Section G - Departmental Management

• Departmental Management
• Department Employment
• Program Administration
• Postsecondary Education Management
• Administrative and Management Accomplishments
• Technical Note on Advance Funding
• Office of Civil Rights
• Office of Inspector General

G. DEPARTMENTAL MANAGEMENT

The Department's 2000 budget request for Salaries and Expenses (S&E) will pay the costs of the staff, overhead, contracts, and other activities needed to administer and monitor about 170 educational assistance programs and provide over $50 billion in grants and loans each year to nearly 9 million postsecondary students.

The Department is requesting $551.5 million for its discretionary S&E budget in 2000, an increase of $33.4 million over the 1999 level. Most of the increase is for the 1999 and 2000 pay raises announced by President Clinton. Even with the increase, the total administrative budget is less than two percent of the Department's total discretionary budget.

Mandatory Federal administrative costs—primarily associated with the postsecondary student loan programs—will increase by $114.5 million. The mandatory increase is primarily required to originate, service, and collect student loans. The funding has contributed to the decline in the default rate, improvements in collections, and better services to students and families seeking aid for college expenses.

Over 50 percent of the Department?s S&E budget is funded under a permanent mandatory appropriation that supports the operations of the student loan programs and other student financial aid management. The largest single expense under this appropriation is the cost of private sector contractors who originate and service Direct Student Loans. The permanent mandatory account also supports all student aid programs through a variety of other contracts, such as the National Student Loan Data System, as well as payments to 36 non-Federal guaranty agencies that help administer the Federal Family Education Loan (FFEL) program. Both Direct Loan servicing costs and FFEL guaranty agency payments fluctuate with loan volume. Because student loan volume grew significantly in the last five years, administrative costs for servicing and collection will continue to increase.

The Higher Education Act Amendments of 1998 ("HEA amendments") restructured the Office of Postsecondary Education into two components: (1) the new performance-based Office of Student Financial Assistance Programs (OSFAP) and (2) the reorganized Office of Postsecondary Education (OPE). The reorganization is designed to better focus resources and management expertise by transforming OSFAP into a performance-based organization (PBO) reporting directly to the Secretary. As required by the HEA amendments, a five-year performance plan for OSFAP will be submitted to Congress in the spring of 1999.

Department Employment

With a 1999 target of 4,694 FTE, staffing levels are nearly 40 percent below the 1980 level of 7,528 FTE when the Department was created, and 165 FTE below the 1992 level. The Department?s reinvention and restructuring efforts over the last few years—combined with technology and financial management systems improvements, attrition, and retirements—have resulted in a Department that works better, costs less, and operates efficiently with a reduced staff level.

The 2000 staffing request for the Department is 4,737 FTE, an increase of 43 FTE from the 1999 level of 4,694 FTE. The increase reflects the new programs and the additional responsibilities placed on the Department because of the high priority given to education by President Clinton. In addition to the overall increase, the Department plans to continue to shift current staff to high priority areas from activities where they are no longer needed due to streamlining efforts or the consolidation or elimination of programs.

The Department has maintained operations in spite of reduced staffing levels in part by relying heavily on automation and private contractors to handle such functions as awarding grants, processing student aid applications, and providing grants and loans to some 9 million college students. Already the smallest of the 14 Cabinet agencies, the Department minimizes administrative tasks and privatizes functions that can be handled more efficiently by outside contractors. A prime illustration is the use of contracts to operate the Direct Student Loan program.

Program Administration

Administrative support for most programs and offices in the Department is provided by the Program Administration account. The 2000 request for this account is $386 million, an increase of $21.5 million over 1999, including $223 million for staff pay and benefits and $163 million for non-pay costs. Staffing paid for from this account would increase from 2,710 FTE in 1999 to 2,751 FTE in 2000. The $223 million request for salaries and benefits, which is 58 percent of the total, reflects average employee pay raises of about 3.6 percent in January 1999 and another 4.4 percent estimated for 2000, covering both national and locality pay raises. The account also finances rent, travel, and computer support for the staff and some contract costs of the student aid programs.

Postsecondary Education Management

The major focus of the Department's S&E budget continues to be improving management of student financial aid and other postsecondary education programs as well as the successful implementation of Direct Loans. The importance of these management responsibilities is reflected in restructuring that created the PBO for student aid. Greg Woods was sworn in as Chief Operating Officer of the PBO on December 8, 1998, and is now moving ahead to develop performance measures and a five-year budget plan consistent with the Higher Education Act Amendments of 1998. As noted above, the Department expects to submit these plans to Congress in late spring 1999.

Excluding $180 million in payments for services to FFEL guaranty agencies, student aid administration spending will total $687 million in 2000, or more than 60 percent of the Department?s total administrative budget. About 81 percent of this $687 million reflects mandatory funding authorized under Section 458 of the Higher Education Act; the remaining funds are provided under the discretionary Program Administration account and smaller accounts supporting the administration of the FFEL, College Housing and Academic Facilities Loans, and HBCU Capital Financing programs.

