I am pleased to present the Office of Personnel Management's (OPM's) report to Congress on agencies' use of the Federal student loan repayment program in Fiscal Year (FY) 2003. We are excited to report that Federal agencies used student loan repayment to recruit and retain three times as many employees in FY 2003 as in the previous fiscal year and invested nearly three times as much funding in this valuable human capital management tool. During FY 2003, 24 agencies provided more than $9.1 million in student loan repayment benefits to 2,077 employees.

The first Governmentwide initiative in the President's Management Agenda is the "Strategic Management of Human Capital." OPM is proud of its leadership role in assisting Federal agencies to recruit, retain, and develop the employees they need to meet their specific missions. OPM has led the way to encourage agencies to implement effective human capital strategies to build successful, high-performing organizations.

This report was prepared in response to the statutory requirement that OPM prepare, and submit annually to the Congress, information on agencies' use of the student loan repayment program. Section 5379 of title 5, United States Code, authorizes agencies to establish a program under which they may repay certain types of Federally insured student loans as a recruitment or retention incentive for highly qualified candidates or current employees.

Notably, more than half of the 63 reporting agencies made payments during FY 2003, have an agency loan repayment program in place, or are in the process of establishing an agency student loan repayment plan. We are encouraged by the agencies' increased use of the student loan repayment program in FY 2003. We will continue to work closely with agencies to assist them in taking full advantage of this program, as well as other existing recruitment and retention incentives, to attract and retain well-qualified, high-performing employees.

I. Executive Summary

Section 5379(h)(1) of title 5, United States Code, requires agencies to report annually to the Office of Personnel Management (OPM) on their use of the Federal student loan repayment program for the previous fiscal year. In June 2003, OPM submitted a report to the Congress on agencies' use of the student loan repayment program in FY 2002. We reported that 16 Federal agencies provided more than $3.1 million in student loan repayments for 690 Federal employees. Use of the program greatly increased in FY 2003, as 24 Federal agencies provided more than $9.1 million in student loan repayment benefits to 2,077 Federal employees. In addition, six other agencies reported that they have established an agency loan repayment plan, and two agencies reported that they are in the process of establishing a plan. In total, more than half of the 63 reporting agencies made student loan repayments in FY 2003, have an agency loan repayment plan in place, or are in the process of establishing an agency student loan repayment plan.

Several agencies stated that use of the program has assisted them in recruiting and retaining highly qualified personnel. These agencies have begun to collect evidence, both statistically and anecdotally, that the program is aiding their human capital management efforts. Agencies have continued to use a variety of internal and external methods to publicize student loan repayment as a recruitment and retention tool.

We are encouraged by agencies' increased use of the student loan repayment program in FY 2003. We are committed to promoting the value of the student loan repayment program, as well as other existing recruitment and retention incentives, as effective tools for attracting and retaining well-qualified, high-performing employees. We will continue to work with agencies to assist them in establishing a budget plan to target the use of student loan repayments, as well as other recruitment and retention flexibilities, to meet their human capital management needs.

II. Background

Section 5379 of title 5, United States Code, authorizes agencies to establish a program under which they may repay certain types of Federally made, insured, or guaranteed student loans as a recruitment or retention incentive for highly qualified candidates or current employees. An employee for whom a student loan repayment benefit is paid must sign a service agreement to remain in the service of the paying agency for a period of at least 3 years. The employee must reimburse the paying agency for all benefits paid if he or she separates voluntarily or is separated involuntarily for cause or poor performance before fulfilling the service agreement.

In OPM's June 2003 report to the Congress on use of the Federal student loan repayment program in FY 2002, we reported that several agencies commented that the program would be more effective if the annual and aggregate payment limitations were increased. The Federal Employee Student Loan Assistance Act (Public Law 108-123, November 11, 2003) amended 5 U.S.C. 5379(b)(2)(A) to increase the maximum amount Federal agencies are authorized to repay under the program from $6,000 to $10,000 for any one employee in a calendar year and the aggregate limitation from $40,000 to $60,000 for any one employee. We expect that this increase in the payment limitations will assist agencies in effectively using student loan repayment as a recruitment and retention tool.

Section 5379(h) of title 5, United States Code, requires agencies to report annually to OPM on their use of the student loan repayment program. The law also directs OPM to prepare and submit annually to Congress a report containing the following information with respect to agencies that have provided student loan repayment benefits:

1. the number of Federal employees selected to receive student loan repayment benefits;
2. the job classifications of the recipients; and
3. the cost to the Federal Government of providing the benefits.

