Cumulative results of operations
represent the net difference since inception between (1) expenses and (2) revenues and
financing sources.
Personnel Compensation and Other Employee Benefits
Annual, Sick, and Other Leave. The liability for annual leave, compensatory time off, and other
vested leave is accrued when earned and reduced when taken. Each year, the accrued annual
leave account balance is adjusted to reflect current pay rates. Sick leave and other types of
nonvested leave are expensed as taken. Annual leave earned but not taken, within established
limits, is funded from future financing sources.
Retirement Plans and Other Retirement Benefits. Employees participate in either the Civil
Service Retirement System (CSRS), a defined benefit plan, or the Federal Employees
Retirement System (FERS), a defined benefit and contribution plan. For CSRS employees, the
Department contributes a fixed percentage of pay.
FERS consists of Social Security, a basic annuity plan, and the Thrift Savings Plan. The
Department and the employee contribute to Social Security and the basic annuity plan at rates
prescribed by law. In addition, the Department is required to contribute to the Thrift Savings
Plan a minimum of 1 percent per year of the basic pay of employees covered by this system,
match voluntary employee contributions up to 3 percent of the employee’s basic pay, and match
one-half of contributions between 3 percent and 5 percent of the employee’s basic pay. For
FERS employees, the Department also contributes the employer’s share of Medicare.
Contributions for CSRS, FERS, and other retirement benefits are insufficient to fund the
programs fully and are subsidized by the Office of Personnel Management (OPM). The
Department imputes its share of the OPM subsidy, using cost factors provided by OPM, and
reports the full cost of the programs related to its employees.


Federal Student Aid FY 2016 Annual Report                                                Page 109
Notes to the Financial Statements


       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 prior year financial statements and notes to conform
       to the current year presentation. These changes had no effect on total assets, liabilities and net
       position, net cost of operations, or budgetary resources. Changes made to the balance sheet
       provide additional information related to credit program receivables and related liability
       balances, and immaterial balances were aggregated and consolidated into other lines.
       Components of the prior year Direct Loan subsidy transfers were reclassified in Note 5 to better
       reflect the fiscal year of underlying loan disbursement versus actual subsidy disbursement - the
       total FY 2015 Direct Loan subsidy transfers was not affected. Additionally, changes were made
       to the Statement of Budgetary Resources presentation in accordance with OMB Circular A-136,
       Financial Reporting Guidance, to disaggregate end of year expired unobligated balances and
       recoveries of prior year unpaid obligations.
       Note 2. Non-Entity Assets
       As of September 30, 2016 and 2015, non-entity assets consisted of the following:
                                              Non-Entity Assets
                                                  (Dollars in Millions)


                                                                  2016                                    2015
                                                 Intragovern-                   With the       Intragovern-          With the
        Non-Entity Assets
                                                    mental                      Public            mental             Public
        Fund Balance with Treasury                $               -         $              -   $          -      $              -
        Credit Program Receivables, Net                           -                   449                 -                410
        Other Assets
         Guaranty Agencies' Federal Funds                         -                 1,197                 -              1,561
         Accounts Receivable, Net                                 -                    32                 -                 31
        Total Non-Entity Assets                               -                     1,678                -               2,002
        Entity Assets                                    60,366                 1,074,875           67,985           1,016,071
        Total Assets                              $      60,366             $ 1,076,553        $    67,985       $ 1,018,073

       FSA’s FY 2016 assets are predominantly entity assets (99.9 percent), leaving the small portion
       of assets remaining as non-entity assets. Non-entity assets with the public primarily consist of
       guaranty agency reserves (71.3 percent), reported as Guaranty Agencies’ Federal Funds, and
       related Federal Perkins Loan program loan receivables (26.8 percent), reported as credit
       program receivables, net. The corresponding liabilities for these non-entity assets are reflected
       in various accounts, including intragovernmental accounts payable, Guaranty Agency Federal
       Funds due to Treasury, and other liabilities. (See Note 9)




       Page 110                                                           Federal Student Aid FY 2016 Annual Report
                                                                           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, 2016 and
2015, consisted of the following:
                                    Fund Balance with Treasury
                                             (Dollars in Millions)



                                                                                    2016
                                                          General          Revolving       Special
                                                           Funds            Funds          Funds         Total
 Status of Funds
 Unobligated Balance
  Available                                                $    8,782       $        -      $     -      $ 8,782
  Unavailable                                                     391           15,304           13       15,708
 Obligated Balance, not Disbursed                              20,211           15,655            2       35,868

 Total Fund Balance with Treasury                          $ 29,384         $ 30,959         $   15      $ 60,358

                                                                                    2015
                                                          General          Revolving       Special
                                                           Funds            Funds          Funds         Total
 Status of Funds
 Unobligated Balance
  Available                                                $ 10,473         $     550       $        -   $ 11,023
  Unavailable                                                        671        13,686           14        14,371
 Obligated Balance, not Disbursed                              19,283           23,307               1     42,591

 Total Fund Balance with Treasury                          $ 30,427         $ 37,543         $   15      $ 67,985

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 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 balance ($15,708 million)
differs from unapportioned and expired amounts on the SBR ($16,905 million) due to the
Guaranty Agencies’ Federal Funds ($1,197 million).




Federal Student Aid FY 2016 Annual Report                                                                Page 111
Notes to the Financial Statements


       Note 4. Other Assets
       Other assets, as of September 30, 2016 and 2015, were comprised of the following:

                                                             Other Assets
                                                              (Dollars in Millions)


                                                                             2016                                       2015

                                                              Intragovern-                 With the       Intragovern-             With the
                                                                 mental                    Public            mental                Public

               Guaranty Agencies' Federal Funds                   $              -         $     1,197        $          -         $     1,561
               Accounts Receivable, Net                                          -                 100                   -                  65
               Advances                                                       8                     3                    -                    2
               Property and Equipment, Net                                    -                    24                    -                   16
               Other                                                          -                     2                    -                    4
               Total Other Assets                                  $          8            $     1,326        $          -         $     1,648

       Note 5. Credit Programs for Higher Education: Credit Program
       Receivables, Net and Liabilities for Loan Guarantees
       FSA and the Department currently operate 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 $1,075.2 billion in outstanding credit program net receivables. This outstanding
       balance is comprised primarily of direct loans, FFEL, and loans purchased using authority
       provided in the Ensuring Continued Access to Student Loans Act of 2008 (ECASLA), but there
       are several other loan programs that the Department and FSA administer – including the
       Federal Perkins Loan Program, TEACH Grant Program, and the HEAL Program.
       Credit Program Receivables, as of September 30, 2016 and 2015, consisted of the following:
                                               Credit Program Receivables, Net
                                                              (Dollars in Millions)


                                                                                                2016
                                                                                          Accrued        Allowance for
                                                                 Principal                                                             Net
                                                                                          Interest          Subsidy
        Direct Loan Program                                  $         902,754        $        50,835    $           5,292     $       958,881
        FFEL Program                                                   109,804                 18,191             (13,125)             114,870
        Other Credit Programs for Higher Education                       1,488                    374                (386)               1,476
        Total Credit Receivables                             $ 1,014,046              $        69,400    $         (8,219)     $ 1,075,227
                                                                                                2015
                                                                                          Accrued        Allowance for
                                                                 Principal                                                             Net
                                                                                          Interest          Subsidy*
        Direct Loan Program                                  $         800,811        $        44,250     $        35,496      $       880,557
        FFEL Program                                                   114,704                 17,529               2,471              134,704
        Other Credit Programs for Higher Education                       1,413                    347               (596)                1,164
        Total Credit Receivables                             $         916,928        $        62,126     $        37,371      $ 1,016,425

        * Includes allowance for subsidy and liability for loan guarantees




       Page 112                                                                      Federal Student Aid FY 2016 Annual Report
                                                              Notes to the Financial Statements


The federal student loan programs provide students and their families with the funds to help
meet postsecondary education costs. Funding for these programs is provided through
permanent indefinite budget authority. What follows is a comprehensive description of the
student loan programs at the Department, including summary financial data and subsidy rates.
William D. Ford Federal Direct Loan Program. The federal government makes loans directly
to students and parents through participating institutions of higher education under the Direct
Loan program. Direct loans are originated and serviced through contracts with private vendors.
The Department records an estimated obligation each year for direct loan awards to be made in
a fiscal year based on estimates of schools’ receipt of aid applications. Half of all loan awards
are issued in the fourth quarter of the fiscal year. Loans awarded are typically disbursed in
multiple installments over an academic period. As a result, loans may be disbursed over
multiple fiscal years. Loan awards may not be fully disbursed due to students leaving or
transferring to other schools. The Department’s estimate may also not reflect the actual amount
of awards made. Based on historical averages, the Department expects approximately
6.2 percent of the amount obligated for new loan awards will not be disbursed.
Direct Loan program loan receivables includes defaulted and nondefaulted loans owned and
held by the Department. Of the $953.6 billion in gross receivables, as of September 30, 2016,
$57.3 billion (6.0 percent) in loan principal was in default and had been transferred to the
Department’s defaulted loan servicer, compared to $44.1 billion (5.2 percent) as of
September 30, 2015.
The allowance for subsidy represents the estimated cost (to taxpayers) of financing the entire
loan program for all loans outstanding. The subsidy cost figures are estimated using OMB-
reviewed financial modeling methodologies which are subject to the FCRA. The allowance is the
aggregate of all positive and negative subsidies as well as modification adjustments, at a point
in time, for the current fiscal year and all those prior.
Positive subsidies, which are resources provided by Treasury to the Department for continuing
loan origination and servicing activities, are required when estimated program cash outflows are
expected to exceed inflows. Alternatively, when the estimated cash inflows are expected to
exceed outflows, the Department transfers excess subsidy funds back to the Treasury (negative
subsidy transfers). Positive subsidy increases aggregate program costs and negative subsidy
decreases aggregate program costs to taxpayers.
The estimation process used to determine the amount of positive or negative subsidy expense
each fiscal year, and subsequently the cumulative taxpayer cost of the program (allowance for
subsidy), is subject to various internal and external risk factors which often show strong
interdependence with one another. These risks include uncertainty about changes in the
general economy, changes in the legislative and regulatory environment, and changing trends in
borrower performance with regard to contractual cash flows within the loan programs.
Due to the complexity of the Direct Loan program, there is inherent projection risk in the process
used for estimating long-term program costs. As stated, some uncertainty stems from potential
changes in student loan legislation and regulations because these changes may fundamentally
alter the cost structure of the program. Operational and policy shifts, such as growing efforts to
increase borrower enrollment in income-driven repayment (IDR) plans, may also affect program
costs by causing significant changes in borrower repayment timing. Actual performance may
deviate from estimated performance, which is not unexpected given the long-term nature of
these loans (cash flows may be estimated up to 40 years), and the multitude of projection paths
and possible outcomes. The increasing enrollment of borrowers in the IDR plans has made
projection of borrower incomes a key input for the estimation process. This uncertainty is



Federal Student Aid FY 2016 Annual Report                                                Page 113
Notes to the Financial Statements


       directly tied to the macroeconomic climate and is another inherent program element which
       displays the interrelated risks facing the Direct Loan program.
       The following schedule provides a reconciliation between the beginning and ending balances of
       the allowance for subsidy for the Direct Loan program:
                         Direct Loan Program Reconciliation of Allowance for Subsidy
                                                        (Dollars in Millions)


                                                                                            2016              2015

        Beginning Balance, Allowance for Subsidy                                            $      (35,496)   $      (47,358)
        Activity
        Fee Collections                                                                              1,685             1,618
        Loan Cancellations                                                                          (5,065)           (4,777)
        Subsidy Allowance Amortization                                                              17,815            16,373
        Other                                                                                         (350)             (460)
        Total Activity                                                                              14,085            12,754

        Subsidy Expense for Direct Loans Disbursed in the Current Year by Component
        Interest Rate Differential                                                                 (15,463)          (15,555)
        Defaults, Net of Recoveries                                                                   (127)              217
        Fees                                                                                        (1,993)           (1,678)
        Other                                                                                       11,887            10,830
        Total of the Above Subsidy Expense Components                                               (5,696)           (6,186)
        Loan Modification                                                                                 -            9,936
        Components of Subsidy Re-estimates
        Interest Rate Re-estimates                                                                  (1,536)            1,506
        Technical and Default Re-estimates                                                          23,351            (6,148)
        Upward/(Downward) Subsidy Re-estimates                                                      21,815            (4,642)
        Ending Balance, Allowance for Subsidy                                               $       (5,292)   $      (35,496)



       Loan cancellations include write-offs of loans because the borrower died, became disabled, or
       declared bankruptcy. The interest rate re-estimate reflects the cost of finalizing the Treasury
       borrowing rate to be used for borrowings received to fund the disbursed portion of the loan
       awards obligated. The remaining components of subsidy expense for direct loans disbursed in
       the current year consist of contract collection costs, program review collections, fees, loan
       forgiveness under PAYE and other accruals. Components of the FY 2015 subsidy expense for
       direct loans disbursed in the current year were reclassified to better reflect the fiscal year of
       underlying loan disbursement versus actual subsidy disbursement. Due to the interaction of the
       timing of disbursements by loan type and other underlying subsidy rates, the bulk of these
       expenses for both the 2015 cohort and 2016 cohort were recorded in FY 2016.




