In the context of federal credit assistance, administrative costs are expenses that agencies incur to manage and operate the government’s loan and loan guarantee programs. Those costs are measured separately in the federal budget and on a different basis from the credit subsidy—the main measure of costs for direct loan and loan guarantee programs under the Federal Credit Reform Act of 1990. Specifically, the credit subsidy is an accrual measure (that is, the estimated present value of the expenses and receipts associated with a loan or loan guarantee over its lifetime is recorded when the legal obligation is first made), whereas administrative costs are measured on a cash basis (that is, such costs are recorded when cash transactions occur). As a result, it is challenging to combine credit subsidies and administrative costs to generate a more complete estimate of the total costs of the government’s credit programs.
The Congressional Budget Office has developed a method for estimating the present value of the lifetime administrative costs of certain federal credit programs—referred to as the administrative cost subsidy. That method produces estimates for a single cohort of loans or loan guarantees that are calculated on a basis similar to that used for credit subsidy estimates. CBO presents those estimates in an effort to promote transparency about the costs of federal credit programs.
The agency’s findings are as follows:
- Direct loans versus loan guarantees. The administrative cost subsidy rates for direct loans tend to be higher than those for loan guarantees. (The administrative cost subsidy rate is equal to the administrative cost subsidy divided by the amount of credit obligations.)
- Program size. Large direct loan and loan guarantee programs (measured by the amount of credit obligations) tend to have lower administrative cost subsidy rates than smaller programs.
- Comparison with private lending. The administrative cost subsidy rates for federal student loans and housing and real estate loans are lower than those of private lenders, but those for the government’s commercial loans are higher. A comparative analysis is limited, however, because the government does not perform all administrative functions for the loans, and its motivation for lending may differ from that of private lenders.
Originally published at https://www.cbo.gov/publication/59507