Federal Student Aid (FSA)

Five-Year Strategic Plan

We Help Put America Through School

FY 2004-2008
 Table of Contents

Page

A Message from the Chief Operating Officer 3

Overview 4

Strategic Objectives 8

Tactical Goals 10

Performance Management 26

Summary 29

2
 June 2004

Dear Customers and Stakeholders,

I am pleased to present the Federal Student Aid (FSA) Five-Year Strategic Plan.
It describes FSA’s strategic direction, objectives, goals, and success measures
for the Fiscal Years 2004 – 2008. Like other documents of this type, the Five-
Year Plan (Plan) is more detailed in its first and second years, in terms of
specific goals and success measures, than in its later years. The last years of the
plan are directional in nature and subject to the uncertainties of business needs,
the availability of resources, capital and operating funding, policy and political
considerations, statutory and regulatory requirements, and the continuity of
leadership. Because of these uncertainties, FSA’s Plan will be updated annually
as information becomes available and as FSA reviews and adjusts its objectives,
goals, and success measures.

The plans for the future clearly demonstrate FSA’s commitment to deliver the
right aid, to the right people, at the right time. FSA is dedicated to providing
seamless and superior service in its daily operations, and to its goal of creating
better system solutions and business processes that help to ensure program
integrity, provide better customer service, and reduce the cost of program
administration.

I look forward to working with all of you in the coming years as we continue to
provide outstanding customer service, to integrate our systems, and to ensure the
appropriate management and oversight of the federal student aid programs.

Sincerely,

Theresa S. Shaw
Chief Operating Officer

3
OVERVIEW
Federal Student Aid (FSA) within the U.S. Department of Education (ED)
manages and administers the postsecondary student financial assistance
programs, commonly known as the Title IV programs. These programs include
the William D. Ford Federal Direct Loan (Direct Loan) Program, the Federal
Family Education Loan (FFEL) Program, the Federal Pell Grant Program, the
Federal Supplemental Educational Opportunity Grant (FSEOG) Program, the
Federal Perkins Loan Program, the Federal Work-Study (FWS) Program, the
Leveraging Educational Assistance Partnership (LEAP) Program, and the Special
Leveraging Educational Assistance Partnership (SLEAP) Program. These
programs are the nation’s largest source of student aid, and provided a total of
approximately $60 billion in new aid to nearly nine million postsecondary
students in FY 2003. In addition to managing these programs, FSA directly
manages or oversees approximately $321 billion in outstanding loans
representing over 22 million borrowers.

Total New Federal Aid in FY 2003 Total Federal Student Loan Portfolio

CB LEAP Perkins
$3 B $1 B DL Consol $7 B
$36 B

PELL
$11 B
DL
FFEL $58 B FFEL
$32 B $157 B

DL
$13 B
FFEL Consol
$63 B

$60 Billion $321 Billion

To carry out its responsibilities, FSA receives an annual operating budget. In
FY 2004, that budget was approximately $600 million. FSA has a staff of nearly

4
 1,100, augmented by 3,800 contractors who provide outsourced business
operations. Together, these staff and contractors operate and maintain the many
systems and processes used by FSA to manage the federal student aid programs.
The employees and contractors are based in locations throughout the country,
including Washington, DC and ten regional offices. The states with regional
offices are indicated by light blue in the map below; the number in parentheses
represents the number of FSA employees in each region.

Region 8 (19) Region 5 (94)

School Relations & Borrower Services,
Case Management Financial Partners,
Region 7 (25) School Relations, &
School Relations & Case Management
Case Management
Region 10 (17) Region 1 (16)
School Relations Financial Partners,
HQ (646)
& Case School Relations, &
Management Case Management

Region 2 (33)
Financial Partners,
School Relations, &
Region 9 (82) Case Management
Borrower Services,
Financial Partners,
Region 3 (24)
School Relations, &
School Relations & Case
Case Management Management

Region 4 (98)
Region 6 (30) Borrower Services,
Financial Partners, School Financial Partners,
Relations, & Case Management School Relations, &
Case Management

FSA’s senior executive, the Chief Operating Officer (COO), is appointed to a

five-year term by the Secretary of Education. This appointment is made on the
basis of demonstrated management ability and expertise in business process
re-engineering, student aid delivery and servicing operations, large-scale
technology rollout and integration, system implementations and upgrades, vendor
and contract management, budgeting and cost control, and financial and
operational management. The current COO is Ms. Theresa S. Shaw. In 2003, she
proposed a new functional organization structure for FSA. The new structure

5
aligns the organization with FSA’s strategic drivers, business objectives, and
operational goals, and was approved by the Department and implemented on
July 13, 2003.

FSA ORGANIZATION STRUCTURE

Theresa S. Shaw
COO

Ombudsman Policy Liaison

&
Implementation
(PLI)

FSA Application, Borrower Financial CFO CIO Enterprise Workforce Communications

School Eligibility Services Partners Performance Support Management
& Delivery Services Management Services Services
Services (ASEDS) (FP) Services (EPMS) (WSS)

To support and enforce the integrity of the federal student aid programs, FSA
and the schools, lenders, and guarantors who participate in the programs are
audited to evaluate the adequacy and efficiency of operations and systems.
Audits of FSA and student aid programs are conducted by the General
Accounting Office, the Office of Inspector General and independent accounting
firms. Independent accounting firms commonly audit schools, lenders and
guaranty agencies. In addition, FSA program offices, guaranty agencies and
accrediting bodies conduct reviews of program participants. These reviews and
audits also ensure that management, internal controls, and financial management
systems comply with the standards established by the Federal Managers’
Financial Integrity Act (FMFIA), the Federal Financial Management and
Improvement Act (FFMIA), the Paperwork Reduction Act, the Computer
Security Act, and the Office of Management and Budget (OMB) Circulars.