       Page 114                                                          Federal Student Aid FY 2016 Annual Report
                                                                          Notes to the Financial Statements


The following schedule summarizes the Direct Loan interest expense and interest revenue for
the years ended September 30, 2016 and 2015:

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



                                                                                          2016             2015
 Interest Expense on Treasury Borrowing                                               $    30,503      $    27,593
 Total Interest Expense                                                               $    30,503      $    27,593


 Interest Revenue from the Public                                                     $     44,375     $     39,760
 Amortization of Subsidy                                                                  (17,815)         (16,373)
 Interest Revenue on Uninvested Funds                                                        3,943            4,206
 Total Interest Revenue                                                               $    30,503      $    27,593



The following schedule summarizes the Direct Loan subsidy expense for the years ended
September 30, 2016 and 2015:
                                  Direct Loan Program Subsidy Expense
                                                  (Dollars in Millions)




                                                                                          2016             2015

 Subsidy Expense for New Direct Loans Disbursed
 Interest Rate Differential                                                           $ (15,463)       $ (15,555)
 Defaults, Net of Recoveries                                                               (127)              217
 Fees                                                                                    (1,993)          (1,678)
 Other                                                                                    11,887           10,830

 Total Subsidy Expense for New Direct Loans Disbursed                                      (5,696)          (6,186)
 Loan Modification                                                                               -            9,936
 Upward/(Downward) Subsidy Re-estimates                                                    21,815           (4,642)
 Direct Loan Subsidy Expense                                                          $    16,119      $     (892)



Direct Loan program re-estimated subsidy cost was adjusted upward by $21.8 billion in
FY 2016. The re-estimates reflect several updated assumptions: however, in this case, the size
of the net upward re-estimate was due largely to collection rates on defaulted loans and
repayment plan selection. Actual collections on defaults since FY 2011 were lower than
anticipated, which reduced estimated lifetime rates and increased the cost to the Department by
$10.1 billion. For repayment plan selection, a greater percentage of borrowers chose costlier
plans than had been estimated and increased the cost to the Department by $8.1 billion. The
percentage of borrowers choosing an income-driven repayment plan was the primary cost driver
for that assumption.
Subsidy rates are sensitive to the difference between the borrowers rates and the rate the
Department is charged by Treasury on the debt to fund the loans; for example, a 1 percent
increase in projected borrower interest rates would reduce projected direct loan subsidy cost by
$4.8 billion. Re-estimated costs only include cohorts that are 90 percent disbursed; cohort years
1994–2015. With the increase in income-driven repayment participation the Department also



Federal Student Aid FY 2016 Annual Report                                                            Page 115
Notes to the Financial Statements


       conducted sensitivities on incomes for students in IDR and Public Service Loan Forgiveness
       (PSLF) plans. A 10 percent upward increase in borrower incomes decreases costs almost
       $8.7 billion for cohorts 1994-2015. A 10 percent increase in PSLF plan participation would
       increase costs $6.3 billion for cohorts 1994-2015.
       Direct Loan program re-estimated subsidy cost was adjusted downward by $4.6 billion in
       FY 2015. Updated discount rates for the 2014 and 2013 cohorts decreased cost by $6.2 billion.
       Higher participation in income dependent repayment plans increased cost by $15 billion. The
       introduction of a new model for estimating income-driven repayment plan costs resulted in a
       decrease in subsidy costs by $5.8 billion. Costs increased $1.8 billion due to increases in
       default rates. Changes in prepayment rates reflect larger than expected prepayment activity,
       leading to decreased interest earnings resulting in $3.5 billion in upward subsidy cost. Costs
       decreased $5.7 billion due to higher forbearance rates. Interest accrues during forbearance and
       that interest is eventually paid to the Department. Other assumption updates produced offsetting
       costs, with the remainder attributable to interest on the re-estimate.
       FY 2015 Modification. Recorded subsidy cost of a loan is based on a set of assumed future
       cash flows. Government actions that change these assumed future cash flows change subsidy
       cost and are recorded as loan modifications. Loan modifications are recognized under the same
       accounting principle as subsidy re-estimates. Modification adjustment transfers are required to
       adjust for the difference between the discount rate used to calculate the cost of the modification
       and the interest rate at which the cohort pays or earns interest.
       The Department modified direct loans in FY 2015. Borrowers formerly ineligible for a more
       generous PAYE repayment plan became eligible for a modified version of PAYE leading to
       increased costs resulting in a $9.3 billion upward modification of subsidy cost and a $629 million
       net upward modification adjustment transfer. In FY 2015, the Department forgave $2.1 billion in
       interest for borrowers participating in the PAYE/income-based repayment (IBR) plans, which
       provide that, if the borrower’s monthly payment amount is not sufficient to pay the accrued
       interest on the borrower’s direct subsidized loan or the subsidized portion of a direct
       consolidation loan, the Secretary does not charge the borrower the remaining accrued interest
       for a period not to exceed three consecutive years from the established repayment period start
       date on that loan under the PAYE/IBR plan.
       The subsidy rates applicable to the 2016 loan cohort year follow:
                                     Direct Loan Subsidy Rates—Cohort 2016

                                            Interest
                                          Differential   Defaults      Fees      Other       Total
                  Stafford                   6.82%        1.56%      (1.68)%     4.98%      11.68%
                  Unsubsidized Stafford     (8.34)%       1.06%      (1.68)%     6.24%      (2.72)%
                  PLUS                     (22.04)%       0.78%      (4.27)%     5.38%     (20.15)%
                  Consolidation              3.32%       (0.50)%      0.00%     10.68%      13.50%

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

       The subsidy rate represents the subsidy expense of the program in relation to the obligations or
       commitments made during the fiscal year and are weighted on gross volume. The subsidy
       expense for new direct loans reported in the current year relates to disbursements of loans from
       both current and prior years’ cohorts. Subsidy expense is recognized when the Department
       disburses direct loans. The subsidy expense reported in the current year may include re-
       estimates. The subsidy rates shown above, which reflect aggregate positive subsidy in the
       FY 2016 cohort, cannot be applied to direct loans disbursed during the current reporting year to



       Page 116                                                     Federal Student Aid FY 2016 Annual Report
                                                                           Notes to the Financial Statements


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
2018 President's Budget.
The subsidy costs of the Department’s student loan programs, especially the Direct Loan
Program, are highly sensitive to changes in actual and forecasted interest rates. The formulas
for determining program interest rates are established by statute; the existing loan portfolio has
a mixture of borrower and lender rate formulas. Interest rate projections are based on
probabilistic interest rate scenario inputs developed and provided by OMB.

The following schedule summarizes the Direct Loan program loan disbursements by loan type
for the years ended September 30, 2016 and 2015:
                  Direct Loan Program Loan Disbursements by Loan Type
                                           (Dollars in Millions)



                                                                       2016             2015
             Stafford                                              $     (23,752)   $    (23,953)
             Unsubsidized Stafford                                       (52,254)        (52,698)
             PLUS                                                        (19,001)        (19,163)
             Consolidation                                               (45,518)        (46,434)
             Total Expenditures                                    $    (140,525)   $   (142,248)

The allocation of disbursements for the first three loan types is estimated based on historical
trend information.
Student and parent borrowers may prepay existing loans without penalty through a new
consolidation loan. Under the FCRA and requirements provided by OMB regulations, the
retirement of direct loans being consolidated is considered a collection of principal and interest.
This receipt is offset by the disbursement related to the newly created consolidation loan.
Underlying direct or guaranteed loans, performing or nonperforming, are paid off in their original
cohort; new consolidation loans are originated in the cohort in which the new consolidation loan
was obligated. Consolidation activity is taken into consideration in establishing subsidy rates for
defaults and other cash flows. The cost of new consolidations is included in subsidy expense for
the current-year cohort; the effect of prepayments on existing loans could contribute to re-
estimates of prior cohort subsidy costs. The net receivables include estimates of future
prepayments of existing loans through consolidations; they do not reflect subsidy costs
associated with anticipated future consolidation loans.
Direct loan consolidations were $46 billion during both FY 2016 and FY 2015. Under the FCRA,
the subsidy costs of new consolidation loans are not reflected until the future fiscal year in which
they are disbursed. The effect of the early payoff of the existing loans—those being
consolidated—is recognized in the future projected cash flows of the past cohort year in which
the loans were originated.
Federal Family Education Loan Program. As a result of the SAFRA Act, no new FFEL loans
have been made since July 1, 2010. Federal guarantees on FFEL program loans and
commitments remain in effect for loans made before July 1, 2010, unless they were sold to the
Department through an ECASLA program, consolidated into a direct loan, or otherwise satisfied,
discharged, or cancelled. As of September 30, 2016 and 2015, total principal balances
outstanding of guaranteed loans held by lenders were approximately $197 billion and
$220 billion, respectively. As of September 30, 2016 and 2015, the estimated maximum


Federal Student Aid FY 2016 Annual Report                                                           Page 117
Notes to the Financial Statements


       government exposure on outstanding guaranteed loans held by lenders was approximately
       $193 billion and $215 billion, respectively. Of the insured amount, the Department would pay a
       smaller amount to the guaranty agencies. The rates range from 75 to 100 percent of the loan
       value depending on when the loan was made and the guaranty agency’s claim experience.


