Detailed Information on the
Federal Family Education Loans Assessment

Explore statutory changes in the fiscal year (FY) 2005 appropriations process and the reauthorization of the HEA aimed at improving program efficiency, enhancing program stability, and streamlining program operations.

Improve the Department's present student loan cost model to more accurately project future cash flows and predict the impact of variables affecting these cash flows.

Measure: Enrollment rates: Postsecondary education enrollment rates will increase each year for all students.

Explanation:The enrollment rate is defined as the percentage of high school graduates aged 16-24 enrolling immediately in college.

Measure: Enrollment rates: The postsecondary enrollment gap between low- and high-income high school graduates will decrease each year.

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Measure: Enrollment rates: The postsecondary enrollment gap between Black and White high school graduates will decrease each year.

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Measure: Enrollment rates: The postsecondary enrollment gap between Hispanic and White high school graduates will decrease each year.

Explanation:

Measure: Completion rates: Postsecondary education completion rates for all full-time, degree-seeking students in 4-year programs will improve.

Explanation:The completion rate is defined as the percentage of full-time degree-seeking students completing within 150 percent of the normal time required.

Measure: Completion rates: Postsecondary education completion rates for all full-time, degree-seeking students in less-than-4-year programs will improve.

Explanation:

Measure: Completion rates: The postsecondary completion gap between Black and White full-time students in 4-year programs will decrease each year.

Explanation:

Measure: Completion rates: The postsecondary completion gap between Hispanic and White full-time students in 4-year programs will decrease each year.

Explanation:

Measure: Completion rates: The postsecondary completion gap between Black and White full-time students in less-than-4-year programs will decrease each year.

Explanation:

Measure: Completion rates: The postsecondary completion gap between Hispanic and White full-time students in less-than-4-year programs will decrease each year.

Explanation:

Measure: Administrative Unit Cost

Explanation:These rates reflect the lifetime administrative cost per award made in a given fiscal year. Measures are based on annual and projected activity-based cost data and program obligation information. Targets and updated actual data are under development.

Is the program purpose clear?

Explanation: The program provides default insurance and interest subsidies to encourage private lenders to make postsecondary education loans to undergraduate and graduate students. The program also provides interest subsidies for eligible low-income students to cover interest accrued while in school.

Evidence: The FFEL program's purpose is established in Section 421 of the Higher Education Act.

Does the program address a specific and existing problem, interest or need?

Explanation: The program, in combination with other Federal student aid, helps individuals pay for postsecondary education. The program provides subsidized loans to low-income students and parents as well as unsubsidized loans to all students/parents regardless of income. In many cases loan recipients would not have access to credit at comparable interest rates, if at all, without this program. However, the statutorily fixed amount that students are allowed to borrow has not kept up with increases in tuition.

Evidence: Program eligibility and award criteria are discussed in Section 427 of the Higher Education Act.

Is the program designed so that it is not redundant or duplicative of any other Federal, state, local or private effort?

Explanation: While different in structure, the Federal Direct Student Loan program and FFEL programs provide identical loans to the same population of students and parents.

Evidence: Sec. 421 (FFEL) and Sec. 451 (DL) of the Higher Education Act are structured to ensure that student borrowers receive identical benefits under either program.

Is the program design free of major flaws that would limit the program's effectiveness or efficiency?

Explanation: While the program is effective is distributing billions of dollars in student aid to millions of students and parents, there is evidence of significant cost inefficiencies in the program. For instance, excess subsidies are provided to some lenders, who through a loophole have secured a 9.5% guaranteed rate of return on loans financed through outdated tax exempt securities. Moreover, the use of fixed interest rates, whether for consolidation loans or in the statutory change fixing most borrower rates on new loans at 6.8% rate beginning in 2006, diminish the program's ability to be sensitive to market-driven efficiencies.

Evidence: 1) Structural changes to the role of the FFEL program participants, such as increased risk-sharing and a greater reliance on performance-based compensation, could promote greater competition among program participants, and thus improve service delivery and decrease costs to the taxpayer.?? 2) The use of statutorily set levels of return for borrower interest and special allowance payments prevents the government/taxpayer from benefiting when market efficiencies lower lenders' costs.

Is the program effectively targeted, so that resources will reach intended beneficiaries and/or otherwise address the program's purpose directly?

Explanation: The program's statutorily-based needs analysis formula effectively targets subsidized loans based on financial need. As noted in the response to 1.2 above, in most cases loan recipients would not have access to credit at comparable interest rates, if at all, without this program. However, a disproportionate amount of the program's benefits are provided to borrowers who have been out of school for several years. For instance, by consolidating their loans, borrowers can currently lock in interest rates below 4%, increasing federal subsidies as a result.