Recent reports by GAO addressing FSA’s daily operations note the significant
progress made by the Department and FSA in addressing long-standing issues
that made FSA’s programs vulnerable to fraud, waste, abuse, and
mismanagement. 1 Most notable is the achievement of a clean financial statement
audit opinion for both the Department and FSA for FY 2002 and FY 2003. As
FSA continues to improve its program and operational management, it expects
similarly positive evaluations in the future.

1
GAO-03-872T, GAO-03-885R

6
Considerable progress has been made in administering the federal student aid
programs since FSA became a Performance-Based Organization (PBO) in 1998.
FSA recognizes the importance of a long-term strategic plan to guide its efforts
to improve its oversight and administration of the federal student aid programs
and to fulfill FSA’s mission as a PBO. FSA developed this Five-Year Plan (the
Plan) to set forth its strategic direction, objectives, and tactical goals over the
five-year period beginning in FY 2004. The Plan is based on the following ED
and FSA strategic drivers:

• PBO legislation
• Customer needs
• The President’s Management Agenda
• GAO List of High-Risk issues
• The Department’s Strategic Plan

The Plan is also built around major cross-ED initiatives, such as the One-ED
Competitive Sourcing Initiative, that will likely shape FSA’s organization and
business processing profile. FSA has defined strategic objectives that outline
specific priorities linked to these strategic drivers, and it has established tactical
goals to achieve its strategic objectives. In presenting these strategic drivers,
strategic objectives, and tactical goals, FSA notes that some initiatives require
coordination, resources, and support from other offices in the Department.

Additionally, the Plan was developed with the following set of assumptions:

• FSA’s status as a PBO will be maintained and FSA will continue to

operate with the enterprise flexibilities granted in the establishing
legislation.
• FSA will continue to receive clean financial statement audit opinions.
• GAO will remove the federal student aid programs from the High-Risk
List.
• FSA will be constrained by operating budgets that are flat or reduced year
after year.
• FSA’s workload demand will continue to increase as program
participation, loan, and award volume increase.
• The Direct Loan and FFEL Loan programs will continue to exist as federal
student aid programs available to students and schools.

7
STRATEGIC OBJECTIVES
The five strategic objectives established by FSA are statements of its broad aims
over the next five years. More specific plans can be found in the tactical goals.

Strategic Objective One:

Integrate FSA systems and provide new technology solutions.
FSA will improve efficiency and productivity, reduce system maintenance
and overhead costs, and increase the operating ease for users of FSA’s
systems. FSA will continue to provide appropriate and integrated
technology solutions that enable the delivery of federal student aid in an
efficient and cost-effective manner. In addition, FSA will establish a plan
to take advantage of new technologies to improve application processing,
customer service, productivity, and efficiency. Appendix A maps FSA’s
technology improvement plan to create a less complicated environment.
Appendix B illustrates the evolution of FSA’s business application
consolidation, showing integration efforts to date and future initiatives.

Strategic Objective Two:

Improve program integrity.
FSA will ensure that aid under the federal student aid programs is
delivered directly by FSA and through school, lender, and guarantor
participants in a manner that reduces the vulnerability of these programs
to fraud, waste, error, and mismanagement. FSA is continually working
to improve program integrity and is committed to demonstrating
responsible management of the programs targeted for removal from the
GAO High-Risk List.

Strategic Objective Three:

Reduce program administration costs.
FSA will reduce the cost of administering the federal student aid programs
through:
• strong financial, operational, and budget management;
• the re-engineering of overly complex business processes; and
• simplification of FSA’s business application and computing
environment to reduce system complexity, minimize integration
challenges, align contracts, and reduce vendor management. The aim is

8
 to improve the exchange of data with program participants and across
the FSA enterprise.

In recent years FSA has maintained a relatively flat operating budget

while supporting continued increases in program volume and workload.
FSA’s ability to manage and control operating expenses is based on a
philosophy of good fiscal management and continuous process
improvement—practices that increase productivity and operational
efficiencies—as well as innovation in FSA’s products, services, and
supporting technologies.

Strategic Objective Four:

Improve human capital management.
Human capital management is a critical component of FSA’s current
business operations and future initiatives. FSA is continuing to grow into
an organization that empowers individuals to perform at a high level of
effectiveness and efficiency. FSA is utilizing innovative hiring and
employee development techniques aimed at attracting and retaining highly
qualified individuals to create a more productive, results-oriented
workforce. Additionally, the organization is committed to workforce
development and training to ensure a skilled and highly qualified
professional workforce.

Strategic Objective Five:

Improve products and services to provide better customer
service.
FSA will make a continuous effort to improve its products and services to
students and families and program participants such as schools, lenders,
and agencies. Being aware of the concerns of customers is a critical
component of FSA’s efforts to improve federal student aid products and
services. In FY 2003, FSA established new baseline measures for
customer service levels, which will assist in this effort. FSA intends to
reduce the complexity of its products and services, ensure that compliance
is maintained, provide customers with 24/7 access, and promote increased
self-service by customers. In addition, FSA will develop strategies to
provide integrated solutions for customers.

9
TACTICAL GOALS
FSA has established tactical goals for achieving each of its strategic objectives.
The timelines, milestones, and success measures associated with these tactical
goals are evaluated on a continual basis to ensure their alignment with current
business needs, the allocation of resources, the availability and allocation of
capital and operating funds, policy considerations, statutory and regulatory
requirements, and continuity of leadership and direction.