                                         FFEL Program Loan Receivables
                                                        (Dollars in Millions)


                                                                                        2016
                                                                                                  Loan
                                                                Accrued          Allowance
                                            Principal                                           Guarantee            Net
                                                                Interest        for Subsidy
                                                                                                 Liability
         FFEL GSL Program (Pre-1992)         $    4,087        $      5,674      $    (7,622)    $           -   $     2,139
         FFEL GSL Program (Post-1991)            35,645               6,562          (12,398)                -        29,809
         Loan Purchase Commitment                23,867               2,090             2,922                -        28,879
         Loan Participation Purchase             44,434               3,600            4,347                 -        52,381
         ABCP Conduit                             1,771                 265            (374)                 -         1,662
         FFEL Program Loan Receivables       $ 109,804         $     18,191      $   (13,125)    $           -   $ 114,870

                                                                                        2015
                                                                                                  Loan
                                                                Accrued          Allowance
                                            Principal                                           Guarantee            Net
                                                                Interest        for Subsidy
                                                                                                 Liability
         FFEL GSL Program (Pre-1992)         $    4,388        $      6,149      $    (8,162)   $      (10)      $     2,365
         FFEL GSL Program (Post-1991)            33,415               5,756           (4,389)        3,398            38,180
         Loan Purchase Commitment                26,474               1,981             4,410             -           32,865
         Loan Participation Purchase            48,540                3,403            7,573             -          59,516
         ABCP Conduit                            1,887                  240            (349)             -           1,778
         FFEL Program Loan Receivables       $ 114,704         $     17,529      $     (917)     $   3,388       $ 134,704

       ECASLA gave the Department temporary authority to purchase FFEL loans and participation
       interests in those loans. The Department implemented three activities under this authority: loan
       purchase commitments; purchases of loan participation interests; and a put, or forward
       purchase commitment, with an Asset-Backed Commercial Paper (ABCP) Conduit. This authority
       expired after September 30, 2010; as a result, loan purchase commitments and purchases of
       loan participation interests concluded. However, under the terms of the Put Agreement with the
       conduit, ABCP Conduit activity ceased operations in January 2014.

       The FFEL guaranteed student loan financing account had a negative estimated liability for loan
       guarantees of $3.4 billion as of September 30, 2015. This indicated that expected collections on
       anticipated future defaulted loans was in excess of default disbursements, calculated on a net
       present value basis. Under GAAP, the negative estimated liability as of September 30, 2015,
       was classified as a component of credit program receivables on the consolidated balance sheet.




       Page 118                                                             Federal Student Aid FY 2016 Annual Report
                                                                        Notes to the Financial Statements


The following schedule provides a reconciliation between the beginning and ending balances of
the liability for loan guarantees for the insurance portion of the FFEL program:
                FFEL Program Reconciliation of Liabilities for Loan Guarantees
                                               (Dollars in Millions)


                                                                                  2016                2015


 Beginning Balance, FFEL Financing Account Liability for Loan Guarantees          $   (3,398)     $     (4,218)
 Activity
 Interest Supplement Payments                                                           (830)             (896)
 Claim Payments                                                                       (6,678)           (6,917)
 Fee Collections                                                                        1,731             1,926
 Interest on Liability Balance                                                        (1,766)           (1,826)
 Other                                                                                  5,648           12,797
 Total Activity                                                                       (1,895)            5,084
 Components of Loan Modification
 Loan Modification Costs                                                                  151                  -
 Modification Adjustment Transfers                                                         24                  -
 Loan Modification                                                                        175                  -

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


 Ending Balance, FFEL Financing Account Liability for Loan Guarantees                    1,417          (3,398)
 FFEL Liquidating Account Liability for Loan Guarantees                                     12               10

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

Other activity includes negative special allowance collections, collections on defaulted FFEL
loans, guaranty agency expenses, and loan cancellations due to death, disability, or bankruptcy.
The following schedules provide reconciliations between the beginning and ending balances of
the allowance for subsidy for the loan purchase commitment component and the loan
participation purchase component of the FFEL program. Loans in these programs are loans
acquired by the Department. Acquired loans are reported at their net present value of future
cash flows.
            Loan Purchase Commitment Reconciliation of Allowance for Subsidy
                                               (Dollars in Millions)



                                                                                  2016                2015
          Beginning Balance, Allowance for Subsidy                                $   (4,410)     $     (5,228)
          Activity
          Subsidy Allowance Amortization                                                   644             724
          Loan Cancellations                                                             (193)           (274)
          Contract Collection Cost and Other                                              (40)            (40)
          Total Activity                                                                  411                410
          Upward/(Downward) Subsidy Re-estimates                                         1,077               408
          Ending Balance, Allowance for Subsidy                                   $   (2,922)     $     (4,410)




Federal Student Aid FY 2016 Annual Report                                                        Page 119
Notes to the Financial Statements


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



                                                                                           2016              2015
        Beginning Balance, Allowance for Subsidy                                          $    (7,573)   $    (8,373)
        Activity
        Subsidy Allowance Amortization                                                          1,208          1,362
        Loan Cancellations                                                                      (355)          (518)
        Direct Asset Activities                                                                   (74)           (44)
        Total Activity                                                                            779            800
        Upward/(Downward) Subsidy Re-estimates                                                  2,447               -
        Ending Balance, Allowance for Subsidy                                             $    (4,347)   $    (7,573)



       The following schedule provides FFEL program subsidy expense for the years ended
       September 30, 2016 and 2015, respectively:
                                              FFEL Program Subsidy Expense
                                                           (Dollars in Millions)


                                                                                           2016              2015
        FFEL Loan Guarantee Program Subsidy Re-estimates                                   $   6,535     $    (4,264)
        Loan Purchase Commitment Subsidy Re-estimates                                          1,077              408
        Loan Participation Purchase Subsidy Re-estimates                                       2,447                -
        FFEL Program Upward/(Downward) Subsidy Re-estimates                                    10,059         (3,856)
        FFEL Guaranteed Loan Program Modification Costs                                           175               -
        FFEL Program Subsidy Expense                                                       $   10,234    $    (3,856)


       FFEL guaranteed re-estimated subsidy cost was adjusted upward by $10.2 billion in FY 2016.
       The net upward re-estimates in these programs were due primarily to collection rates on
       defaulted loans which were lower than anticipated.
       Subsidy rates are sensitive to interest rate fluctuations; for example, a 1 percent increase in
       borrower interest rates and the guaranteed yield for lenders would increase projected FFEL
       subsidy costs by $16.6 billion.
       FFEL guaranteed re-estimated subsidy cost was adjusted downward by $3.9 billion in FY 2015.
       Subsidy costs decreased $2.1 billion due to updated economic assumptions, including
       probabilistic deterministic rates, which reflected historically low commercial paper rates,
       resulting in substantially higher negative special allowance payments. Subsidy costs decreased
       $706 million due to lower deferment rates on consolidated loans that have subsidized
       components of outstanding debt. The Department pays interest benefits when loans are in
       deferment, so lower deferment rates mean less interest benefits when loans are in deferment,
       so lower deferment rates mean less interest benefit payments to lenders. Other assumption
       updates produced offsetting subsidy costs, with the remainder attributable to interest on the re-
       estimate.

       FY 2016 Modification. In the FFEL program, private lenders provided loan capital, backed by a
       federal guarantee on the loans. The federal government provided interest subsidies to lenders
       and reimbursement to guaranty agencies for most of the costs associated with loan defaults
       and other loan cancellations. The Consolidated Appropriations Act, 2016, increased the


       Page 120                                                                Federal Student Aid FY 2016 Annual Report
                                                                                Notes to the Financial Statements


guaranty agencies’ maximum reinsurance percentage on default claims from 95 percent to
100 percent. State and private nonprofit guaranty agencies provide services that include:
insurance payments to lenders for defaults, collection of some defaulted loans, default
avoidance activities, and counseling to schools, students, and lenders.

Other Credit Programs for Higher Education
                          Other Credit Programs for Higher Education
                                                 (Dollars in Millions)


                                                                                2016
                                                                                             Loan
                                                     Accrued              Allowance
                                 Principal                                                 Guarantee         Net
                                                     Interest            for Subsidy
                                                                                            Liability
  Federal Perkins Loans      $          385      $         242           $     (178)   $            -    $        449
  TEACH Program Loans                   698                101                 (109)                -             690
  HEAL Program Loans                    405                 31                  (99)                -             337
  Total                      $        1,488      $         374           $     (386)   $            -    $      1,476

                                                                                2015
                                                                                             Loan
                                                     Accrued              Allowance
                                 Principal                                                 Guarantee         Net
                                                     Interest            for Subsidy
                                                                                            Liability
  Federal Perkins Loans      $          356      $         222           $     (168)   $           -     $        410
  TEACH Program Loans                   642                 97                 (108)               -              631
  HEAL Program Loans                    415                 28                 (127)            (193)             123
  Total                      $        1,413      $         347           $     (403)   $        (193)    $      1,164

Federal Perkins Loan Program. The Federal Perkins Loan program provides low-interest
loans to eligible postsecondary school students. In some statutorily defined cases, funds are
provided to reimburse schools for loan cancellations. For defaulted loans assigned to the
Department, collections of principal, interest, and fees, net of amounts paid by the Department
to cover contract collection costs, are transferred to Treasury annually.
TEACH Grant Program. The Department awards annual grants of up to $4,000 to eligible
undergraduate and graduate students who agree to serve as full-time mathematics, science,
foreign language, bilingual education, special education, or reading teachers at high-need
schools for four years within eight years of graduation. The maximum lifetime grant for students
is $16,000 for undergraduate programs and $8,000 for graduate programs. For students failing
to fulfill the service requirement, the grants are converted to Direct Unsubsidized Stafford
Loans. Since grants can be converted to direct loans, for budget and accounting purposes, the
program is operated as a loan program under the FCRA.
The subsidy rates applicable to the 2016 loan cohort year follow:
                             TEACH Subsidy Rates—Cohort 2016

                                         Interest
                                       Differential       Defaults             Fees         Other       Total

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

HEAL Program. The Department assumed responsibility in FY 2014 for the HEAL program and
the authority to administer, service, collect, and enforce the program. The HEAL program is
structured as required by the FCRA. A liquidating account is used to record all cash flows to and


Federal Student Aid FY 2016 Annual Report                                                                        Page 121
Notes to the Financial Statements


       from the government resulting from guaranteed HEAL loans committed prior to 1992. All loan
       activity for 1992 and beyond is recorded in corresponding financing accounts.

       Administrative Expenses
       Administrative expenses, for the years ended September 30, 2016 and 2015, consisted of the
       following:
                                                  Administrative Expenses
                                                           (Dollars in Millions)


                                                                                    2016                                 2015
                                                                  Direct Loan               FFEL          Direct Loan            FFEL
                                                                   Program                 Program         Program              Program

        Operating Expense                                        $            721          $     465       $            653     $      442
        Other Expense                                                              50                33                  28                18

        Total                                                    $            771          $     498       $            681     $      460



       Note 6. Liabilities Not Covered by Budgetary Resources

       Liabilities not covered by budgetary resources include liabilities for which congressional action is
       needed before budgetary resources can be provided. Although future appropriations to fund
       these liabilities are likely, it is not certain that appropriations will be enacted to fund these
       liabilities.