Evidence: Data from various Department financial management and operations reports, and longitudinal student aid analyses, demonstrate the extent to which Stafford Loans are targeted to low and moderate income students and families.

Does the program have a limited number of specific long-term performance measures that focus on outcomes and meaningfully reflect the purpose of the program?

Explanation: The Department's Strategic Plan includes measures on college enrollment rates (including closing the gaps between high- and low-income students, and minority and non-minority students) and the debt burden of students upon graduation. Given the scope of the loan programs (where nearly 1/2 of all undegraduates receive a direct or guaranteed federal loan), it is appropriate to use these overall postsecondary education measures to evaluate program performance. In addition, the Department has developed more specific goals related to student persistence and graduation rates for student aid recipients, as compared to the overall student population, with targets out to 2010. The Department is working with OMB on developing an appropriate efficiency measure for this program.

Evidence: Department of Education Strategic Plan; Goal 5, Objectives 5.1, 5.3. See "Measures" tab for specific program measures.

Does the program have ambitious targets and timeframes for its long-term measures?

Explanation: The Department has developed long-term targets and timeframes for all relevant performance measures through 2010.

Evidence: Department of Education Strategic Plan; Goal 5, Objectives 5.1, 5.3. See "Measures" tab for specific program measures.

Does the program have a limited number of specific annual performance measures that can demonstrate progress toward achieving the program's long-term goals?

Explanation: The Department has annual and long term goals (through fiscal year 2010) for performance measures related to the student aid programs, and is in the process of adding two new measures on persistence and completion. The Department is working with OMB on developing an appropriate efficiency measure for this program.

Evidence: Department of Education Strategic Plan; Goal 5, Objectives 5.1, 5.3. See "Measures" tab for specific program measures.

Does the program have baselines and ambitious targets for its annual measures?

Explanation: Specific targets and timeframes are shown in the "Measures" tab.

Evidence: See answer to 2.3.

Do all partners (including grantees, sub-grantees, contractors, cost-sharing partners, and other government partners) commit to and work toward the annual and/or long-term goals of the program?

Explanation: Program partners (i.e., schools, lenders, guaranty agencies) support the goals of the FFEL program, but they are not required to report explicitly on the goals included in the Department's Strategic Plan. However, participants are required to report a wealth of program data through surveys such as the Integrated Postsecondary Data System (IPEDS), the National Student Loan Data System (NSLDS), and the Department's financial systems. The Department uses these data to measure program performance.

Evidence: IPEDS, NSLDS, Department of Education financial and program management reports

Are independent evaluations of sufficient scope and quality conducted on a regular basis or as needed to support program improvements and evaluate effectiveness and relevance to the problem, interest, or need?

Explanation: The Government Accountability Office and the Department's Inspector General have conducted extensive audits of the program with recommendations for improved financial/program management. However, the Department has not commissioned any independent evaluations. Rather, the Department regularly collects data from FFEL program participants (i.e., postsecondary institutions, lenders, Guaranty Agencies) through a number of data systems and annual and longitudinal studies. These data collection efforts provide performance information used to support program improvements and evaluate effectiveness.

Evidence: National Student Loan Data System; Integrated Postsecondary Data System; other Department of Education financial and program management reports; National Postsecondary Student Aid Study; Baccalaureate & Beyond; Beginning Postsecondary Student Longitudinal Study; High School and Beyond; National Education Longitudinal Study, 1988; National Household Education Survey; National Longitudinal Study, 1972; Recent College Graduates Study. GAO and OIG reports.

Are Budget requests explicitly tied to accomplishment of the annual and long-term performance goals, and are the resource needs presented in a complete and transparent manner in the program's budget?

Explanation: The Department collects extensive FFEL program data that is used in concert with forecasting models to project the impact of funding, policy, and legislative changes on program costs. However, the Department has not yet established a link between these costs and its long-term performance goals.

Evidence: Department of Education FFEL budget forecast and program cost model.

Has the program taken meaningful steps to correct its strategic planning deficiencies?

Explanation: The Department has demonstrated a commitment to obtaining timely performance data related to persistence and graduation rates. During fiscal year 2004, the Department conducted a study that examined a promising alternative sources of outcome data. Subsequently, the Department began a study of establishing a unit record system for all students enrolled in postsecondary education. That study will be concluded in early 2005. The Department continues to work to identify alternative approaches for obtaining persistence and graduation rate data that can be used until a unit record system could be implemented or in lieu of a unit record system. The Department also continues to improve to its credit forecasting model.