Removal from the GAO High-Risk List

FSA is committed to the permanent removal of the federal student aid programs
from the GAO High-Risk List. This commitment was evident when FSA and the
Department received a clean audit opinion on their FY 2002 and FY 2003
financial statements. In FY 2003, the Secretary of Education made a formal
request to GAO for mid-cycle reconsideration of the high-risk designation based
on demonstrable progress in addressing the issues that had caused the federal
student aid programs to be designated high-risk in 1992. Although GAO
acknowledged FSA’s improvements, it declined to consider this request in FY
2003 for two principal reasons: (1) GAO wants to ensure the sustainability of the
reforms FSA and the Department implemented in financial management, and (2)
GAO does not want to set a precedent for other organizations by conducting an
out-of-cycle assessment.

In FY 2004, and in every subsequent year of the Five-Year Plan, FSA will carry
out its program to ensure that sustainable internal controls, system support, and
management focus are in place and to demonstrate that the federal student aid
programs are administered through sound financial management and oversight.

Sound Financial Management

FSA’s efforts to improve program integrity include the ongoing strengthening of
its financial management and internal controls, so that reliable and timely
information is available to FSA’s management for critical day-to-day business
operations. FSA intends to maintain the number of days from month-end required
to reconcile FSA’s major business system transactions to the General Ledger
through FY2008. It was reduced from 45 days in 2002 to 30 days in 2003.

10
In addition, FSA is working toward a seamless financial management system that
provides automated reconciliation and system balancing. The teams under the
Department’s Office of the Chief Financial Officer (OCFO) and FSA’s CFO are
working jointly to define requirements for implementing the new Oracle 11i
Financial Management System. Their goal is to implement a single system that
meets the requirements of both the Department and FSA.

Activity-Based Costing
In FY 2003, FSA continued to enhance the Activity-Based Costing (ABC) model
to obtain improved cost data and analysis. In FY 2004, FSA will reevaluate its
baseline costs, focusing on data quality and reporting on business process
metrics to better inform management and the public about FSA costs.

Default Prevention and Management

As stated in the Department’s Strategic Plan, FSA has committed to meeting
specific default recovery rates. The default recovery rate is defined as the sum of
FSA’s collections on defaulted loans – less consolidations – divided by the
outstanding default portfolio at the end of the previous year. FSA achieved a
default recovery rate of approximately 9.5 percent in FY 2003, and it expects to
increase that figure to at least 10 percent by FY 2005.

Default Recovery Rate

10%

9%

8%
9.5%

7%
8.0% 7.8% 7.6%
7.5%
6%

5%
5.3%
4.9%
4%
1997 1998 1999 2000 2001 2002 2003

11
To improve its ability to identify risks, FSA created a new organizational
function for Portfolio Risk Management in FY 2003. This function will integrate
strategies and resources in student loan default management and prevention, and
will focus on mitigating loss in the federal student loan programs. It will
inventory existing default prevention strategies across the organization, identify
and validate FSA-wide areas of default prevention strategy, and align the current
initiatives with those strategy areas. In FY 2004, this unit will identify
opportunities for improved default prevention effectiveness and develop action
plans for implementation. FSA will also perform outreach to institutions,
guaranty agencies, and the FFEL and Direct Loan community to share
information, strategies, and successes. FSA recognizes that economic conditions
may affect defaults; consequently, beginning in FY 2005, FSA will analyze and
mitigate risk for the federal student loan program loan portfolio and will
continue to analyze risk exposure in other areas such as consolidation loans and
repayment. Since 1990, the non-default portfolio has increased by over $250
billion, while the ratio between defaulted dollars to non-defaulted dollars has
dropped nearly 10 percentage points.

Defaulted to Non-Defaulted Portfolio

$ (Billions)
400
7.07%
350

300

250

200 Non-Defaulted
Portfolio
150 Outstanding
Principal Balance
100
16.76% Defaulted
Portfolio
50 Outstanding
Principal Balance
0
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003

12
Program Monitoring and Oversight
In FY 2003, FSA began a design and sequencing plan for re-engineering its
school case management and oversight business processes to reduce decision-
making time and achieve increased consistency of outcomes on FSA institutional
oversight activities. The implementation of this re-engineering will begin in FY
2004 and is targeted for completion in FY 2005. The re-engineering will ensure
consistent compliance and an effective enforcement strategy, balancing
education, assistance, and enforcement activities, and ensuring access to the
federal student aid programs. Last year FSA implemented the use of electronic
audits and financial statements as well as the development and delivery of
program integrity training for schools. For FY 2005–08, FSA will continue to
improve program reviews, improve reporting capabilities on audit findings, to
enhance collaboration with OIG to identify and address risks in the federal
student aid programs, and to work with other agencies and organizations to
identify additional areas for improvement.

In August 2002, the Secretary of Education, along with the Secretary of the
Treasury and the Director of the Office of Management and Budget, sent
proposed legislation to Congress to allow for routine data matches with the
Internal Revenue Service (IRS). These matches are intended to strengthen the
financial integrity of the federal student aid programs by allowing applicant
income information submitted on the federal student aid form to be matched with
information from federal income tax records. The Administration’s FY 2005
budget request to Congress assumed that it would have the authority and the
appropriation to perform such matches. In the Plan, FSA will work to develop
and strengthen interfaces with other source data agencies.

The national student loan default rate issued in FY 1992 reached a high of 22.4
percent and has declined steadily to 5.4 percent, the rate issued in FY 2003. For
the first time ever, in FY 2003 all schools had rates low enough to ensure they
remain eligible for federal financial aid programs. This is due to the concerted
efforts of the Department, colleges and universities, and the private sector
partners in the loan programs for their ongoing efforts to counsel borrowers and
inform them of the numerous, flexible repayment options.