                                  Liabilities Not Covered by Budgetary Resources
                                                           (Dollars in Millions)

                                                                            2016                                     2015
                                                                 Intragovern-    With the                 Intragovern-          With the
                                                                    mental       Public                      mental              Public
        Liabilities Not Covered by Budgetary Resources
         Subsidy Due to Treasury General Fund                        $      2,429          $          -        $      2,790     $          -
         Other Liabilities
          Federal Perkins Loan Program                                         437                    -                 395                -
          Accrued Unfunded Annual leave                                             -            12                        -           12
          FECA Liabilities                                                          2                 -                   1                2
        Total Liabilities Not Covered by Budgetary
        Resources                                                    $      2,868          $     12            $      3,186     $      14
        Total Liabilities Covered by Budgetary Resources                 1,127,840             7,881               1,057,404         5,146
        Total Liabilities                                            $ 1,130,708           $   7,893           $ 1,060,590      $    5,160




       Page 122                                                                Federal Student Aid FY 2016 Annual Report
                                                                             Notes to the Financial Statements


   Note 7. Debt
   Debt, as of September 30, 2016 and 2015, consisted of the following:

                                                      Debt
                                               (Dollars in Millions)

                                                                                        2016
                                         Beginning
                                                               Borrowing             Repayments       Ending Balance
                                          Balance
Direct Loan Program                  $        909,927         $        146,993   $        (62,635)    $       994,285
FFEL Program                                  139,771                     160              (8,584)            131,347
Other Credit Programs for Higher
Education                                            646                   94                  (27)               713
Total                                $      1,050,344         $        147,247   $        (71,246)    $     1,126,345
                                                                                        2015
                                         Beginning
                                                               Borrowing             Repayments       Ending Balance
                                          Balance
Direct Loan Program                  $        819,007         $        159,667   $        (68,747)    $       909,927
FFEL Program                                  145,800                    2,557             (8,586)            139,771
Other Credit Programs for Higher
Education                                            555                  108                  (17)               646
Total                                $        965,362         $        162,332   $        (77,350)    $     1,050,344


   FSA borrows from Treasury to fund the disbursement of new loans and the payment of credit
   program outlays and related costs. During FY 2016, debt increased 7 percent from $1,050
   billion in the prior year to $1,126 billion. The Department makes periodic principal payments,
   after evaluating the cash position and liability for future outflows in each program and pays
   interest, as mandated by the FCRA.

   Approximately 88 percent of FSA’s debt, as of September 30, 2016, is attributable to the Direct
   Loan program. The majority of the net borrowing activity (borrowing less repayments) for the
   year was designated for funding new Direct Loan disbursements.
   FSA also borrows from Treasury for activity in the Other Credit Programs for Higher Education.
   During FY 2016, TEACH net borrowing of $67 million was used for the advance of new grants
   and repayments of principal made to Treasury.




   Federal Student Aid FY 2016 Annual Report                                                               Page 123
Notes to the Financial Statements


        Note 8. Subsidy Due to Treasury General Fund
                                         Subsidy Due to Treasury General Fund
                                                          (Dollars in Millions)


                                                                                           2016                 2015
                 Credit Program Downward Subsidy Re-estimates
                  Direct Loan Program                                                 $              -    $         1,474
                  FFEL Program                                                                    213               3,977
                 Total Credit Program Downward Subsidy Re-estimates                               213               5,451

                 Future Liquidating Account Collections
                  FFEL Program                                                                 2,253                2,603
                  Other Credit Programs for Higher Education                                     176                  183
                 Total Future Liquidating Account Collections                                  2,429                2,786
                 Total Subsidy Due to Treasury General Fund                           $        2,642      $         8,237

        When downward subsidy re-estimates are executed, the amounts will be transferred to the
        Treasury General Fund in the following fiscal year. Future liquidating account collections
        represent the net present value of estimated future excess collections (estimated collections in
        excess of estimated outlays) for the Department’s pre-1992 FFEL and HEAL loan programs.
        When collected, these liquidating account excess collections will also be returned to the
        Treasury General Fund.

        Note 9. Other Liabilities
        Other liabilities, as of September 30, 2016 and 2015, consisted of the following:
                                                         Other Liabilities
                                                          (Dollars in Millions)



                                                                        2016                                  2015
                                                             Intragovern-    With the             Intragovern-         With the
                                                                mental       Public                  mental            Public
     Accounts Payable                                       $                1    $   3,827        $           1        $   3,552
     Accrued Grant Liability                                                  -       2,403                     -           1,571
     Guaranty Agencies' Funds Due to Treasury                          1,197               -             1,561                     -
     Loan Guarantee Liability                                                 -       1,633                     -                  -
     Federal Perkins Loan Program                                         437              -                  395                  -
     Miscellaneous Receipt, Deposit Funds and Clearing
     Accounts                                                               44             -                  50                   -
     Advances from Others and Deferred Credits                                -           12                    -                 18
     Accrued Unfunded Annual Leave                                            -           12                    -                 12
     FECA Liabilities                                                        2             -                   1                  2
     Accrued Payroll and Benefits                                             -           6                     -                 5
     Employer Contributions and Payroll Taxes                               40             -                   1                   -
     Total Other Liabilities                                $          1,721      $   7,893        $     2,009          $   5,160




        Page 124                                                              Federal Student Aid FY 2016 Annual Report
                                                                        Notes to the Financial Statements


Note 10. 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, affordability, 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.
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 following table presents FSA's gross
cost and exchange revenue by program for FY 2016 and FY 2015.

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

                                                                            2016         2015

 Increase College Access, Quality, and Completion
 Gross Cost
  Intragovernmental                                                     $      36,325    $    33,873
  With the Public                                                              56,707         25,627
 Total Gross Program Costs                                                     93,032         59,500
 Earned Revenue
  Intragovernmental                                                            (4,744)        (5,134)
  With the Public                                                             (29,516)       (26,413)
 Total Program Earned Revenue                                                 (34,260)       (31,547)
 Net Cost of Operations                                                 $      58,772    $    27,953




Federal Student Aid FY 2016 Annual Report                                                          Page 125
Notes to the Financial Statements


          Note 11. Credit Program Interest Expense and Interest Revenue
          For FY 2016 and FY 2015, interest expense and interest revenue for credit programs consisted
          of the following:
                              Credit Program Interest Expense and Interest Revenue
                                                              (Dollars in Millions)

                                                                                 2016
                          Gross         Subsidy                                                                       Subsidy
                                                            Net                       Gross Interest                                Net
                         Interest       Amorti-                                                                       Amorti-
                                                          Expense                       Revenue                                   Revenue
                         Expense         zation                                                                        zation
                                             Non-                                                   Non-               Non-
                         Federal                                              Federal
                                            federal                                                federal            federal

 Direct Loan Program     $   30,503     $             -   $   30,503         $         3,943   $       44,375     $    (17,815)   $   30,503
 FFEL Program                 4,980           (1,766)          3,214                    516             4,600           (1,902)        3,214
 Other Credit Programs
 for Higher Education              22                 -            22                      4                 42            (24)          22

 Total                   $   35,505     $     (1,766)     $   33,739         $         4,463   $       49,017     $    (19,741)   $   33,739

                                                                                 2015
                          Gross         Subsidy                                                                       Subsidy
                                                            Net                       Gross Interest                                Net
                         Interest       Amorti-                                                                       Amorti-
                                                          Expense                       Revenue                                   Revenue
                         Expense         zation                                                                        zation
                                             Non-                                                   Non-               Non-
                         Federal                                              Federal
                                            federal                                                federal            federal

 Direct Loan Program     $   27,593     $             -   $   27,593         $         4,206   $       39,760     $    (16,373)   $   27,593
 FFEL Program                 5,252           (1,826)          3,426                    454             5,110           (2,138)        3,426

 Other Credit Programs
 for Higher Education              20                 -            20                      4                 40            (24)          20

 Total                   $   32,865     $     (1,826)     $   31,039         $         4,664   $       44,910     $    (18,535)   $   31,039

          Federal interest expense is recognized on FSA’s outstanding borrowing from Treasury (debt).
          The Direct Loan and FFEL programs have $994 billion and $131 billion in debt, respectively, as
          of September 30, 2016. 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.

          Nonfederal interest expense results from the amortization of loan subsidy. Nonfederal interest
          revenue is interest earned from the public on credit program receivables held by FSA. The
          credit program receivable net balances for the Direct Loan and FFEL programs are $959 billion
          and $115 billion, respectively, as of September 30, 2016. FSA holds $1,075.2 billion in
          outstanding credit program net receivables.




          Page 126                                                                Federal Student Aid FY 2016 Annual Report
                                                                          Notes to the Financial Statements


Note 12. Statement of Budgetary Resources
The SBR compares budgetary resources with the status of those resources. As of September
30, 2016, budgetary resources were $286 billion and net agency outlays were $115 billion. As of
September 30, 2015, budgetary resources were $302 billion and net agency outlays were
$122 billion.
New Obligations and Upward Adjustments by Apportionment Type
and Category
New obligations and upward adjustments by apportionment type and category, as of
September 30, 2016 and 2015, consisted of the following:
    New Obligations and Upward Adjustments by Apportionment Type and Category
                                              (Dollars in Millions)

                                                                          2016             2015
           Direct:
             Category A                                               $       1,573    $       1,467
             Category B                                                     258,509          273,102
             Exempt from Apportionment                                          637              102
           New Obligations and Upward Adjustments                     $     260,719    $     274,671

The apportionment categories are determined in accordance with the guidance provided in
OMB regulations. Category A apportionments are those resources that can be obligated in the
current fiscal year without restriction on the purpose of the obligation, other than to be in
compliance with legislation underlying programs for which the resources were made available.
Category B apportionments are restricted by purpose for which obligations can be incurred. In
addition, some resources are available without apportionment by OMB.
Unused Borrowing Authority
Unused borrowing authority and related changes in available borrowing authority, as of
September 30, 2016 and 2015, consisted of the following:
                                     Unused Borrowing Authority
                                              (Dollars in Millions)

                                                                          2016             2015
           Beginning Balance, Unused Borrowing Authority              $      54,567    $      61,089
           Current Year Borrowing Authority                                 167,272          171,624
           Funds Drawn from Treasury                                       (147,247)        (162,332)
           Borrowing Authority Withdrawn                                    (13,862)         (15,814)
           Ending Balance, Unused Borrowing Authority                 $      60,730    $      54,567

FSA is given authority to draw funds from Treasury to finance the Direct Loan, FFEL, and other
loan programs. Unused borrowing authority is a budgetary resource and is available to support
obligations for these programs. FSA periodically reviews its borrowing authority balances in
relation to its obligations resulting in the withdrawal of unused amounts.




Federal Student Aid FY 2016 Annual Report                                                          Page 127
Notes to the Financial Statements


       Undelivered Orders at the End of the Period
       Undelivered orders, as of September 30, 2016 and 2015, consisted of the following:
                                                 Undelivered Orders
                                                         (Dollars in Millions)

                                                                                     2016               2015
                       Budgetary                                                 $      17,499      $      17,443
                       Non-Budgetary                                                    73,131             74,828
                       Undelivered Orders (Unpaid)                               $      90,630      $      92,271

       Budgetary undelivered orders represent the amount of goods and/or services ordered which
       have not been actually or constructively received. This amount includes any orders which may
       have been prepaid or advanced but for which delivery or performance has not yet occurred.
       Non-budgetary undelivered orders primarily represent undisbursed loan awards and related
       negative subsidy.

       Distributed Offsetting Receipts
       The majority of the distributed offsetting receipts line item on the SBR represents amounts paid
       from the Direct Loan program and FFEL program financing accounts to Treasury General Fund
       receipt accounts for downward current fiscal year executed subsidy re-estimates and negative
       subsidies. 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, 2016 and 2015, consisted of the following:
                                         Distributed Offsetting Receipts
                                                         (Dollars in Millions)

                                                                                     2016               2015
                       Negative Subsidies and Downward Re-estimates
                       of Subsidies:
                        FFEL                                                     $          2,550   $      4,658
                        Direct Loan                                                         7,881          8,211
                        TEACH                                                                   5             31
                        HEAL                                                                    -             19
                       Total                                                            10,436            12,919
                       Other                                                               248                38
                       Distributed Offsetting Receipts                           $      10,684      $     12,957




       Page 128                                                              Federal Student Aid FY 2016 Annual Report
                                                                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 2016 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 13. Reconciliation of Net Cost of Operations to Budget
The reconciliation of net cost of operations to budget reconciles the resources used to finance
activities, both those received through budgetary resources and those received through other
means, with the net cost of operations on the statement of net cost. This reconciliation provides
an explanation of the differences between budgetary and financial (proprietary) accounting, as
required by FASAB Standard No. 7, Accounting for Revenue and Other Financing Sources and
Concepts for Reconciling Budgetary and Financial Accounting.
Resources used to finance activities (section one) are reconciled with the net cost of operations
by: (a) excluding resources used or generated for items not part of the net cost of operations
(section two), and (b) including components of the net cost of operations that will not require or
generate resources in the current period (section three). The primary resources used to finance
activities that do not fund the net cost of operations include the acquisition of net credit program
assets, the liquidation of liabilities for loan guarantees, and subsidy re-estimates accrued in the
prior period. Significant components of the net cost of operations that will not generate or use
resources in the current period include subsidy amortization, interest on the liability for loan
guarantees, and increases in exchange revenue receivable from the public.




