Auditors Cleared It. The $1.6T Loan Data Still Isn't Reliable

For three consecutive fiscal years, the outside auditors who examine the U.S. Department of Education's books could not certify them.▸ Not a qualified opinion, not a caveat buried in a footnote -- a disclaimer, the audit profession's term for "we could not gather enough evidence to say anything at all." The Department's FY2024 Agency Financial Report⧉ states it plainly: auditors "do not express an opinion on the accompanying consolidated financial statement of the Department," because they could not determine whether the numbers behind Federal Student Aid's loan book -- Loan Receivables, Subsidy Due to Treasury, Loan Guarantee Liabilities, and more -- needed to be adjusted at all. The OIG's FY2026 Management Challenges reportv100_508_SECURED.pdf) confirms this was not a one-year lapse: "the Department and FSA have received disclaimers of opinion on their financial statements in each of their annual financial statement audits since FY 2022."

The root cause each year was the same: unreliable data behind the federal student loan program's subsidy re-estimates -- the annual recalculation of what the government's existing loans will actually cost, or save, over their lifetime.▸ Every year, the Department runs an internal cash-flow model, the Student Loan Model, against fresh data on how borrowers are actually repaying -- and revises the prior estimate up or down. Those re-estimates are not a footnote; they flow directly into the balance sheet lines auditors are trying to verify. When the underlying data can't be trusted, neither can the number it produces -- which is exactly the finding that triggered three straight disclaimers.

The FY2025 Agency Financial Report⧉, published January 22, 2026, breaks the streak -- on paper.▸ "This year, the Department received an unmodified or 'clean' opinion on its FY 2025 Balance Sheet," the CFO's transmittal letter reports. But the scope of what got audited did not change: both the FY2024 and FY2025 opinions cover only the consolidated balance sheet and its notes, not the Department's full set of financial statements, and the department's own letter says as much -- it is still "work[ing] towards restoring the unmodified opinion on the remaining financial statements." More tellingly, the material weakness that caused the disclaimers did not go away. It was carried into the new report and simply reworded, from "Controls over the Relevance and Reliability of Underlying Data" to "Controls over the Reliability of Underlying Data" -- the same finding, the same portfolio, one clause shorter.

The volatility inside that unresolved material weakness shows up directly in the numbers it's supposed to control.▸ In FY2024, the Direct Loan Program's year-end re-estimate moved subsidy costs up by a net $16.9 billion -- loans on the books turned out to be pricier than the government had projected. One year later, using the same Student Loan Model, the FY2025 re-estimate moved the same portfolio's costs down by $26.4 billion. That's a $43.3 billion swing in direction and size within a single fiscal year, on a model whose own underlying data controls auditors have flagged as unreliable going on eight years.

The dollar amount riding on that re-estimate is also growing.▸ "Subsidy Due to Treasury" -- the balance sheet line the FY2024 disclaimer named specifically as unverifiable -- rose by $13.3 billion from the FY2024 re-estimate. In FY2025, the re-estimate accounted for $51.1 billion of a $51.6 billion total in that same line, money the Department expects to transfer to Treasury the following fiscal year once OMB grants the authority. Bigger numbers are now moving through the exact control the auditors have never been able to sign off on.

Alongside the carried-over material weakness, KPMG's FY2025 audit identified three significant deficiencies in internal control -- up from two the year before.▸ The new one, Monitoring Controls over Service Organizations, joined the two carried over from FY2024 (Information Technology Controls and Entity Level Controls). The FY2025 report also disclosed, separately, that the Department's March 2025 reduction in force produced its own Department-wide significant deficiency: the RIF "reduced staffing capacity across multiple Principal Offices and constrained certain centralized administrative and oversight functions," according to the same report's Statement of Assurance section -- a plausible contributor to why a data-reliability fix that was supposed to be finished has corrective actions now "planned for completion in FY 2026," the current fiscal year.