13
 N a tio n a l S tu d e n t L o a n D e fa u lt R a te s
Issu ed
d a te : 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003

2 5

2 2 . 4
2 1 . 4

2 0
1 7 . 8
1 7 . 2

1 5
1 5
Percentage

1 1 . 6
1 0 . 7
1 0 . 4
9 . 6
1 0
8 . 8

6 . 9
5 .6
5 . 9 5 .4
5 . 4
5

0
1 9 8 8 1 9 8 9 1 9 9 0 1 9 9 1 1 9 9 2 1 9 9 3 1 9 9 4 1 9 9 5 1 9 9 6 1 9 9 7 1 9 9 8 1 9 9 9 2 0 0 0 2 0 0 1

FSA is committed to the integrity of the Pell Grant Program and increasing the
accuracy of Pell grant awards. The percentage of Pell grant erroneous payments,
defined as the both over- and under- payments, in FY 2003 was 4.9 percent and
FSA will continue to strengthen its control, processes, and procedures to ensure
correct Pell grant awards. FSA expects to maintain this payment percentage for
the next five years. If the recently introduced legislation amending the Internal
Revenue Code to allow matching of student aid application data with the Internal
Revenue Service (IRS) is enacted, FSA expects, after a reasonable
implementation time frame, a further reduction in the number and amounts of
erroneous awards in the Pell Grant Program.

FSA intends to enhance the integrity of its programs by helping to inform the
policy process. In FY 2004, FSA will research and develop an improved
mechanism for FSA offices to obtain data for use on policy inquiries. In the
remaining years of the Plan, FSA will continue to address operational and
program integrity improvements and make recommendations for statutory,
regulatory, and policy changes to make the improvements.

14
Enterprise Data Strategy
FSA is committed to the development of a comprehensive Enterprise Data
Strategy (EDS). This strategy will address the following data concerns: (1) the
business flow of data across the enterprise; (2) data structure and architecture;
(3) primary ownership; (4) standards; (5) management and governance; (6)
access methods; and (7) quality and integrity. The strategy will ensure that
accurate and consistent data is exchanged between FSA’s systems and its
employees, customers, and partners as well as compliance and oversight
organizations. It will make improvements in data quality consistency a priority.
It will support FSA’s program-wide goal of maintaining a clean financial
statement audit opinion and FSA’s plan to have the federal student aid programs
removed from the GAO High-Risk List. It will provide a comprehensive and
integrated view of federal student aid program data and will make this data
accessible to FSA’s partners. (As noted, Appendixes A and B illustrate FSA’s
technical improvement plan and integration efforts.)

FSA’s development of EDS has been completed in the first quarter of FY 2004.
The EDS includes implementation and sequencing plans which define and order
the work so that all elements of the EDS can be implemented over the next
several years. This will include the alignment of those systems that require
re-engineering and business process integration with the final EDS, as well as the
sequencing of those systems for delivery over the next several years. The
sequencing and implementation plans will be incorporated into the Plan as they
are completed.

FSA will work with the community and its trading partners to create and
implement standard data definitions and terminology to increase the accuracy of
data—and therefore program integrity—and to improve the electronic
transmission of data between FSA and external partners. In FY 2003, FSA began
defining an enterprise data strategy and a high-level implementation approach to
address various concerns regarding data: business flow across the enterprise,
architecture, primary ownership, standards, management, access methods, and
integrity and quality.

In FY 2004, FSA expects to begin implementing the XML framework for data
delivery and the XML Institutional Student Information Report (ISIR). FSA will
also begin analysis for re-engineering the National Student Loan Data System

15
(NSLDS). This major re-engineering initiative is intended to provide accurate,
concise, and timely data to internal and external customers, to improve the
quality and usability of data, and to enhance data exchanges between NSLDS and
its customers. Full implementation of the EDS is a high priority for FSA for the
next several years.

FSA will continue to work with the Department and external stakeholders to
identify business needs regarding data, whether that data originates outside of
FSA or within the agency. FSA plans to establish a data quality assurance
strategy and implementation plan. To this end, FSA will create a data quality
committee comprised of business experts and technical subject matter experts to
ensure that enterprise data standards are addressed in FSA’s progress toward an
integrated system solution to support business functions.

FSA’s Enterprise Data Strategy will also lead to improved products and services,
resulting in greater customer satisfaction. Beginning in 2005, FSA will work
with its external partners to address recommendations and establish schedules
that show how borrowers, lenders, guaranty agencies, and schools can access the
data they need. One of FSA’s primary concerns will be its collaboration with the
higher education community on a comprehensive, simplified, and appropriate
point of entry to make relevant and privacy protected information available to
FSA’s partners and to ensure that they have a streamlined and efficient method
for data transmissions with all FSA systems.

In addition, FSA will identify opportunities for streamlining business processes

and, as much as possible, ensure that all processes are Internet-enabled. In
FY 2003, for example, FSA introduced EDExpress on the Web to participants
supporting federal student aid delivery processing, including schools and third-
party servicers. EDExpress on the Web supports use of the XML common record,
also called “full participation” in Common Origination and Disbursement (COD);
the current suite of EDExpress software functionality is available through a
Web-based application. FSA will continue to promote the use of the Free
Application for Federal Student Aid (FAFSA) on the Web, which now accounts
for 65 percent of total applications submitted.