Federal Student Aid FY 2016 Annual Report                                                  Page 129
Notes to the Financial Statements


          The reconciliation of net cost of operations to budget, as of September 30, 2016 and 2015, are
          presented below:
                                       Reconciliation of Net Cost Operations to Budget
                                                                 (Dollars in Millions)



                                                                                                         2016                2015

   Resources Used to Finance Activities:
       New Obligations and Upward Adjustments                                                        $      260,719      $     274,671
       Spending Authority from Offsetting Collections & Recoveries                                        (135,356)           (144,579)
       Offsetting Receipts                                                                                 (10,684)            (12,957)

       Net Budgetary Resources Obligated                                                                    114,679            117,135
       Imputed Financing from Costs Absorbed by Others                                                             26                 10
       Other Financing Sources                                                                              (5,058)            (14,159)

       Net Other Resources                                                                                  (5,032)            (14,149)

   Net Resources Used to Finance Activities                                                                 109,647            102,986

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

       (Increase)/Decrease in Budgetary Resources Obligated but Not Yet Provided                                 1,936              3,998
       Resources that Fund Subsidy Re-estimates Accrued in Prior Period                                     (2,598)            (20,131)
       Credit Program Collections                                                                               91,974         102,102
       Acquisition of Fixed Assets                                                                                (11)               (10)

       Acquisition of Net Credit Program Assets or Liquidation of Liabilities for Loan Guarantees         (161,676)           (165,607)
       Resources from Non-Entity Activity                                                                        5,087          14,788

       Net Resources that Do Not Finance the Net Cost of Operations                                        (65,288)            (64,860)

   Net Resources Used to Finance the Net Cost of Operations                                                     44,359          38,126

   Components of the Net Cost of Operations that Will Not Require or Generate Resources in the Current
   Period:
       Change in Depreciation                                                                                        -                 1
       Subsidy Amortization and Interest on the Liability for Loan Guarantees                                   17,972          16,709
       Other                                                                                                       21                 (1)

       Total Components Not Requiring or Generating Resources                                                   17,993          16,709
       Accrued Re-estimates of Credit Subsidy Expense                                                           28,006              2,598
       Increase in Exchange Revenue Receivable from the Public                                             (31,613)            (29,484)
       Other                                                                                                       27                  4
       Total Components Requiring or Generating Resources in Future Periods                                 (3,580)            (26,882)
   Total Components that Will Not Require or Generate Resources in the Current Period                           14,413         (10,173)
   Net Cost of Operations                                                                            $          58,772   $      27,953




          Page 130                                                                   Federal Student Aid FY 2016 Annual Report
                                                                Notes to the Financial Statements


Note 14. Commitments and 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. FSA has not done so in
fiscal years 2016 or 2015 and does not expect to in future years. No provision has been made in
the financial statements for potential liabilities.
Federal Perkins Loan Program
The Federal Perkins Loan program provides financial assistance to eligible postsecondary
school students. In FY 2016, the Department provided funding of 83.0 percent of the capital
used to make loans to eligible students through participating schools at 5 percent interest. The
schools provided the remaining 17.0 percent of program funding. For the latest academic year
that ended June 30, 2016, approximately 421 thousand loans were made totaling $1.0 billion at
1,378 institutions, making an average of $2,480 per loan. The Department’s equity interest was
approximately $6.5 billion as of June 30, 2016.
Federal Perkins Loan program borrowers who meet statutory eligibility requirements—such as
those who provide service as teachers in low-income areas or as Peace Corps or AmeriCorps
VISTA volunteers, as well as those who serve in the military, law enforcement, nursing, or family
services—may receive partial loan forgiveness for each year of qualifying service.
The Federal Perkins Loan program was scheduled to officially end on September 30, 2015.
However, the program was extended through September 30, 2017 by the Federal Perkins Loan
Program Extension Act of 2015 (Extension Act). The Extension Act eliminated the Perkins Loan
grandfathering provisions that the Department had put in place, and establishes new eligibility
requirements for undergraduate and graduate students to receive Perkins Loans.
Litigation and Other Claims
The Department is involved in various lawsuits incidental to its operations. In the opinion of
management, the ultimate resolution of pending litigation will not have a material effect on
FSA’s financial position.
The cost of loan forgiveness related to the recent proprietary school closures reflected in the
accompanying financial statements is limited to claims received through September 30. On
November 1, 2016, the Department issued certain regulations that may affect the amount to
ultimately be paid related to these claims. The final disposition of claims filed and those yet to
be filed from schools closed before September 30 is not expected to have a material impact to
these financial statements.
Other Matters
Some portion of the current-year financial assistance expenses (grants) may include funded
recipient expenditures that are subsequently disallowed through program review or audit
processes. In the opinion of management, the ultimate disposition of these matters will not have
a material effect on the FSA’s financial position.




Federal Student Aid FY 2016 Annual Report                                                 Page 131
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, 2016 and the preceding four fiscal year ends:

                                        Summary of Human Capital Expenses
                                                   (Dollars in Millions)
                                                       2016                2015           2014       2013         2012
        Federal Student Aid Expense
         Direct Loan Subsidy                        $ 16,119         $       (892)    $    8,126 $   (39,557) $ (10,720)
         FFEL Program Subsidy                           10,235             (3,856)        (6,585)     (8,753)     (14,381)
         Perkins Loans, Pell and Other Grant            30,671              31,400        33,098      33,542       34,310
         Recovery Act                                          0                  0              0          0            23
         Salaries and Administrative                        308               242            206         222          192
        Total                                       $ 57,333         $      26,894    $ 34,845 $     (14,546) $     9,424


       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.

       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


       Page 132                                                       Federal Student Aid FY 2016 Annual Report
                                          Required Supplementary Stewardship Information



Fellows. This new program would provide grants to states that meet certain conditions to
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 largely
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 FY 2016 Annual Report                                                  Page 133
Required Supplementary Information




         Required Supplementary Information

                                                       United States Department of Education
                                                                    Federal Student Aid
                                                       Combining Statement of Budgetary Resources
                                                         For the Period Ended September 30, 2016
                                                                                (Dollars in Millions)
                                                                                                                            Health Education Assistance
                                                                                           Combined                                   Loans
                                                                                                      Non-Budgetary                         Non-Budgetary Credit
                                                                                                      Credit Reform                           Reform Financing
                                                                                 Budgetary         Financing Accounts       Budgetary             Accounts
         Budgetary Resources:
         Unobligated Balance, Brought Forward, October 1                    $           12,719 $              14,236    $                8 $                53
         Recoveries of Prior Year Unpaid Obligations                                       188                21,047                     -                   -
         Other Changes in Unobligated Balance (+ or -)                                    (374)             (24,687)                    (8)                  -
         Unobligated Balance from Prior Year Budget Authority, Net          $           12,533 $              10,596    $                - $                53
         Appropriations (Discretionary and Mandatory)                                   41,948                    24                     -                   -
         Borrowing Authority (Discretionary and Mandatory) (Note 12)                         -              167,272                      -                   -
         Spending Authority from Offsetting Collections
         (Discretionary and Mandatory)                                                     470               53,563                     7                    9
         Total Budgetary Resources                                          $           54,951     $        231,455     $               7   $               62
         Status of Budgetary Resources:
         New Obligations Incurred and Upward Adjustments (Total)
         (Note 12)                                                          $           44,567     $        216,152     $               1   $               24
         Unobligated Balance, End of Year:
           Apportioned, Unexpired Accounts                                               8,782                    -                     -                    -
           Unapportioned, Unexpired Accounts                                             1,212               15,303                     6                   38
         Unexpired Unobligated Balance, End of year                         $            9,994               15,303     $               6                   38
         Expired Unobligated Balance, End of Year                                          390                    -                     -                    -
         Unobligated Balance, End of Year (Total)                           $           10,384     $         15,303     $               6   $               38
         Total Status of Budgetary Resources                                $           54,951     $        231,455     $               7   $               62
         Change in Obligated Balance:
          Unpaid Obligations:
           Unpaid Obligations, Brought Forward, October 1                   $           19,286 $             77,880     $                - $                  -
           New Obligations and Upward Adjustments                                       44,567              216,152                      1                   24
           Outlays (Gross) (-)                                                         (43,449)            (196,596)                    (1)                 (24)
           Recoveries of Prior Year Unpaid Obligations (-)                                (188)             (21,047)                     -                    -
           Unpaid Obligations, End of Year                                  $           20,216 $             76,389     $                - $                  -
          Uncollected Payments:
           Uncollected Payments, Federal Sources, Brought Forward,
           October 1 (-)                                                    $                 -    $              (4)   $               -   $                 -
           Change in Uncollected Payments, Federal Sources (+ or -)                           -                    -                    -                     -
           Uncollected Payments, Federal Sources, End of Year (-)           $                 -    $              (4)   $               -   $                 -
          Memorandum (Non-add) Entries:
           Obligated Balance, Start of Year (+ or -)                        $           19,286     $         77,876     $               -   $                 -
           Obligated Balance, End of Year (+ or -)                          $           20,216     $         76,385     $               -   $                 -
         Budget Authority and Outlays, Net:
          Budget Authority, Gross (Discretionary and Mandatory)             $           42,418 $            220,859     $                7 $                  9
          Actual Offsetting Collections (Discretionary and Mandatory) (-)                 (653)            (113,986)                    (7)                  (9)
          Change in Uncollected Customer Payments from Federal
          Sources (Discretionary and Mandatory) (+ or -)                                      -                    -                    -                     -
          Recoveries of Prior Year Paid Obligations (Discretionary and
          Mandatory) (+ or -)                                                                (1)               (516)                    -                     -
         Budget Authority, Net (Discretionary and
         Mandatory)                                                         $           41,764     $        106,357     $               -   $                 -
         Outlays, Gross (Discretionary and Mandatory)                       $           43,449 $            196,596     $                1 $                24
         Actual Offsetting Collections (Discretionary and Mandatory) (-)                  (653)            (113,986)                    (7)                  (9)
         Outlays, Net (Discretionary and Mandatory)                                     42,796               82,610                     (6)                 15
         Distributed Offsetting Receipts (-) (Note 16)                                 (10,684)                   -                      -                    -
         Agency Outlays, Net (Discretionary and Mandatory)
         (Note 12)                                                          $           32,112     $         82,610     $               (6) $               15


         Page 134                                                                            Federal Student Aid FY 2016 Annual Report
                                                                                       Required Supplementary Information