Major activities supported with these funds include:

Direct Loans. Origination and servicing costs for Direct Loans account for over 40 percent of Department administrative spending on postsecondary education. The Direct Loan program grew from 7 percent of total loan volume in academic year 1994-95 to 33 percent in 1997-98, and is expected to remain at that level for the next few years. As large numbers of loans have begun to enter repayment, servicing costs will continue to increase as Department contractors distribute increasing numbers of statements and coupon books, respond to more requests for account information, and collect and process additional payments. Costs for this contract will increase by $69.3 million over the 1999 level, as the number of Direct Loans on the servicing system grows by 25 percent, from 13.5 million to 17.0 million.

Student Aid Delivery. The Department expects to provide over $52 billion in grants and loans to almost million students in 2000. In awarding this aid, the Department expects to spend over $69.5 million on contracts with a number of private firms to process paper and electronic applications, determine student eligibility, and maintain information management systems required to transfer data and funds between the Department and the more than 6,000 schools participating in the Federal student aid programs.

National Student Loan Data System. The budget includes $15.8 million in 2000 for the National Student Loan Data System (NSLDS), a national database of loan-level account information. The system is used to screen financial aid applications to prevent loans to applicants who have defaulted on their student loans or who have reached maximum award levels, and to compute institutional default rates. This system has already prevented more than $1 billion in grants and loans from being made to ineligible students.

System Modernization. The Department is increasingly focusing on streamlining and modernizing the multi-million dollar computer systems that support the delivery and management of Federal student financial aid. The Department is also working closely with the higher education community on Project EASI (Easy Access for Students and Institutions), which is intended to streamline and simplify the Federal student aid application and delivery system through sophisticated electronic links between the Department and participating schools, guaranty agencies, lenders, and students.

Ensuring Program Integrity. The Department dedicates almost 393 FTE to ensure that institutions participating in Federal student aid programs—including schools, accrediting associations, lenders, private service contractors, and guaranty agencies—meet statutory eligibility requirements and operate in accordance with all statutory and regulatory guidelines. In addition, an increasing number of problem schools are being removed from the student aid programs. Since 1995, over 1,700 schools have been removed from the Title IV programs.

Default Rates. Schools are excluded from participation if their cohort default rate exceeds 25 percent. For loans entering repayment at the end of 1996, 9.6 percent had defaulted by the end of 1996. This rate is down from 10.4 percent the previous year and from 22.4 percent for loans that entered repayment in 1990.

Increasing Debt Collection. Collections on defaulted loans by the Federal Government and guaranty agencies more than doubled from $1 billion in 1992 to $2.2 billion in 1998, contributing to a steady decline in net default costs. The direct cost for Department data system contracts supporting these collection activities totaled $30 million in 1998.

Improving Customer Service. The Department is also committed to increasing access to information on Federal student aid, both through printed materials such as the Student Guide (also available on the World Wide Web at www.ed.gov) and through enhanced capacity to respond to specific requests. Spending on the Department's contract to maintain a toll-free information line (1-800-4FED-AID) and to respond to written requests for information will increase from $15 million in 1999 to $17 million in 2000. This increase reflects expected growth in the volume of requests and ongoing improvements in the timeliness and accuracy of the Department's responses.

Administrative and Management Accomplishments

Departmental Audit. In 1998, the Department received an unqualified opinion by independent auditors that its fiscal year 1997 financial statements were fairly presented. This is the first "clean" audit that the Department has received. An audited financial statement is like a "scorecard" that reflects the Department?s progress in achieving the significant financial management reforms required by the Chief Financial Officers Act and in providing effective stewardship and management of Government funds.

Strategic Plan and Annual Performance Plan. The Department?s five-year Strategic Plan submitted to Congress established goals and objectives for the Department. The House leadership gave the Plan the second highest grade among the 24 cabinet departments and major independent agencies that are subject to the Chief Financial Officers Act. The Plan was cited for being "user friendly" and for providing a coherent framework of goals, objectives and indicators that set direction and allow for the measurement of progress and accountability. The Department?s Annual Plan for 1999, which updates the Strategic Plan by presenting indicators of performance, was submitted to Congress in February 1998. It received the third highest grade.

FOB-6 Renovation. In 1998, the renovation of the Department?s primary headquarters building in Washington, D.C. was completed. Approximately 1,000 staff from FOB-10 and nearly 300 additional staff from two commercially leased buildings moved back into the newly renovated building. Renovations to other facilities housing Department employees are planned for the near future.

Performance-Based Organization. In keeping with the provisions of the Higher Education Act Amendments of 1998, the Department created its first performance-based organization, the Office of Student Financial Assistance Programs. The new organization, which reports directly to the Secretary, is designed to better focus resources and management expertise on student financial assistance issues by establishing clear goals and incentives for improved performance. Specifically, the PBO will be held accountable for performance objectives such as improving customer satisfaction; providing high quality, cost-effective services; enhancing the ability to respond to the rapid rate of technological change; implementing a common, open, integrated system for student financial aid delivery; and providing complete, accurate and timely data to ensure program integrity.