In FY 2005 and continuing through FY 2008, FSA will work with its external
partners to address recommendations and establish schedules for ensuring that
borrowers, lenders, guaranty agencies, and schools have access to the data they
need while ensuring the privacy rights of the recipient.

16
Common Services for Borrowers
In FY 2004, FSA has begun Common Services for Borrowers (CSB), an initiative
to improve and simplify back-end services. This project will be fully
implemented by FY 2006, and is anticipated to save taxpayers $1 billion over the
ten-year term of the contract. CSB will combine the best practices of the federal
government and industry to ensure a seamless relationship with FSA customers
throughout the repayment process, focusing on Direct Loan borrowers and
defaulted borrowers. To ensure customer satisfaction, a Customer Relationship
Management (CRM) team is included as a major component of CSB. The CRM
team will monitor the prompt and appropriate handling of incoming and outgoing
mail, ensuring clear, accurate, and complete responses to FSA customers. Within
the CRM system, FSA will implement an integrated common platform to manage
customer interactions. This common platform will include customer call centers
with warm transfer capability. It will also include a customer-friendly interactive
voice response (IVR) system and expanded Internet services. With the
implementation of the CSB system, FSA expects to see further improvements in
customer satisfaction for its Direct Loan and defaulted borrowers.

Improved Student Loan Delivery Services

The fragmented front-end business processes and systems of FSA complicate the
delivery of federal student aid for applicants and their parents as well as for
borrowers, schools, and delivery partners. The lack of integration of information,
processes, and their support systems impairs the delivery of services for FSA
employees and operating partners. FSA will address this problem in FY 2004 by
initiating the creation of an enterprise-wide, integrated, front-end delivery
service. The FSA task team will define the scope of the initiative and prioritize
the steps. The front-end business integration team will conduct market research
and industry benchmarking to assess the vendor community’s ability to provide
feasible solutions; at the same time, FSA will encourage the small business
community to participate in the delivery of solutions. FSA will then determine
the target state and formulate a new, front-end, integrated business plan. This
Front-End Business Integration (FEBI) project will identify opportunities for
streamlining processes and areas of cost reduction across FSA; it will join with
other FSA foundational initiatives to ensure the implementation of the target
state and new integrated solutions beginning in FY 2005.

17
Enterprise Procurement Plan
The Enterprise Procurement Plan (EPP) was developed in FY 2003 to provide a
strategy for planning, executing, and managing acquisitions within FSA. The
EPP defines what is required to fulfill the mission, respond to needs, optimize
resources, and satisfy policy requirements for future acquisitions. The EPP
allows program management flexibility while giving officials (coordinating and
approving) adequate information on the technical and business aspects of future
acquisitions. To this end, EPP has set the following goals:

• The government will get what it needs, when it is needed.

• Business arrangements will be sound and equitable.
• Risks due to concurrent development/production/transition will be
managed/mitigated.
• The national goals of competition and small business utilization will be
supported.

In addition to allowing all participants in acquisitions planning to establish a

logical and systematic approach to meeting government business needs, the EPP
serves other critical purposes. It is used to communicate the program office’s
approach to FSA senior management and to the Secretary of Education, whose
expectations for the EPP include the following: (1) The EPP should be flexible
enough to adjust to FSA’s business needs, evolving technologies, commercial
“best practices,” and the impact of major milestone events. (2) The top-level
objectives should be appropriate and in the best interest of FSA and the
Department. (3) The EPP should be consistent with current FSA and ED
acquisition policies. (4) The EPP should be effectively implemented. On a more
fundamental level, the EPP helps to generate commitment by all stakeholders to
support the EPP’s execution, and it serves as a permanent record of decisions
made regarding the acquisition strategy.

The EPP is an evolving plan; though based on present FSA information and
business structure, it is flexible enough to be amended for evolving technologies,
commercial “best practices,” and major milestone events.

In FY 2003, FSA developed and implemented processes and procedures to

improve FSA’s contract management initiation, renewal, and extension practices.
These processes and procedures are designed to ensure that FSA receives the
highest value of service for the lowest possible cost. FSA will also develop an

18
appropriate staffing and staff development plan to meet acquisition needs and
provide the training needed to develop FSA acquisition managers. Beginning in
FY 2004 and continuing through FY 2008, FSA will implement its fully
developed EPP to drive the procurement process and ensure efficient and
effective business practices and operations.

Integrated Partner Management System

The development and implementation of an Integrated Partner Management
System (IPMS) is critical to FSA’s strategic plan. IPMS will be the system of
record for every institutional trading partner, regardless of the type of its
interaction with FSA. This project will re-engineer/replace the current
Postsecondary Education Participants System (PEPS) legacy system. It will
incorporate a common routing ID (RID), partner security and system access
enrollment information, and enable single sign-on for FSA systems and improved
controls through a single point of enrollment and access. The implementation of
this system will improve FSA’s ability to reduce fraud and error in its student aid
programs by enabling program delivery and monitoring staff to understand more
about FSA’s trading partners and their relationships with others that have a role
in their Title IV-related activities.

Electronic Products and Services

Another critical FSA strategy for cost management is to maximize automation
and increase the use of available electronic products. In FY 2003, FSA
introduced EZ-Audit, which allows schools to submit their financial statements
and compliance audit data online. FSA also introduced the E-CDR, which
delivers cohort default rate notifications to schools electronically. FSA’s
financial partners are enjoying the benefits of a stabilized Lender Application
Process (LAP) and Lender Reporting System (LRS) as a result of improvements
implemented in FY 2003. Additionally, FSA has completed the Government
Paperwork Elimination Act requirement, providing the public an electronic
alternative to all paper transactions.