                                          United States Department of Education
                                                      Federal Student Aid
                                         Combining Statement of Budgetary Resources
                                           For the Period Ended September 30, 2016
                                                                   (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                    $              -    $         5,481    $             6 $                2
Recoveries of Prior Year Unpaid Obligations                                       -             20,150                  1                  7
Other Changes in Unobligated Balance (+ or -)                                     -           (24,261)                 (3)                (9)
Unobligated Balance from Prior Year Budget Authority, Net          $              -    $         1,370    $             4 $                0
Appropriations (Discretionary and Mandatory)                                  9,878                  -                17                   -
Borrowing Authority (Discretionary and Mandatory) (Note 12)                       -           167,012                   -                100
Spending Authority from Offsetting Collections
(Discretionary and Mandatory)                                                     -            34,765                  -                  35
Total Budgetary Resources                                          $          9,878    $      203,147     $           21      $          135
Status of Budgetary Resources:
New Obligations Incurred and Upward Adjustments (Total)
(Note 12)                                                          $          9,878    $      198,148     $           17      $          133
Unobligated Balance, End of Year:
 Apportioned, Unexpired Accounts                                                   -                -                  -                   -
  Unapportioned, Unexpired Accounts                                                -            4,999                  -                   2
Unexpired Unobligated Balance, End of year                         $               -   $        4,999     $            -      $            2
Expired Unobligated Balance, End of Year                                                            -                  4                   -
Unobligated Balance, End of Year (Total)                           $              -    $        4,999     $            4      $            2
Total Status of Budgetary Resources                                $          9,878    $      203,147     $           21      $          135
Change in Obligated Balance:
 Unpaid Obligations:
  Unpaid Obligations, Brought Forward, October 1                   $              - $           75,628    $             6 $                60
  New Obligations and Upward Adjustments                                      9,878            198,148                17                  133
  Outlays (Gross) (-)                                                        (9,878)          (179,209)              (16)                (118)
  Recoveries of Prior Year Unpaid Obligations (-)                                 -            (20,150)                (1)                  (7)
  Unpaid Obligations, End of Year                                  $              - $           74,417    $             6 $                68
 Uncollected Payments:
  Uncollected Payments, Federal Sources, Brought Forward,
  October 1 (-)                                                    $               -   $             -    $               -   $              (4)
  Change in Uncollected Payments, Federal Sources (+ or -)                         -                 -                    -                   -
  Uncollected Payments, Federal Sources, End of Year (-)           $               -   $             -    $               -   $              (4)
 Memorandum (Non-add) Entries:
  Obligated Balance, Start of Year (+ or -)                        $               -   $       75,628     $               6   $              56
  Obligated Balance, End of Year (+ or -)                          $               -   $       74,417     $               6   $              64
Budget Authority and Outlays, Net:
 Budget Authority, Gross (Discretionary and Mandatory)             $          9,878    $      201,777     $           17      $          135
 Actual Offsetting Collections (Discretionary and Mandatory) (-)                  -           (86,997)                 -                 (58)
 Change in Uncollected Customer Payments from Federal
 Sources (Discretionary and Mandatory) (+ or -)                                    -                 -                    -                   -
 Recoveries of Prior Year Paid Obligations (Discretionary and
 Mandatory) (+ or -)                                                               -               (3)                    -                   -
Budget Authority, Net (Discretionary and
Mandatory)                                                         $          9,878    $      114,777     $           17      $              77
Outlays, Gross (Discretionary and Mandatory)                       $          9,878 $         179,209     $           16 $               118
Actual Offsetting Collections (Discretionary and Mandatory) (-)                   -           (86,997)                  -                (58)
Outlays, Net (Discretionary and Mandatory)                                    9,878            92,212                 16                  60
Distributed Offsetting Receipts (-) (Note 12)                                (7,881)                -                  (5)                 -
Agency Outlays, Net (Discretionary and Mandatory)
(Note 12)                                                          $           1,997 $         92,212     $           11      $              60




Federal Student Aid FY 2016 Annual Report                                                                                         Page 135
Required Supplementary Information




                                                       United States Department of Education
                                                               Federal Student Aid
                                                  Combining Statement of Budgetary Resources
                                                    For the Period Ended September 30, 2016
                                                                            (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                    $         1,786 $                8,700     $        10,847     $            72
         Recoveries of Prior Year Unpaid Obligations                                      5                    890                 154                  28
         Other Changes in Unobligated Balance (+ or -)                                 (224)                  (417)               (128)                (11)
         Unobligated Balance from Prior Year Budget Authority, Net          $         1,567 $                9,173     $        10,873     $            89
         Appropriations (Discretionary and Mandatory)                                 1,447                     24              29,048               1,558
         Borrowing Authority (Discretionary and Mandatory) (Note 12)                      -                    160                   -                   -
         Spending Authority from Offsetting Collections
         (Discretionary and Mandatory)                                                  464                 18,754                  (1)                  -
         Total Budgetary Resources                                          $         3,478          $      28,111     $        39,920     $         1,647
         Status of Budgetary Resources:
         New Obligations Incurred and Upward Adjustments (Total)
         (Note 12)                                                          $         2,179          $      17,847     $        30,919     $         1,573
         Unobligated Balance, End of Year:
           Apportioned, Unexpired Accounts                                              106                      -               8,669                   7
         Unapportioned, Unexpired Accounts                                            1,193                 10,264                  13                   -
         Unexpired Unobligated Balance, End of year                         $         1,299          $      10,264     $         8,682     $             7
         Expired Unobligated Balance, End of Year                                         -                      -                 319                  67
         Unobligated Balance, End of Year (Total)                           $         1,299          $      10,264     $         9,001     $            74
         Total Status of Budgetary Resources                                $         3,478          $      28,111     $        39,920     $         1,647
         Change in Obligated Balance:
          Unpaid Obligations:
           Unpaid Obligations, Brought Forward, October 1                   $             13 $                2,192    $        18,569     $            698
           New Obligations and Upward Adjustments                                      2,179                 17,847             30,919                1,573
           Outlays (Gross) (-)                                                        (2,160)               (17,245)           (29,883)              (1,511)
           Recoveries of Prior Year Unpaid Obligations (-)                                (5)                  (890)              (154)                 (28)
           Unpaid Obligations, End of Year                                  $             27 $                1,904    $        19,451     $            732
          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 -)                        $             13         $       2,192     $        18,569     $           698
           Obligated Balance, End of Year (+ or -)                          $             27         $       1,904     $        19,451     $           732
         Budget Authority and Outlays, Net:
          Budget Authority, Gross (Discretionary and Mandatory)             $         1,911 $                18,938    $        29,047     $         1,558
          Actual Offsetting Collections (Discretionary and Mandatory) (-)              (646)                (26,922)                 -                   -
          Change in Uncollected Customer Payments from Federal
          Sources (Discretionary and Mandatory) (+ or -)                                         -                -                    -                   -
          Recoveries of Prior Year Paid Obligations (Discretionary and
          Mandatory) (+ or -)                                                               (1)               (513)                    -                   -
         Budget Authority, Net (Discretionary and
         Mandatory)                                                         $         1,264          $       (8,497)   $        29,047     $         1,558
         Outlays, Gross (Discretionary and Mandatory)                       $          2,160 $               17,245    $        29,883     $         1,511
         Actual Offsetting Collections (Discretionary and Mandatory) (-)                (646)               (26,922)                 -                   -
         Outlays, Net (Discretionary and Mandatory)                                    1,514                 (9,677)            29,883               1,511
         Distributed Offsetting Receipts (-) (Note 12)                                (2,550)                     -               (248)                  -
         Agency Outlays, Net (Discretionary and Mandatory)
         (Note 12)                                                          $         (1,036) $              (9,677)   $        29,635               1,511




         Page 136                                                                           Federal Student Aid FY 2016 Annual Report
                                                                                         Required Supplementary Information




                                              United States Department of Education
                                                           Federal Student Aid
                                              Combining Statement of Budgetary Resources
                                                For the Period Ended September 30, 2015
                                                                       (Dollars in Millions)
                                                                                                                   Health Education Assistance
                                                                                  Combined                                   Loans
                                                                                             Non-Budgetary                         Non-Budgetary Credit
                                                                                             Credit Reform                           Reform Financing
                                                                        Budgetary         Financing Accounts       Budgetary             Accounts
Budgetary Resources:
Unobligated Balance, Brought Forward, October 1                    $           12,642 $               9,857    $                9 $                68
Recoveries of Prior Year Unpaid Obligations                                       921                20,727                     -                   -
Other Changes in Unobligated Balance (+ or -)                                    (194)             (23,978)                    (8)                  -
Unobligated Balance from Prior Year Budget Authority, Net          $           13,369 $               6,606    $                1 $                68
Appropriations (Discretionary and Mandatory)                                   55,798                   904                     -                   -
Borrowing Authority (Discretionary and Mandatory) (Note 12)                         -              171,624                      -                   -
Spending Authority from Offsetting Collections
(Discretionary and Mandatory)                                                     502               52,823                  9                      10
Total Budgetary Resources                                          $           69,669     $        231,957     $           10      $               78
Status of Budgetary Resources:
New Obligations Incurred and Upward Adjustments (Total)
(Note 12)                                                          $           56,950     $        217,721     $               2   $               25
Unobligated Balance, End of Year:
  Apportioned, Unexpired Accounts                                              10,473                  550                  1                       -
  Unapportioned, Unexpired Accounts                                             1,771               13,686                  7                      53
Unexpired Unobligated Balance, End of year                         $           12,244               14,236     $            8                      53
Expired Unobligated Balance, End of Year                                          475                    -                  -                       -
Unobligated Balance, End of Year (Total)                           $           12,719     $         14,236     $            8      $               53
Total Status of Budgetary Resources                                $           69,669     $        231,957     $           10      $               78
Change in Obligated Balance:
 Unpaid Obligations:
  Unpaid Obligations, Brought Forward, October 1                   $           21,466 $             80,104     $                - $                  -
  New Obligations and Upward Adjustments                                       56,950              217,721                      2                   25
  Outlays (Gross) (-)                                                         (58,209)            (199,218)                    (2)                 (25)
  Recoveries of Prior Year Unpaid Obligations (-)                                (921)             (20,727)                     -                    -
  Unpaid Obligations, End of Year                                  $           19,286 $             77,880     $                - $                  -
 Uncollected Payments:
  Uncollected Payments, Federal Sources, Brought Forward,
  October 1 (-)                                                    $                 -    $              (4)   $               -   $                 -
  Change in Uncollected Payments, Federal Sources (+ or -)                           -                    -                    -                     -
  Uncollected Payments, Federal Sources, End of Year (-)           $                 -    $              (4)   $               -   $                 -
 Memorandum (Non-add) Entries:
  Obligated Balance, Start of Year (+ or -)                        $           21,466     $         80,100     $               -   $                 -
  Obligated Balance, End of Year (+ or -)                          $           19,286     $         77,876     $               -   $                 -
Budget Authority and Outlays, Net:
 Budget Authority, Gross (Discretionary and Mandatory)             $           56,300 $            225,351     $                9 $                 10
 Actual Offsetting Collections (Discretionary and Mandatory) (-)                 (647)            (122,283)                    (9)                 (10)
 Change in Uncollected Customer Payments from Federal
 Sources (Discretionary and Mandatory) (+ or -)                                      -                    -                    -                     -
 Recoveries of Prior Year Paid Obligations (Discretionary and
 Mandatory) (+ or -)                                                                (2)               (542)                    -                     -
Budget Authority, Net (Discretionary and
Mandatory)                                                         $           55,651     $        102,526     $               -   $                 -
Outlays, Gross (Discretionary and Mandatory)                       $           58,209 $            199,218     $             2 $                    25
Actual Offsetting Collections (Discretionary and Mandatory) (-)                  (647)            (122,283)                 (9)                    (10)
Outlays, Net (Discretionary and Mandatory)                                     57,562               76,935                  (7)                     15
Distributed Offsetting Receipts (-) (Note 16)                                 (12,957)                   -                 (19)                      -
Agency Outlays, Net (Discretionary and Mandatory)
(Note 12)                                                          $           44,605     $         76,935     $           (26) $                  15