Evidence:  

Does the agency regularly collect timely and credible performance information, including information from key program partners, and use it to manage the program and improve performance?

Explanation: While the Department regularly collects data from FFEL program participants through a number of data systems and annual and longitudinal studies, FFEL data submissions are not done in a timely manner. The Department's financial records are often as much as two quarters behind actual program activity. In addition, many of these data submissions are done at an aggregate level; the Department needs to move to loan-level reporting to streamline reconciliations, verify payment amounts, and otherwise ensure program integrity and full compliance with credit reform requirements. The Department also needs to complete and implement the Federal Student Aid's comprehensive data strategy.

Evidence: National Student Loan Data System; Integrated Postsecondary Data System; other Department of Education financial and program management reports; National Postsecondary Student Aid Study; Baccalaureate & Beyond; Beginning Postsecondary Student Longitudinal Study; High School and Beyond; National Education Longitudinal Study, 1988; National Household Education Survey; National Longitudinal Study, 1972; Recent College Graduates Study.

Are Federal managers and program partners (including grantees, sub-grantees, contractors, cost-sharing partners, and other government partners) held accountable for cost, schedule and performance results?

Explanation: Currently, ED cannot demonstrate how federal managers and program partners are held accountable for program goals. However, the Department is in the process of ensuring that Department employees are held accountable for specific actions tied to program performance. Postsecondary institutions are held accountable through statutory cohort default rate penalties, annual compliance audits, and periodic program reviews, including site visits by the Department. Lenders are also held accountable by compliance audits and Department reviews. Finally, a number of guaranty agencies operate under voluntary flexible agreements which establish agency-specific performance goals and incentives. However, in general both poor and high-performing agencies continue to receive comparable fees and reimbursements; moreover, agencies are currently allowed to unilaterally waive loan insurance fees, and thus reduce federal receipts.

Evidence: The President's Management Agenda scorecard (Human Capital and Budget & Performance Integration initiatives) notes ED's efforts to improve accountability of federal managers. ??OFSA processes for review of postsecondary institutions, lenders, and guaranty agencies.

Are funds (Federal and partners') obligated in a timely manner and spent for the intended purpose?

Explanation: ED obligates FFEL funds consistently with the overall program plan. The Department also has procedures for reporting actual expenditures, comparing them against the intended use, and taking timely and appropriate action when funds are not spent as intended. However, ED must take steps to ensure that only limited amounts of unobligated funds remain in the financing account at the end of the fiscal year. These funds should be returned to Treasury before the end of the year. Additionally, the use of aggregate loan data for lender payments makes it difficult for the Department to ensure these payments are proper. While audits of lenders and guaranty agencies generally ensure whether payments are proper, in some cases these auditors may not have a complete understanding of permissible FFEL payments (notably, the Department's very complex criteria for determining which loans are eligible for 9.5% tax-exempt subsidies).

Evidence: Department of Education financial management reports

Does the program have procedures (e.g. competitive sourcing/cost comparisons, IT improvements, appropriate incentives) to measure and achieve efficiencies and cost effectiveness in program execution?

Explanation: While the Department is working with OMB to finalize a comprehensive unit-cost measurement system for the student aid programs, it is not clear when the system will be implemented. That said, the Department has instituted a number of procedures to measure and achieve efficiencies in program operations,including a strengthened Investment Review Board to review and approve information technology purchases. In addition, many FFEL-related activities, including especially default collection, are carried out through competitive contracts with substantial performance incentives.

Evidence: Department Investment Review Board materials; debt collection and other FFEL-related contract materials.

Does the program collaborate and coordinate effectively with related programs?

Explanation: The FFEL program is part of a group of interrelated Federal, State, and institutional financial aid programs which work together to accomplish the shared goal of increasing access to higher education. The Federal student aid programs share a common application and need analysis process that is also used by many States and institutions as the basis for their own need-based aid. In additon, institutional financial aid administrators package the various forms of aid to best meet the needs of each eligible student.

Evidence: Program structure, including aid packaging process and widespread use of FAFSA for Federal and State aid.

Does the program use strong financial management practices?

Explanation: The Department has taken major steps to improve its financial management over the past several years. The Department has received three consecutive unqualified audit opinions, received a green rating for financial management in the President's Management Agenda scorecard, and is in compliance with major Federal financial management statutes such as the Credit Reform Act and the Debt Collection Improvement Act. That said, the Department should continue to work to further improve its financial management systems and procedures.

Evidence: GAO and Education Inspector General reports, and Independent Audit reports.