19
 Student Eligibility: FAFSA

14
13.1
11.4
12.3
3.5 • 13.1 million submitted FAFSA forms projected for 2003 -
12 04
10.5 4.9
9.9
10.2 • 73% will be completed electronically
10 9.7 9.8 5.7
6.3 • Electronic process, including changes, can usually be
8.0 7.9 7.5 7.0 completed in 72 hours
8 • The paper process, including changes, typically takes a
minimum of 10 to 15 days
6 • 8.3 million changes are made to previously submitted
9.6 applications by schools and applicants
4 7.4 • Use of the online change process has increased almost nine
5.7 fold over the last four years (3% to 26%)
2 4.2 • Paper process reject rate is about 8%
3.2
1.7 1.9 2.4
• Electronic process reject rate is less than 1%
0
1996-97 1997-98 1998-99 1999-00 2000-01 2001-02 2002-03 2003-04
• Over 600,000 student loan applications are processed in a
peak processing week

Electronic Paper

Additional reductions in program administration costs will result from initiatives

such as the CSB and FEBI. Once fully implemented, these projects will improve
the management of student aid delivery and loan servicing through the efficient
use of timely and accurate information, common functions, and shared data.
Program administration savings will be realized in the later years of the Plan
when FSA provides electronic tools to institutions to allow them to verify
applicant data. These tools will permit more sophisticated verification efforts
focused on reducing errors—particularly in Pell grant awards—ultimately
ensuring that aid is targeted to the most needy students. A further benefit will be
increased public confidence in the integrity of all FSA’s programs.

FSA is committed to customer service and satisfaction. In FY 2004, FSA will

identify and baseline the following customer satisfaction indicators of major
operations:

• timeliness of product and service delivery

• applicability of product functions and features to customer business needs
• timeliness of response to customer requests and problems
• courtesy of FSA employees in their interactions with customers

20
These baseline measures will provide feedback to FSA’s improvement process
for products and services. FSA intends to make an incremental gain in these
indicators in each year of its Five-Year Plan. In FY 2003, FSA created a
Customer Service Review Board (CSRB) for the enterprise-level review of
information received through customer contact at FSA offices. The information
received through the CSRB helps FSA to identify systemic problems in its
products and services, business processes, and interactions with customers.
Monthly, FSA’s senior management team and the COO review CSRB data to
determine process improvements and inform future decision-making. FSA will
continue its leadership role in the President’s Management Agenda
E-Government initiative. Its FY 2003 initiatives included e-Authentication, the
development of e-Commerce solutions for paper processes and the promotion of
standards in the student aid industry, and the creation of an integrated security
and privacy architecture. FSA will continue to participate as new projects are
introduced under the President’s E-Government initiative. FSA expects that this
participation will include initiatives to expand electronic self-service usage
where appropriate, to enhance current electronic processes to maximize
effectiveness, and to evaluate additional electronic options.

Aid Awareness and Access

In FY 2003, FSA developed a comprehensive aid awareness and access strategy.
This strategy establishes partnerships with organizations at the national,
regional, and local levels that have the common goal of promoting awareness of
and access to aid for postsecondary education. The partnerships communicate the
importance of aid for postsecondary education in their public messages. This
effort will be followed by the development of a conference outreach strategy for
coordinating FSA participation and ensuring the distribution of current and
accurate information about federal student aid programs and processes in FY
2004. FSA will then identify partnering opportunities at the national, regional,
and local levels that permit the pooling of resources and the improvement of
productivity. At its 2004 Spring Conference FSA conducted an aid awareness
symposium to discuss best practices with industry leaders and develop
appropriate action plans.

21
 ONE OF MANY WEB SITES SUPPORTED BY FSA

Legislative and Regulatory Improvements

FSA is developing legislative recommendations for the federal student aid
programs to improve and simplify the programs and minimize administration
costs without reducing program integrity. These recommendations will inform
the Department’s policymaking process relative to the reauthorization of the
Higher Education Act. In the Plan, FSA will continue to pursue various options
that contribute to a reduction of the cost of administering the federal student aid
programs.

FSA will make its recommendations based on the knowledge gained from its
business operations and interactions with students, parents, schools, lenders,
guaranty agencies, and other participants in the federal student aid programs. In
each year of its strategic plan, FSA will recommend statutory, regulatory, or
policy changes that simplify the application process for students and streamline
the processes and operations for schools and delivery partners. FSA will provide
products and services whose functions and features take full advantage of policy,
statutory, and regulatory developments.

22
Workforce Development
FSA’s continued success in its current business operations and its future
development initiatives depends heavily on a knowledgeable and well-trained
workforce. FSA is committed to the development of outstanding leadership. To
that end, the COO assembled a senior leadership team from both the public and
private sectors whose members possess over 300 years of combined industry,
management, and IT experience. This leadership team will oversee several
workforce development strategies in the coming years, including the preparation
of a skills catalog, a succession plan, and targeted development and training
programs.

FSA Skills/Competencies

Vendor Management
Years of Experience

Program Expertise
Legislative/Title IV
Business Process

Customer Service

Acquisitions and
Reengineering

Development

Financial Aid
Organization
Management

Delivery and
Staffing and
Technology

Contracting
Information

Servicing
Financial

Position
COO 24
GM ASEDS 30
CFO/GM FP 30
GM Borr. Svcs. 21
CIO 28
Director PLI 30
GM EPMS 27
GM Students 20
GM WSS 30
Chief of Staff 29
GM Comm. 30
Ombudsman 30

Skills Catalog
One of those workforce development strategies, the identification of skill
development opportunities, is ongoing as FSA updates its employee skills
catalog. This catalog compiles the critical business competencies and specific
knowledge required to successfully perform each of the operational functions
within FSA. The catalog is used to identify gaps in these critical competencies

23
and provides information on when and where additional employee training and
development are required.