Federal Student Aid FY 2016 Annual Report                                                                                              Page 137
Required Supplementary Information




                                                   United States Department of Education
                                                               Federal Student Aid
                                                  Combining Statement of Budgetary Resources
                                                    For the Period Ended September 30, 2015
                                                                            (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                    $             -     $        4,622    $            5      $           1
         Recoveries of Prior Year Unpaid Obligations                                      -             20,079                 1                 10
         Other Changes in Unobligated Balance (+ or -)                                    -           (23,704)                 -                (11)
         Unobligated Balance from Prior Year Budget Authority, Net          $             -     $          997    $            6      $           -
         Appropriations (Discretionary and Mandatory)                                23,661                904                16                  -
         Borrowing Authority (Discretionary and Mandatory) (Note 12)                      -           168,953                  -                115
         Spending Authority from Offsetting Collections
         (Discretionary and Mandatory)                                                    -            31,810                  -                 35
         Total Budgetary Resources                                          $        23,661     $     202,664     $           22      $         150
         Status of Budgetary Resources:
         New Obligations Incurred and Upward Adjustments (Total)
         (Note 12)                                                          $        23,661     $     197,183     $           16      $         148
         Unobligated Balance, End of Year:
          Apportioned, Unexpired Accounts                                                   -               -                  -                  -
           Unapportioned, Unexpired Accounts                                                -           5,481                  -                  2
         Unexpired Unobligated Balance, End of year                         $               -   $       5,481     $            -      $           2
         Expired Unobligated Balance, End of Year                                                           -                  6                  -
         Unobligated Balance, End of Year (Total)                           $             -     $       5,481     $            6      $           2
         Total Status of Budgetary Resources                                $        23,661     $     202,664     $           22      $         150
         Change in Obligated Balance:
          Unpaid Obligations:
           Unpaid Obligations, Brought Forward, October 1                   $              - $          77,328    $             5 $               64
           New Obligations and Upward Adjustments                                     23,661           197,183                16                 148
           Outlays (Gross) (-)                                                       (23,661)         (178,804)              (14)               (142)
           Recoveries of Prior Year Unpaid Obligations (-)                                 -           (20,079)                (1)               (10)
           Unpaid Obligations, End of Year                                  $              - $          75,628    $             6 $               60
          Uncollected Payments:
           Uncollected Payments, Federal Sources, Brought Forward,
           October 1 (-)                                                    $               -   $            -    $               -   $           (4)
           Change in Uncollected Payments, Federal Sources (+ or -)                         -                -                    -                -
           Uncollected Payments, Federal Sources, End of Year (-)           $               -   $            -    $               -   $           (4)
          Memorandum (Non-add) Entries:
           Obligated Balance, Start of Year (+ or -)                        $               -   $      77,328     $               5   $           60
           Obligated Balance, End of Year (+ or -)                          $               -   $      75,628     $               6   $           56
         Budget Authority and Outlays, Net:
          Budget Authority, Gross (Discretionary and Mandatory)             $        23,661     $     201,667     $           16      $         150
          Actual Offsetting Collections (Discretionary and Mandatory) (-)                 -           (92,936)                 -                (47)
          Change in Uncollected Customer Payments from Federal
          Sources (Discretionary and Mandatory) (+ or -)                                    -                -                    -                -
          Recoveries of Prior Year Paid Obligations (Discretionary and
          Mandatory) (+ or -)                                                               -                -                    -                -
         Budget Authority, Net (Discretionary and
         Mandatory)                                                         $        23,661     $     108,731     $           16      $         103
         Outlays, Gross (Discretionary and Mandatory)                       $        23,661 $         178,804     $           14 $              142
         Actual Offsetting Collections (Discretionary and Mandatory) (-)                  -           (92,936)                 -                (47)
         Outlays, Net (Discretionary and Mandatory)                                  23,661            85,868                 14                 95
         Distributed Offsetting Receipts (-) (Note 12)                               (8,211)                -                (31)                 -
         Agency Outlays, Net (Discretionary and Mandatory)
         (Note 12)                                                          $         15,450 $         85,868     $          (17)     $           95




         Page 138                                                                           Federal Student Aid FY 2016 Annual Report
                                                                                        Required Supplementary Information




                                              United States Department of Education
                                                      Federal Student Aid
                                         Combining Statement of Budgetary Resources
                                           For the Period Ended September 30, 2015
                                                                   (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                    $         1,581 $                5,166     $        10,921     $           126
Recoveries of Prior Year Unpaid Obligations                                     28                    638                 865                  27
Other Changes in Unobligated Balance (+ or -)                                 (136)                  (263)                (42)                 (8)
Unobligated Balance from Prior Year Budget Authority, Net          $         1,473 $                5,541     $        11,744     $           145
Appropriations (Discretionary and Mandatory)                                 1,363                      -              29,361               1,397
Borrowing Authority (Discretionary and Mandatory) (Note 12)                      -                  2,556                   -                   -
Spending Authority from Offsetting Collections
(Discretionary and Mandatory)                                                  505                 20,968                  (9)                 (3)
Total Budgetary Resources                                          $         3,341          $      29,065     $        41,096     $         1,539
Status of Budgetary Resources:
New Obligations Incurred and Upward Adjustments (Total)
(Note 12)                                                          $         1,555          $      20,365     $        30,249     $         1,467
Unobligated Balance, End of Year:
  Apportioned, Unexpired Accounts                                               37                    550              10,432                   3
Unapportioned, Unexpired Accounts                                            1,749                  8,150                  15                   -
Unexpired Unobligated Balance, End of year                         $         1,786          $       8,700     $        10,447     $             3
Expired Unobligated Balance, End of Year                                         -                      -                 400                  69
Unobligated Balance, End of Year (Total)                           $         1,786          $       8,700     $        10,847     $            72
Total Status of Budgetary Resources                                $         3,341          $      29,065     $        41,096     $         1,539
Change in Obligated Balance:
 Unpaid Obligations:
  Unpaid Obligations, Brought Forward, October 1                   $             39 $                2,712    $        20,777     $            645
  New Obligations and Upward Adjustments                                      1,555                 20,365             30,249                1,467
  Outlays (Gross) (-)                                                        (1,553)               (20,247)           (31,592)              (1,387)
  Recoveries of Prior Year Unpaid Obligations (-)                               (28)                  (638)              (865)                 (27)
  Unpaid Obligations, End of Year                                  $             13 $                2,192    $        18,569     $            698
 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 -)                        $             39         $       2,712     $        20,777     $           645
  Obligated Balance, End of Year (+ or -)                          $             13         $       2,192     $        18,569     $           698
Budget Authority and Outlays, Net:
 Budget Authority, Gross (Discretionary and Mandatory)             $         1,868 $                23,524    $        29,352     $         1,394
 Actual Offsetting Collections (Discretionary and Mandatory) (-)              (638)                (29,290)                 -                   -
 Change in Uncollected Customer Payments from Federal
 Sources (Discretionary and Mandatory) (+ or -)                                         -                -                    -                   -
 Recoveries of Prior Year Paid Obligations (Discretionary and
 Mandatory) (+ or -)                                                               (2)               (542)                    -                   -
Budget Authority, Net (Discretionary and
Mandatory)                                                         $         1,228          $       (6,308)   $        29,352     $         1,394
Outlays, Gross (Discretionary and Mandatory)                       $          1,553 $               20,247    $        31,592     $         1,387
Actual Offsetting Collections (Discretionary and Mandatory) (-)                (638)               (29,290)                 -                   -
Outlays, Net (Discretionary and Mandatory)                                      915                 (9,043)            31,592               1,387
Distributed Offsetting Receipts (-) (Note 12)                                (4,658)                     -                (38)                  -
Agency Outlays, Net (Discretionary and Mandatory)
(Note 12)                                                          $         (3,743) $              (9,043)   $        31,554               1,387




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          Independent Auditors’
                 Report




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                                     Office of Inspector General Audit Transmittal Letter




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Office of Inspector General Audit Transmittal Letter




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                                            Independent Auditors’ Report




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Independent Auditors’ Report




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Independent Auditors’ Report




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Independent Auditors’ Report




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Independent Auditors’ Report




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                                            Independent Auditors’ Report




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Independent Auditors’ Report




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                                            Independent Auditors’ Report




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Independent Auditors’ Report




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                                            Independent Auditors’ Report




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Independent Auditors’ Report




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                                            Independent Auditors’ Report




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Independent Auditors’ Report




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                                            Independent Auditors’ Report




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Independent Auditors’ Report




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                                            Independent Auditors’ Report




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Management’s Response to Findings




       Page 164                     Federal Student Aid FY 2016 Annual Report
                                            Other Information




                Other Information




• Schedule of Spending

• Other Information Links




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       Page 166                            Federal Student Aid FY 2016 Annual Report
                                                                                                          Other Information
                                                                                                       Schedule of Spending




          Schedule of Spending

                                                        Department of Education
                                                             Federal Student Aid
                                                    Combined Schedule of Spending
                                          For the Years Ended September 30, 2016 and 2015
                                                              (Dollars in Millions)


                                                                             FY 2016                                   FY 2015

                                                                                  Non-Budgetary                           Non-Budgetary
                                                                                  Credit Reform                           Credit Reform
                                                                                    Financing                               Financing
                                                               Budgetary            Accounts            Budgetary           Accounts

Section I: What Money is Available to Spend?
    Total Resources                                      $            55,002             231,455   $         69,669               231,957
    Amount Available but Not Agreed to be Spent                      (8,782)                   -           (10,473)                 (550)
    Amount Not Available to be Spent                                 (1,653)            (15,303)            (2,246)              (13,686)
Total Amounts Agreed to be Spent                         $           44,567             216,152    $        56,950               217,721

Section II: How was the Money Spent?

Increase College Access, Quality, and Completion
    Credit Programs                                      $           12,044             195,824    $         25,210              198,154
    Grants                                                           29,882                   -              31,588                    -
    Personnel Compensation and Benefits                                 208                   -                 193                    -
    Contractual Services                                              1,293                 772               1,196                1,064
    Other 1/                                                             22                   -                  22                    -
    Total Program Spending                               $           43,449             196,596    $         58,209              199,218

Total Spending                                           $           43,449             196,596    $         58,209              199,218
   Amounts Remaining to be Spent2/                                    1,118              19,556              (1,259)              18,503
Total Amounts Agreed to be Spent                         $           44,567             216,152    $         56,950              217,721

Section III: Who did the money go to?

    Non-Federal Obligations                              $           44,460             216,151    $         56,850              217,721
    Federal Obligations                                                 107                   1                 100                    -
Total Amounts Agreed to be Spent - Section III           $           44,567             216,152    $         56,950              217,721


1/   Other primarily consists of payments for rent, utilities, communication, 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 FY 2016 Annual Report                                                                       Page 167
Other Information
Other Information Links




        Other Information Links

       Improper Payment Information Act (as Amended by IPERA and IPERIA) Reporting Details

       The Improper Payments Information Act of 2002 (IPIA; Pub. L. 107-300) as amended by the
       Improper Payments Elimination and Recovery Act of 2010 (IPERA; Pub. L. 111-204) and the
       Improper Payments Elimination and Recovery Improvement Act of 2012; Pub. L. 112-248)
       requires federal agencies to report information annually on improper payments to the President
       and Congress through the annual Performance and Accountability Reports or Annual Financial
       Reports. For improper payments information, FSA’s activities are part of an overall
       Departmental integrated reporting effort and reported within the Department’s AFR. 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 2017 Executive Summary found
       in the Other Information section located within the Department’s AFR.




