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Financial Highlights | Future Trends

From a financial management perspective, the Department of Education is unique among federal government agencies. We must manage, consolidate, and account for more than 230 appropriations. Among the 16 Cabinet-level departments, we maintain the smallest number of employees while managing the third-largest discretionary budget.

A continuation of current downward trends in full-time equivalent staff will result in a critical reliance on a sound intellectual capital plan. The Department must increasingly coordinate strategic technology investments with human capital management.

Technology Transformation

This is a flow graph depicting an E-Government Operations Model.  The top three bubbles represent State and Local Government, Federal Government, and the Private Sector.  The three levels of government flow into the large, center bubble named Integrated E-Networks.  Flowing from the center bubble are five squares which house Federal Agency A, Federal Agency B, Department of Education, Federal Agency C, and Federal Agency D.  All bubbles and squares flow into a rectangle named General Public.  The flow model represents the public value that is optimized by effective E-Government.Technology improvements will continue to empower organizations in the future by increasing the availability of a critical resource: time. These improvements will enable executive management to devote additional time to policy analysis and decisionmaking rather than the manual processing and compiling of key data. The Department benefits at an increasing rate from the maturing of investments in systems and e-government.

Major Department investments include a reimplementation of the existing financial accounting system and full participation in ongoing federal e-government initiatives. The adjacent chart depicts our vision of the e-government operational model that highlights electronic information-sharing capabilities via data networks.

This unified data network will create public value by optimizing government operations and providing effective oversight, coordinating strategic technology investment planning with human resource management and planning governmentwide.

We are currently in the process of completing a study to determine the best approach to migrating to a center of excellence or becoming one. This analysis will be completed by the end of the first quarter of fiscal year 2006.

Human Capital Transformation

A results-oriented enterprise requires that an organization clearly identify and achieve viable results. The Department of Education's Results Agenda clearly articulates this expectation, enabling Department personnel to understand how they will be held accountable for performance. Our employees also understand how their achievements align with and contribute to our mission.

The Department continued the implementation of a human capital management plan that was launched in FY 2004. Our plan integrates human capital management, competitive sourcing, restructured business processes, and other Departmental strategic infrastructure investments. Future actions to meet challenges within our principal offices will include:

  • Improving clarity of results in employee's performance standards (targeted to specific principal office goals and objectives).
  • Linking employee awards to performance.
  • Training supervisors/managers in assessment of employee performance and techniques for improving management practices.
  • Improving communication and techniques to foster a team culture.
  • Conducting appropriate forums to obtain employee perspectives on motivation, commitment, and productivity, implementing strategies based on information gathered.

The Department's continued commitment to human capital transformation will result in a more robust, cost-effective business environment and a better return on taxpayer investment.

Economic Transformation

Tuition costs and interest rates will continue to have significant effects on the Department. Increasing tuition costs for postsecondary education should compel a greater number of individuals to seek tuition assistance in the form of loans or grants.

Rising interest rates have driven a surge in the refinancing and consolidation of student loans. Variable student loan interest rates were reset on July 1, 2005, increasing nearly two percentage points from 3.37 percent for academic year 2004-05 to 5.30 percent for academic year 2005-06. In anticipation of this increase, private lenders, schools, and others encouraged borrowers to consolidate their existing variable rate loans into fixed rate loans. This resulted in an unprecedented surge in loan consolidations, leading to substantially higher volume than the previous fiscal year. Based on preliminary data, projected cohort-year 2005 consolidations will approximate $68.5 billion, $24.8 billion above the fiscal year 2006 President's Budget estimate.

Fiscal year 2005 direct consolidation loan volume is estimated at $17.7 billion. These consolidations are comprised of underlying direct loans, guaranteed loans, and, to a much lesser extent, defaulted guaranteed loans in repayment. In disbursing a direct loan consolidation, the Department pays in full the holders of the underlying loans.

Fiscal year 2005 FFEL consolidation loan volume is estimated at $50.8 billion. These consolidations are primarily from guaranteed loans in repayment and some direct loans (in most cases from borrowers with loans from both programs). Under current projections, the prepayment of the underlying FFEL loans produces significant savings through the elimination of future special allowance payments.

The devastation of Hurricanes Katrina and Rita will impact the Department and the federal government for many years to come. These catastrophic storms have left the Gulf Coast area without many teachers, students, or functional schools or universities. The Department has provided immediate assistance to schools and displaced persons. During the recovery process, we will ensure that students, teachers, and educational institutions receive assistance as needed. Due to the uniqueness of this disaster, financial estimates cannot be made of the type or timing of assistance that will be required. However, the Department has financial management controls in place to ensure that federal funds are disbursed quickly and appropriately.

Regulatory Transformation

Governance, risk management, and compliance activities increasingly interact with one another, requiring sustained management commitment to achieve organizational excellence in all three areas. The Department's future success is highly dependent on the successful convergence of these activities into a coherent strategic operating model.

Focus on the regulatory environment requires the Department to identify and control compliance risk, which includes systemic, nonsystemic, and residual components. We mitigate the risk of impairment to our operations model, reputation, and financial condition by seeking to comply fully with laws and regulations, internal controls, and taxpayer expectations.

The Department is taking a holistic approach to total risk management, the value of which far exceeds the costs of implementation. Senior management is making investments to comply with relevant regulations, to manage the costs associated with compliance, and to identify and address regulatory change.

Operational effectiveness meetings were held twice during FY 2005 with each Department principal office that oversees federal education programs. Senior staff of the Offices of the Deputy Secretary, Under Secretary, Chief Financial Officer, and Chief Information Officer, along with the Office of Management, met with senior principal office leaders to review and evaluate management operations in the areas of customer service, quality and innovation. Principal office managers presented evidence of their offices' performance from historical, current, and future perspectives. These meetings facilitated the sharing of best practices across the Department, and any necessary principal office corrective actions are tracked on a continuous basis.

Our progressive focus will ensure that fewer resources are necessary for remediation activity.