Succession Planning
FSA is also improving its succession planning capabilities by identifying areas
within the organization where subject matter expertise needs strengthening due
to the pending retirement of senior employees. FSA expects to develop a strong
succession plan by leveraging the Department’s internal hiring system and by
creating mentoring opportunities for qualified employees. In addition, FSA
intends to strengthen campus recruiting and use FSA’s college intern program to
identify candidates for junior level positions within the organization.

FSA will continue to leverage the Excepted Service (ES) level, as provided by
the PBO legislation, to fill key positions within the organization. This greatly
enhances FSA’s ability to compete with the private sector for qualified
candidates.

Employee Development and Training

Employee development and training is another priority for FSA’s Human Capital
Management plan. FSA University, the area dedicated to employee development
initiatives, provides coaching workshops and training sessions to improve
collaborative problem-solving and decision-making skills across the FSA
employee base. FSA University also sponsors the FSA Learning Coupon, a
program that encourages employees to take responsibility for their own career
development by providing up to $500 worth of training in areas related to their
field of work. FSA University also maintains a state-of-the-art 20-station
computer lab and interactive learning center. This lab, as well as other locations
at FSA headquarters and all FSA regional offices, is videoconference enabled,
which greatly enhances employee participation and communication.

PBO Legislation
In FY 2003, FSA reviewed the human resource flexibilities outlined in the PBO
authorizing legislation and are developing recommendations to clarify or expand
the current provisions to amend the Higher Education Act. Once reauthorization
of the Higher Education Act is complete, FSA will implement the
recommendations, coordinating closely with similar initiatives at the
Department.

24
 Number of Employees Number of Employees by Location

Excepted Service CA WA
GS-01 to GS-10 CO 19
45 82 17
139 MO 25
SES 10 TX 30

IL 94
DC
646
GA 98

PA 24
NY 33
GS-11 to GS-15 MA
890 16

Accountability
FSA will continue to develop a work environment that encourages high
performance. As part of this effort, FSA is creating a culture of accountability by
dealing with poor performers and unacceptable conduct in an efficient and
effective manner. By aligning each employee’s performance appraisal with
FSA’s Annual Performance Plan, FSA set a new standard of performance
expectations for the entire organization. Now all FSA employees know how their
position fits into the organization and what they have to do to meet their
individual goals and objectives.

Human Capital Plan

In FY 2004, FSA has contracted with external subject matter experts to develop a
robust, comprehensive, and achievable human capital plan in conjunction with
the Department’s Human Capital Plan. The plan will help FSA to identify,
attract, develop, motivate, retain, and manage employees so that FSA can
achieve its organizational objectives.

25
PERFORMANCE MANAGEMENT

FSA Performance Monitoring

External Monitoring of FSA

Customer
Service
Financial •GAO - Progress Against
Management High-Risk Designation
Review
Controls
Board
•OIG - Variety of Audits
Project Program Focused on Fraud, Waste,
Management FSA and and Abuse
Office Performance Business
Monitoring Operations
Program
•OMB – Adherence to the
Strategic Investment Process;
Investment Privacy and Paperwork
Planning Performance Reduction Rules; President’s
Council Planning Management Agenda Scorecard;
Business e-Gov initiatives; Program
Integration Assessment Rating Tool (PART)
Group
•Congress – Annual Performance
Report

The seven parts of FSA’s performance monitoring program are:

Financial Management Controls

FSA has consistently reconciled its program accounts to supporting detail within
30 days of month-end. This effort includes research and resolution of reconciling
items and supervisory and managerial review of reconciliation work. In
addition, senior management at FSA perform quarterly financial statement
fluctuation analyses and other account analyses. In FY 2003 FSA fully
implemented all management and internal controls to address the problems that
account for the designation of FSA’s programs as high-risk by GAO.

Performance Planning

Currently, FSA develops an annual plan that is used to measure its progress in
achieving its objectives. During the development of the FY 2003 annual plan,
FSA defined the strategic drivers, strategic objectives, and supporting strategies

26
that were used to identify and prioritize the projects in its plan. The items in the
plan were determined by their contribution to a clean audit and removal of FSA
programs from the GAO High-Risk List; they were also identified according to
their value and urgency. For the FY 2004 Annual Performance Plan, FSA
included a set of metrics to measure performance and productivity. The
development of each future annual plan will include the review—and revision if
necessary—of FSA’s drivers, objectives, and strategies. In addition, the annual
plan will be developed in conjunction with the budget planning process.

In addition to FSA’s Annual Performance Plan, FSA will address cost

management by establishing a set of metrics to measure performance and
productivity trends across the enterprise. These metrics will guide improvement
initiatives designed to optimize the return on investment and reduce costs. In FY
2003, FSA developed the Executive Dashboard, which provides management a
weekly review of operational metrics, budget, contracts productivity, and
performance metrics at the aggregate and service delivery levels. This data will
allow for an ongoing, comprehensive evaluation of performance, customer
service, and business operations to inform process improvement and future
business initiatives.