       Page 168                                             Federal Student Aid FY 2016 Annual Report
                                                                      Appendices




                          Appendices




• Appendix A: Discontinued Strategic Goals and Performance Metrics

• Appendix B: Index of Tables and Charts

• Appendix C: Glossary of Acronyms and Terms

• Appendix D: Availability of the Federal Student Aid Annual Report




Federal Student Aid FY 2016 Annual Report                         Page 169
Appendices




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      Page 170                          Federal Student Aid FY 2016 Annual Report
                                                                             Appendix A
                                    Discontinued Strategic Goals and Performance Metrics




 Appendix A: Discontinued Strategic Goals and
             Performance Metrics

Discontinued Strategic Goals and Performance Metrics
FSA Strategic Plan FY 2015–2019

During FY 2015, 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”. As a result of this review, FSA
implemented a new Strategic Plan, the FSA Strategic Plan FY 2015–16, which contained
slightly revised strategic goals. The implementation of the new strategic plan resulted in many
of the metrics remaining largely unchanged, but a few of the metrics were revised.

In FY 2016, one metric was discontinued and another metric was incorporated to better reflect
and measure the organization’s performance. The discontinuation of the performance metric,
listed in Table 1, along with its previous years’ results, which are listed in Table 2 are presented
below.


                          Table 1: Discontinued Performance Metric

  Strategic Goal/Performance Goal                               Description
  Strategic Goal C                       Improve operational efficiency and flexibility.
           Performance Metric C.2           Loan Servicing Costs per Borrower


                Table 2: Previous Results of Discontinued Performance Metric

  Performance Metric C.2: Outstanding FSA Loan Portfolio in Current Repayment Status
  Fiscal Year         Actual             Target Achieved               Performance Result

 FY 2015               $22.36                                                  Met

 FY 2014               $21.59                                                Not met

 FY 2013              $21.42                                                 Not met

 FY 2012              $18.94                                                   Met




Federal Student Aid FY 2016 Annual Report                                                  Page 171
Appendix B
Index of Tables and Charts




      Appendix B: Index of Tables and Charts


                                                  Tables

                             Section: Management Discussion and Analysis
      No.                                         Title                                      Page No.
             Fiscal Year 2016 Financial and Performance Highlights of Federal Student Aid:
        1.                                                                                      3
             Operational Highlights
             Fiscal Year 2016 Financial and Performance Highlights of Federal Student Aid:
        2.                                                                                      3
             Financial Highlights
             Fiscal Year 2016 Financial and Performance Highlights of Federal Student Aid:
        3.                                                                                      3
             Performance Highlights
        4.   Summary of Federal Aid Disbursed to Students by Program                            8
        5.   Performance Summary for Strategic Goal A                                           19
        6.   Performance Summary for Strategic Goal B                                           21
        7.   Performance Summary for Strategic Goal C                                           23
        8.   Performance Summary for Strategic Goal D                                           25
        9.   Performance Summary for Strategic Goal E                                           26
       10.   Condensed Balance Sheet Fiscal Years 2012–16                                       30
       11.   Statement of Net Cost Summary Fiscal Years 2012–16                                 30
       12.   Components of Direct Loan Credit Program Receivables, Net by Percentage            33
             Increase in Principal, Interest and Subsidy Components of Direct Loan Credit
       13.                                                                                      34
             Program Receivables, Net and Recipient Counts




       Page 172                                              Federal Student Aid FY 2016 Annual Report
                                                                                  Appendix B
                                                                   Index of Tables and Charts




                                            Tables

                           Section: Annual Performance Report
 No.                                        Title                                 Page No.
 1.      Fiscal Year 2016 Performance Highlights of Federal Student Aid              59
 2.      Summary of Performance Results by Strategic Goal                            62
         Performance Metric A.1: Percent of First-Time FAFSA Filers among High
 3.                                                                                  64
         School Seniors
         Performance Metric A.2: Persistence among First-Time Filing Aid
 4.                                                                                  65
         Recipients
 5.      Performance Metric A:3: Customer Visits to StudentAid.gov                   66
 6.      Performance Metric A.4: Social Media Channel Subscribership                 67
 7.      Performance Metric A.5: ACSI Aid Life Cycle Surveys                         68
 8.      Performance Metric B.1: Improper Payment Rate                               69
 9.      Performance Metric B.2: Percent of Borrowers > 90 Days Delinquent           71
10.      Performance Metric C.1: Aid Delivery Costs per Application                  72
         Performance Metric C.2: Outstanding FSA Loan Portfolio in current
11.                                                                                  73
         Repayment Status
12.      Performance Metric D.1: Ease of Doing Business with FSA                     75
13.      Performance Metric D.2: Percentage of Contract Dollars Competed by FSA      76
14.      Performance Metric D.3: Collection Rate                                     77
15.      Performance Metric E.1: Employee Engagement Index                           78
16.      Total Volume of Contacts                                                    84
17.      Research Contacts Received                                                  85
18.      Fiscal Year 2016 Customer Contacts by Original Issue                      85-86
19.      Top Five Research Case Issues                                               86
20.      Fiscal Year 2016 Outcomes for Research and GenAssist Cases                  87
21.      Fiscal Year 2016 Research Case Outcome Category by Issue Category           88




Federal Student Aid FY 2016 Annual Report                                         Page 173
Appendix B
Index of Tables and Charts




                                                     Tables

                                            Section: Appendices
         No.                                         Title                                   Page No.
         1.       Discontinued Performance Metrics                                              165
         2.       Previous Results of Discontinued Performance Metrics                          165




       Page 174                                               Federal Student Aid FY 2016 Annual Report
                                                                                   Appendix B
                                                                    Index of Tables and Charts




                                            Charts

                      Section: Management Discussion and Analysis
 No.                                        Title                                  Page No.
 1.      Composition of Federal Student Aid Assets                                    31
 2.      Comparison of Federal Student Aid’s Assets                                   31
 3.      Total Federal Student Aid Loan Portfolio                                     32
 4.      Components of Direct Loan Receivables, Net                                   33
 5.      Direct Loan Portfolio by Repayment Status (Principal and Interest only)      35
         Direct Loan Portfolio Segment in Repayment by Status (Principal and
         Interest only
 6.                                                                                   36
             • 6A – Dollars in Billions
             • 6B – Percentage of Total
         Direct Loan Portfolio Segment not in Repayment by Status (Principal and
         Interest only
 7.                                                                                 37-38
             • 7A – Dollars in Billions
             • 7B – Percentage of Total
 8.      Total FFEL Loan Portfolio                                                    39
 9.      Components of FFEL Receivables, Net                                          39
10.      Federal Student Aid “Other” Loan Portfolio                                   40
11.      Fund Balance with Treasury                                                   41
12.      Direct Loan Program Net Financing Activity                                   42
13.      FFEL Loan Program Net Financing Activity                                     43
14.      Comparison of Federal Student Aid Debt                                       43
15.      Composition of FSA Net Cost                                                  44
16.      Program Contributions to FSA Net Cost                                        45
17.      Composition of FSA Direct Loan Program Net Costs                             45
18.      Composition of FSA FFEL Program Net Costs                                    46
19.      Composition of FSA Perkins Loan Program and Grants Net Costs                 46
20.      Composition of FSA Other Programs Net Costs                                  47
         FSA A-123A Process and Entity Level Controls and Deficiencies Analysis;
21.                                                                                   54
         Fiscal Years 2014–16
22.      FSA A-123A IT Controls and Deficiency Analysis; Fiscal Years 2014–16         55




Federal Student Aid FY 2016 Annual Report                                          Page 175
Appendix C
Glossary of Acronyms and Terms




          Appendix C: 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 2016 Agency Financial Report
      APG              Agency Priority Goal
      Annual Report    Federal Student Aid Annual Report FY 2016
      C
      CFPB             Consumer Financial Protection Bureau
      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
      DOL              U.S. Department of Labor
      E
      ECASLA           Ensuring Continued Access to Student Loans Act of 2008
      ED               U.S. Department of Education
      EDWA             Enterprise Data Warehouse
      EMW              Equity Management Workshop
      Extension Act    Federal Perkins Loan Program Extension Act of 2015
      F
      FAFSA            Free Application for Federal Student Aid
      FASAB            Financial Accounting Standards Advisory Board
      FCRA             Federal Credit Reform Act of 1990
      FECA             Federal Employees’ Compensation Act



      Page 176                                        Federal Student Aid FY 2016 Annual Report
                                                                              Appendix C
                                                          Glossary of Acronyms and Terms


Acronym               Description
Federal Funds         Federal Student Loan Reserve Funds
FERS                  Federal Employees Retirement System
FEVS                  Federal Employee Viewpoint Survey
FFEL                  Federal Family Education Loan
FFELP                 Federal Family Education Loan Program
FISCAM                Federal Information Systems Control Audit Manual
FSA                   Federal Student Aid
FSA Strategic Plan,   Federal Student Aid: Strategic Plan, FY 2015–19
FY 2015–19
FSEOG                 Federal Supplemental Educational Opportunity Grants
FY                    Fiscal Year
G
GAAP                  Generally Accepted Accounting Principles
GAO                   U.S. Government Accountability Office
GenAssist             General Assistance
H
HCERA                 Health Care and Education Reconciliation Act of 2010
HEA                   Higher Education Act of 1965, as amended
HEAL                  Health Education Assistance Loan
I
IBR                   Income Based Repayment
IDR                   Income Driven Repayment
IRS                   Internal Revenue Service
IT                    Information Technology
ITT                   ITT Technical Institutes
M
Met                   Performance result met or exceeded target
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.



Federal Student Aid FY 2016 Annual Report                                         Page 177
Appendix C
Glossary of Acronyms and Terms


      Acronym              Description
      NCES                 National Center for Education Statistics
      NFP                  Not-For-Profit
      Not met              Performance result did not meet target


      O
      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 Enterprise Risk
                           Management and Internal Control
      OPM                  U.S. Office of Personnel Management
      OPR                  Organizational Performance Review
      P
      PBO                  Performance-Based Organization
      Pell Grant           Federal Pell Grant Program
      PSLF                 Public Service Loan Forgiveness
      Pub.L                Public Law
      S
      SBR                  Statement of Budgetary Resources
      Secretary            Secretary of Education
      SSA                  Social Security Administration
      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




      Page 178                                              Federal Student Aid FY 2016 Annual Report
                                                                Appendix C
                                            Glossary of Acronyms and Terms


Acronym               Description
U
U.S.                  United States




Federal Student Aid FY 2016 Annual Report                     Page 179
Appendix D
Availability of the Federal Student Aid Annual Report




         Appendix D: Availability of the Federal Student Aid
                     Annual Report


        FSA’s publicly available Annual Report FY 2016 and previous years’ Annual Reports are
        accessible on the following websites:

        FSA: StudentAid.gov/strategic-planning-reporting

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

        The Federal Student Aid: Strategic Plan, Fiscal Years 2015–19 and previous years’ Strategic
        Plans are also available at StudentAid.gov/strategic-planning-reporting

        To stay connected to Federal Student Aid through social media:

           •   Visit the FSA website:       StudentAid.gov
           •   Follow FSA on Twitter:       (@FAFSA)
           •   Like FSA on Facebook:        Facebook.com/FederalStudentAid
           •   Find FSA on YouTube:         YouTube.com/user/FederalStudentAid




        Page 180                                            Federal Student Aid FY 2016 Annual Report