Year 2000. The Department has completed Year 2000 compliance work on 12 of its 14 mission-critical systems. All mission critical systems will be fully validated and implemented by March 1999. With the submission of its November 1998 progress report, the Department was upgraded to a "C" on its Year 2000 compliance activities on the congressional "Report Card". The Department has also been a leader in outreach on Year 2000 issues to elementary and secondary schools and postsecondary institutions and assessments to assist them in their efforts related to Year 2000 compliance.

World Wide Web. The Department continued development of its award winning Internet site (www.ed.gov) which provides a critical communications link to the Department?s customer base. Specifically, the Internet connects ED with grantees, educational institutions, government agencies, contractors, and others. The Internet site allows students to apply for financial aid directly on-line, and other grant recipients can handle financial transactions through the Internet.

ED Pubs. The "ED Pubs" initiative, which was implemented in 1998, is designed to improve the efficiency of the Department by providing teachers, parents, researchers, and others with a stake in education with a "one-stop-shopping" approach to the dissemination of materials produced by the Department. A distribution facility has been established by the contractor for the centralized storage of materials, mailing of publications, and dissemination of grant application materials. Customers can access materials by calling 1-877-4ED-PUBS or through the Internet at www.ed.gov/pubs/edpubs.html.

ED Pubs has generated cost savings to date of over $300,000 through sending products by the most economical method. Consolidation of duplicate mailing lists is expected to produce additional savings.

Grants and Administrative Payment System. The Department recently implemented its new Grants and Administrative Payment System (GAPS), one of the components of the new financial management system, to streamline payment processing and reporting for its recipients. The GAPS system allows the Department?s grantees to draw down funds against grant obligations. Implementation of the system has provided benefits to the Department?s grantees, payees and recipients by simplifying reporting, providing access to the system through the Internet, giving payees the ability to modify payment requests prior to receipt of funds, and providing access to more timely and accurate financial information.

Technical Note on Advance Funding

Appropriations acts in recent years have provided funds for Title I of the Elementary and Secondary Education Act on an "advance" funded basis. For example, the 1999 appropriation provided $7.676 billion for Title I Grants to Local Educational Agencies for school year 1999-2000. Of this total, $1.528 billion is available on July 1, 1999 for grant obligation by the Department. The remaining $6.148 billion becomes available for grant obligation on October 1, 1999. Because schools receiving Title I funds spread their use of the grant money throughout the 1999-2000 school year, the timing for the availability of Federal grants should not affect schools. The Department merely issues two grants for each school year, and the only effect of the "advance" funding is to delay "budget authority" from one fiscal year to the next. As long as a similar amount is appropriated in subsequent years, there is no impact on recipients.

A request for similar advance funding is included in the 2000 budget for Special Education Grants to States. Again, there will be no impact on recipients. However, 2000 budget authority for Special Education Grants to States will be less than the intended program level.

Office for Civil Rights

The Department?s Office for Civil Rights (OCR) investigates discrimination complaints, conducts compliance reviews, monitors corrective action plans, and provides technical assistance on civil rights issues. The 2000 request for OCR is $73.3 million, an increase of $7.3 million over the 1999 level. About $53.2 million of the OCR budget is for staff pay and benefits for its 724 FTE; the remaining $20.1 million covers overhead costs as well as computer equipment, data analysis and reporting activities, travel, staff training, and other contractual services.

Almost 90 percent of OCR staff are assigned to 12 enforcement offices in four regional enforcement divisions. OCR plans to manage its increasing workload in 2000 by reliance on the redesigned complaint resolution process and Case Resolution Teams. OCR also will continue enforcement activities such as partnerships with State and local education agencies, empowerment of parents and educators through clarification and guidance in key civil rights areas, and increased staff training on civil rights issues. Although over half of the complaints filed with OCR allege discrimination on the basis of disability, OCR continues to address all educational equity issues.

Office of the Inspector General

The Office of the Inspector General (OIG) conducts audits and investigations of the Department?s programs and activities to help ensure accountability for taxpayer-provided funds and to identify management improvements. In fiscal year 1998, the Department recovered nearly $30 million as a result of OIG?s audit findings and investigations.

The 2000 request for the OIG is $34 million, and increase of $2.8 million over 1999. Over $24 million of the total covers overhead costs, travel, and contractual costs for OIG audit activities. Nearly 70 percent of the budget increase is for built-in costs, including pay adjustments and Department overhead costs.

Three-quarters of OIG staff are assigned to 8 regional and 11 field offices (6 of which are flexiplace locations), where they investigate allegations of fraud on the part of recipients of program funds and conduct audits of the Department?s programs and operations. In 2000, OIG will focus a majority of its program and operations improvement efforts on Student Financial Assistance programs, Elementary and Secondary Education Act programs, Department systems audits and the audit of the Department?s financial statements. Most compliance activities will continue to focus on the Student Financial Assistance programs.

Direct any questions to Martha Jacobs, Budget Service

[Section F - Educational Research and Improvement]

[Appendix Table 1 - Total Expenditures for Education in U.S.]