In June 2003, OPM submitted its report to the Congress on agencies' use of the student loan repayment program in FY 2002. We were pleased to report that 16 Federal agencies provided more than $3.1 million in student loan repayments for 690 Federal employees. In total, more than half of the reporting agencies stated that they made student loan repayments in FY 2002, had an agency loan repayment plan in place, or were in the process of establishing an agency loan repayment plan. Based on the significant increase in the use of the student loan repayment program in FY 2002 and reports that additional agencies had established or were in the process of establishing agency loan repayment plans, we anticipated another increase in the use of this incentive in FY 2003.

III. Agency Reports

OPM's regulations at 5 CFR 537.110(b) require agencies to submit a written report to OPM before January 1 of each year on their use of the Federal student loan repayment program for the previous fiscal year. On November 6, 2003, OPM issued a memorandum for human resources directors requesting reports on the use of the student loan repayment program in FY 2003. We received responses from 63 agencies. (See Attachment 1 for a list of the reporting agencies.) In FY 2003, 24 Federal agencies provided more than $9.1 million in student loan repayments for 2,077 Federal employees. (See Attachment 2 for a summary of agency reports.) These numbers indicate that Federal agencies invested nearly three times as much funding in this valuable human capital management tool and used student loan repayments to recruit and retain three times as many employees in FY 2003 than in FY 2002. In total, more than a third of the reporting agencies used student loan repayment as a workforce tool during the fiscal year.

In addition, six other agencies reported that they have established an agency loan repayment plan and two agencies reported that they are in the process of establishing a plan. Of the 39 agencies who did not use the program during the fiscal year, we are encouraged that 8 have either established an agency loan repayment plan or are in the process of doing so. We look forward to positive reports from these agencies in the future.

In FY 2002, the Department of State accounted for the majority of student loan repayments Governmentwide. The Department continued to expand its program during FY 2003, providing more than $3.2 million in student loan repayments on behalf of 660 employees. Of the 660 employees who received student loan repayment benefits, 472 were Foreign Service members at hard-to-fill overseas posts and 188 were civil service employees working in positions in which employees are difficult to recruit or retain. Student loan repayment benefits were used as a recruitment and retention tool for many occupations, with the largest number of repayments made on behalf of Political Affairs Officers (97), Economists (85), Public Diplomacy Officers (73), and Consular Officers (68) in the Foreign Service.

The Department of Defense (DoD) significantly increased its use of the program in FY 2003. After making student loan repayments on behalf of 6 employees during FY 2002, DoD provided more than $1.3 million in benefits to 469 employees during FY 2003. The program was used as an incentive for many different occupations, but the most repayments were provided on behalf of Mechanical Engineers (98) and Nuclear Engineers (47).

The Securities and Exchange Commission (SEC) implemented its agency student loan repayment plan in July 2003 and began to make widespread use of the program immediately. Even though the agency had only a few months to use the program before the end of FY 2003, SEC provided 257 employees with more than $1.4 million in student loan repayment benefits. The agency used student loan repayments most extensively to retain employees in Attorney positions (174).

One of the earliest agencies to make significant use of the program, the General Accounting Office (GAO) made extensive use of the program during FY 2002. The agency continued to use the program widely as a recruitment and retention tool during FY 2003, providing over $945,000 in benefits to 231 employees. The program was most widely used for Analyst positions, including 181 of the 231 employees who received benefits during the fiscal year.

The Department of Justice (DOJ) made only one student loan repayment during FY 2002, but it began to use the program extensively in FY 2003. In total, DOJ provided over $688,000 in student loan repayment benefits to 160 employees. The majority of repayments were made on behalf of Attorneys (61) and Special Agents (46).

Although the agencies mentioned above made the most extensive use of the student loan repayment program during FY 2003, 19 other agencies used the program as a recruitment and retention tool. The Departments of Energy, Health and Human Services, Interior, and Veterans Affairs, as well as the Federal Energy Regulatory Commission and the Government Printing Office, all made student loan repayments totaling more than $100,000.