Program and Business Operations

FSA has developed various tools to monitor and report on organizational

performance on weekly, bi-weekly, semi-annual, and annual basis. The first
report is the FSA Executive Dashboard, which provides FSA management with a
weekly look at various metrics at the aggregate and service delivery levels; the
report is distributed FSA-wide on a weekly basis. A second report is based on the
FSA Annual Performance Plan. This report provides the status and activity of
action items and milestones included in the FSA Performance Plan for a two-
week period. It is also shared across the organization so that every employee
knows FSA’s performance goals, the current status of all of FSA’s performance
action items, and what has been accomplished. FSA also produces a semi-annual
report that graphically depicts FSA accomplishments and progress toward
completion of the action items included in the Annual Performance Plan. Finally,
FSA submits to Congress an Annual Report, which includes an evaluation of the
extent to which the PBO met the goals and objectives contained in FSA’s Annual
Performance Plan.

27
Business Integration Group

The Business Integration Group (BIG) was established in FY 2003 to assist in

setting the direction FSA takes in the integration of enterprise processes and
systems. BIG’s members, representing all segments of FSA, meet to review and
evaluate data trends impacting FSA’s core business delivery, to review FSA’s
progress toward integration, to set the scope for target business architecture, and
to make recommendations regarding enterprise processes. When appropriate,
BIG presents its findings to groups such as FSA’s senior leadership and makes
recommendations that support the enterprise vision. Appendix C illustrates the
close and complex relationships that the business processes share with new
system development activities and their associated contractual activities.

Investment Planning Council

In FY 2003, FSA implemented an Investment Planning Council (IPC) to ensure a

rigorous review process for all FSA IT initiatives. The IPC was developed to
ensure that FSA is in compliance with the Clinger-Cohen Act and that IT
initiatives are in alignment with FSA’s Performance Plan and the Department’s
Strategic Plan. The IPC consists of senior managers from each functional area
within FSA’s organization who meet weekly to discuss IT proposals and
initiatives. Through the IPC, FSA manages IT initiatives from an enterprise
perspective; encourages partnerships; eliminates duplicative and stovepipe
projects; and balances benefits against the costs and risks of IT initiatives. Once
an initiative is approved by the IPC, the members monitor its progress and take
appropriate follow-up action.

Project Management Office

The Project Management Office was established as a part of FSA’s

reorganization in FY 2003. This office is the central point of contact for all FSA
projects. It integrates all project activities within FSA and links them to the
strategic objectives, priorities, and available resources. It supports project
managers by establishing FSA project management standards of practice,
advising on systems integration strategy, sharing information across projects
during the entire life-cycle of the projects, and providing relevant reports and
data to managers and FSA senior leadership.

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Customer Service Review Board

The FSA Customer Service Review Board (CSRB) was formed in FY 2003 to
improve customer service through the review of information about FSA
customers and the service they receive. Members of the CSRB are FSA
employees who have had some level of interaction with customers. The CSRB
analyzes service improvement data from customers and develops and reports
customer service metrics. Currently, the CSRB is developing a complete
repository of data about FSA service comprised of the opinions of FSA
customers. The CSRB also serves as a forum for FSA staff to present and discuss
service improvements that have been enacted or are under consideration for
enactment (based on data analysis, industry best practices, and benchmarking).

FSA Satisfaction Scores 2003

LaRS – Lender
100 Payment Process

COD – Common
90 86 Origination and
Disbursement
77
DL Servicing –
80 Direct Loan
71 Servicing

70 66 FAFSA – Electronic
Free Application for
Federal Student Aid
60
LaRS COD DL Servicing FAFSA

FEDERAL GOVERNMENT AVERAGE IS 70

SUMMARY
FSA is undertaking many important initiatives to fine-tune its aid delivery
services to its diverse customer base. FSA has seen the student loan portfolio
steadily grow while the ratio of the default portfolio to the non-default portfolio
has decreased. Improved financial management and internal controls have
resulted in back-to-back clean audits, and FSA’s business continuity and disaster
recovery period has been reduced to less than 72 hours.

29
The FSA Five-Year Strategic Plan is a roadmap for FY 2004-2008 that identifies
long-range strategic objectives and short-term goals. The plan is a flexible
document and will be updated annually, as events dictate. In working toward the
goals outlined in the plan, FSA will address a number of key challenges,
including legacy system migration, business process re-engineering, cost
management, product and service innovation, customer satisfaction, and
professional growth for employees.

Achievements
Program Integrity
and Default Management

Integrated Systems Total

Total Portfolio
Portfolio Grew
Grew by
by 500%;
500%;
and Business Processes Default
Default Portfolio
Portfolio Decreased
Decreased 50+%
50+%
Financial Management
and Controls
Business Continuity Common
Common Services
Services for
for Borrowers
Borrowers
and Disaster Recovery
Trained and
Motivated Workforce
Competent Back-to-Back
Back-to-Back Clean
Clean Audits
Audits
Leadership

Managing Risk
LEVERAGING •People
LEVERAGING THE
THE PERFORMANCE
PERFORMANCE AND
AND << 72
72 Hour
Hour Recovery
Recovery Period
Period
PBO •Operations &
PBO FLEXIBILITIES
FLEXIBILITIES Systems
RESULTS
RESULTS DRIVEN
DRIVEN
•Financial

EDPAS
EDPAS Tied
Tied to
to Performance
Performance Plans
Plans

>> 300+
300+ Years
Years Diverse
Diverse Experience
Experience
ACCOUNT-
ACCOUNT-
ABILITY
ABILITY
AT
AT ALL
ALL
LEVELS
LEVELS

To achieve its ambitious goals over the coming years, FSA will continue to meet
the challenges inherent in managing its workforce, functional systems, and
financial operations. FSA will continue to increase accountability at all levels by
leveraging the managerial flexibilities provided by the PBO legislation. In this
way, FSA will create a high performance, results-driven organization dedicated
to delivering the right aid, to the right student, at the right time, and at the right
cost.

30