Has the program taken meaningful steps to address its management deficiencies?

Explanation: The Department has taken a number of major steps to improve internal management, one result of which is an unqualified opinion on its last three years of financial statements. These efforts include the successful implementation of a new general ledger system, improved program reconciliations; an Investment Review Board to oversee information technology acquisitions, many of which directly involve FFEL program operations and oversight; and a new employee performance appraisal system tied directly to the Department's performance goals. However, the Department still needs to develop a unit cost framework for the Office of Federal Student Aid.

Evidence: Department of Education FY 2003 Accountability Report; Department strategic plan; Investment Review Board materials; implementation of EDPAS.

Is the program managed on an ongoing basis to assure credit quality remains sound, collections and disbursements are timely, and reporting requirements are fulfilled?

Explanation: FFEL data submissions are not done in a timely manner. The Department's financial records are often as much as two quarters behind actual program activity. In addition, many of these data submissions are done at an aggregate level; the Department needs to move to loan-level reporting to streamline reconciliations, verify payment amounts, and otherwise ensure program integrity and full compliance with credit reform requirements.

Evidence: GAO and Education Inspector General reports.

Do the program's credit models adequately provide reliable, consistent, accurate and transparent estimates of costs and the risk to the Government?

Explanation: The Department and OMB have taken a number of steps to improve the transparency of the modeling process, update technical assumptions to better reflect actual program experience, and improve congruency with CBO estimates.?? That said, much work remains to address structural issues such as the lack of probablistic scoring and fixed Treasury borrowing rates for Direct Loans.

Evidence: Lack of probablistic scoring leads to large differences with Congressional Budget Office estimates and counterintuitive results in scoring certain policies.

Has the program demonstrated adequate progress in achieving its long-term performance goals?

Explanation: The FFEL program has met or exceeded some of its long-term performance goals. The addition of new measures related to persistance and graduation rates will strengthen the Department's ability to assess program performance. However, these performance goals are newly established and no long-term data is yet available.

Evidence: See "Measures" tab.

Does the program (including program partners) achieve its annual performance goals?

Explanation: The FFEL program has met or exceeded some of its annual performance goals. The addition of new measures related to persistance and graduation rates will strengthen the Department's ability to assess program performance. However, these performance goals are newly established and no long-term data is yet available.

Evidence: See "Measures" tab.

Does the program demonstrate improved efficiencies or cost effectiveness in achieving program goals each year?

Explanation: The Department has developed a set of performance measures for Federal Student Aid and has developed unit cost measures. Baseline data as well as targets for future years are being developed for these unit cost measures. The unit cost measures will be used as efficiency measures for the FSA programs including FFEL and FDSL.

Evidence: FSA Unit Cost working papers.

Does the performance of this program compare favorably to other programs, including government, private, etc., with similar purpose and goals?

Explanation: The Department has developed performance measures for the FFEL and Direct Loan programs. Data from longitudinal studies (BPS) supported by the Department's National Center for Education Statistics (NCES) indicate that these programs compare favorably to other programs. This data was recently validated by a study sponsored by the Department that was designed to test an alternative data source for these important outcome measures. While the test proved unsuccessful, it did find similar outcomes for the student loan programs to those obtained using data from NCES's BPS studies.

Evidence: Internal ED analysis of BPS data. ED commissioned study report 'Persistence and Attainment Measures for Federal Student Aid Programs' that examined alternative sources of outcome data.

Do independent evaluations of sufficient scope and quality indicate that the program is effective and achieving results?

Explanation: Studies and program data indicate that Federal student loan programs are effective in increasing access to postsecondary education for low income individuals. Moreover, comprehensive studies by the American Council on Education, the National Center for Education Statistics, and the Advisory Committee on Student Financial Assistance, among others, have consistently found that student aid has a major impact on the enrollment and persistence of low-income students in higher education. However, GAO and IG audits continue to find material deficiencies in program/financial management.

Evidence: "Descriptive Study of 1995-1996 BPS: Six Years Later," NCES, 2003; "Low-Income Students: Who They Are and How They Pay for Their Education" NCES, 2002; "How Low-Inomce Students Finance Their Education," NCES, 1993; "Challenges to Maintaining Access in the 21st Century, Advisory Committee on Student Financial Assistance, 1999; The Student Aid Game: Meeting Need and Rewarding Talent in American Higher Education, Micheal McPherson and Morton Owen Shapiro, 1998; Crucial Choices: How Students' Financial Decisions Affect Their Academic Success, American Council on Education, 2002; FY 2000, 2001, 2002 Department of Education Accountability Reports.