We note that the Federal student loan repayment program is primarily a flexibility that agencies may use as they see fit to meet their human capital needs. Therefore, agencies-especially those with a smaller overall workforce-need not make large numbers of student loan repayments to use the program effectively. We applaud all agencies that are making use of the program, and we look forward to working with them to find the most strategic uses of this valuable incentive. Based on the significant increase in the use of the student loan repayment program in FY 2003, reports that additional agencies have established or will be establishing agency loan repayment plans, and the higher payment limitations established by law, we anticipate an expanded use of this incentive in FY 2004.

IV. Agency Comments

In our November 6, 2003, memorandum to human resources directors, we asked agencies to provide information on their experiences in administering the student loan repayment program. We received comments from 22 agencies. Specifically, we asked agencies the following questions:

1. Has your agency's use of the program improved your recruitment and retention efforts? If so, how? (Please provide specific examples.)
    
2. To what extent have components or bureaus (or the department or agency as a whole) developed a business case for the use of available funds to meet recruitment and retention needs through the use of student loan repayments?
    
3. How has your agency publicized the student loan repayment incentive (e.g., on vacancy announcements, through employee newsletters, etc.)?
    

The vast majority of the responding agencies stated that use of the program has assisted them in recruiting and retaining highly qualified personnel. Of the 20 agencies who responded to this question, 9 reported that the program has assisted them with both recruitment and retention, four have focused solely on retention, and two have used the program only as a recruitment tool.

Among those agencies who use the program for recruitment, several agencies commented that the student loan repayment incentive has allowed them to remain competitive with the private sector in recruiting top notch employees. Agencies also noted that the program has stirred interest on recruiting trips to college campuses. A few agencies also pointed out that student loan repayments have helped them to meet their workforce diversity goals.

The Department of Defense commented that one of its component agencies saw the general acceptance rate at offices using the student loan repayment program increase from 42 to 60 percent in FY 2003. Also, the component agency stated that of 20 individuals hired, 8 indicated that student loan repayment was the top reason for accepting employment.

Anecdotal evidence also points to the effectiveness of student loan repayment as a recruitment tool. For example, the Department of Justice reported that it was able to recruit a highly qualified clinical psychologist for a remotely-located Federal prison as a result of the student loan repayment program. Absent the benefit, the individual would have refused employment with the Department in favor of other employers offering more lucrative salaries.

Of those agencies who use the program for retention purposes, one agency commented that the availability of student loan repayment has dramatically lowered the agency's attrition rate among recent college graduates. Another agency reported that it has used the program to fill a position it identified as an agency "at risk" competency. A few agencies stated that the use of student loan repayment has enhanced employee morale. For example, one agency noted that it receives frequent feedback from employees not only thanking them for the financial assistance, but affirming the importance of the program in reinforcing their belief that they made the correct career choice.

As reported last year, the Department of State continues to use the program differently for its civil service and Foreign Service employees. The Department primarily uses the incentive as a retention tool for civil service employees in positions identified as difficult to staff or retain. An indication of the success of the program is that during the 2 years the program has been in existence, only three civil service recipients have resigned before completing their service requirement. For Foreign Service employees, the Department uses the program for the "internal recruitment" of employees to specific foreign posts that have traditionally been difficult to staff.

Regarding the establishment of a business case for the use of available funds to meet recruitment and retention needs through the use of student loan repayments, the vast majority stated that budgeting for the use of student loan repayments is delegated to component organizations. Certain agencies work within a "manage-to-budget" environment based on agency funding. One agency stated that, because of limited agency funds, component organizations need to justify the use of student loan repayments in addition to, or in lieu of, other incentives. The agency also stated that funding for the program depends upon the operating budgets of the individual divisions and offices. Another agency noted that individual offices plan strategically to budget funds for the student loan repayment program in order to meet their human capital recruitment and retention goals. Another agency noted that the two components that have used student loan repayment have obligated funds for the program as part of their fiscal year allocation.

A few agencies reported that the program is centrally funded and administered. However, one such agency reported that the agency policy is based on identified recruitment needs of all organizations within the agency. Another agency noted that it has developed an agency-wide business case for funding the student loan repayment program, which is analyzed by various levels of staff and management during the budget formulation process. The agency stated that, although the dollar amount allocated to the program fluctuates each year, the program has been funded consistently at an adequate level.

One agency reported that criteria for the use of available funds have been established by various components. These criteria include recruitment for positions with educational requirements, a separation rate above the national average, and difficulty filling the position on a local level. A smaller agency reported that the use of available funds for student loan repayment is reviewed at the agency level, considering factors such as difficulty in recruiting a highly qualified candidate or retention of an employee with high or unique qualifications, funds availability, employee performance, and the use of other recruitment and retention tools. OPM will continue to work with agencies to assist them in establishing a budget plan to target the use of student loan repayments, as well as other recruitment and retention flexibilities, to meet their human capital management needs.

In response to our question regarding the ways in which the agencies publicize the student loan repayment program, the agencies provided a variety of responses. Some of the more popular means for publicizing the incentive for recruitment purposes include career fairs, Web site announcements, college placement office notices, college recruiting trips, pamphlets and brochures, and job announcements. One agency provides a link from electronic vacancy announcements to a benefits Web page that includes student loan repayments. For retention purposes, agencies reported that they publicize the program through methods such as new employee orientation, agency intranet, employee newsletters, employee guides, supervisor guides, briefings to managers, supervisory training courses, email announcements, and telegrams to offices abroad. One agency has set up an email address which, when queried, automatically provides a current status report on the program.

In addition to responses to the three questions we posed in our memorandum, we also received comments from several agencies on why they have not begun to use student loan repayment as a recruitment and retention tool. The most common reason identified was a lack of funding for the program or general budgetary constraints. Some agencies stated that other tools, such as recruitment bonuses and retention allowances, have met their human capital needs. Finally, one agency commented that it does not use student loan repayment as a workforce tool because it generally attracts mid-career individuals who are no longer faced with student loan debt.

VI. Conclusion

One of the biggest challenges of Federal agencies is to attract and retain well-qualified, high-performing employees. The student loan repayment authority is a valuable tool that enables agencies to entice potential candidates into Federal service and keep talented employees in the Federal workforce. Using this authority, agencies can tailor loan repayment programs to meet their specific needs.

OPM will continue to work closely with agencies-particularly those that have not yet implemented an agency loan repayment plan-to encourage them to take full advantage of the student loan repayment program, as well as other existing recruitment and retention incentives, to attract and retain well-qualified, high-performing employees. We will continue to assist agencies in establishing a budget plan for using strategic recruitment and retention incentives, including student loan repayments. We are committed to providing agencies with the most up-to-date and useful information on using the student loan repayment program and other recruitment and retention incentives. Based on the significant increase in the use of the student loan repayment program in FY 2003, reports that additional agencies have established or will be establishing agency loan repayment plans, and the higher payment limitations established by law, we anticipate greater use of this incentive in FY 2004.

Attachment 1

LIST OF REPORTING AGENCIES

DEPARTMENTS:

• Agriculture
• Commerce
• Defense
• Education
• Energy
• Health and Human Services
• Homeland Security
• Housing and Urban Development Justice
• Labor
• State
• Interior
• Transportation
• Treasury
• Veterans Affairs

AGENCIES:

• Agency for International Development
• Architect of the Capitol
• Armed Forces Retirement Home
• Chemical Safety and Hazard Investigation Board
• Commission on Civil Rights
• Committee for Purchase from People Who Are Blind or Severely Disabled
• Commodity Futures Trading Commission
• Consumer Product Safety Commission
• Defense Nuclear Facilities Safety Board
• Environmental Protection Agency
• Equal Employment Opportunity Commission
• Export-Import Bank
• Farm Credit Administration
• Federal Communications Commission
• Federal Deposit Insurance Corporation
• Federal Election Commission
• Federal Energy Regulatory Commission
• Federal Labor Relations Authority
• Federal Maritime Commission
• Federal Mediation and Conciliation Service
• Federal Retirement Thrift Investment Board
• General Accounting Office
• General Services Administration
• Government Printing Office
• Holocaust Memorial Museum
• Inter-American Foundation
• International Broadcasting Bureau
• Merit Systems Protection Board
• National Aeronautics and Space Administration
• National Credit Union Administration
• National Endowment for the Arts
• National Endowment for the Humanities
• National Labor Relations Board
• National Mediation Board
• National Science Foundation
• National Security Agency
• National Transportation Safety Board
• Nuclear Regulatory Commission
• Occupational Safety and Health Review Commission
• Office of Personnel Management
• Pension Benefit Guarantee Corporation
• Postal Rate Commission
• Railroad Retirement Board
• Securities and Exchange Commission
• Selective Service System
• Small Business Administration
• Smithsonian Institution
• Social Security Administration