The federal government supports some private activities by offering credit assistance to individuals and businesses. That assistance is provided through direct loans and guarantees of loans made by private financial institutions. In this report, the Congressional Budget Office estimates the lifetime costs of new loans and loan guarantees that are projected to be issued in 2025.
Those lifetime costs can be calculated in two ways. One way uses procedures specified in the Federal Credit Reform Act of 1990 (FCRA), and the other is based on a measure of fair value. Using FCRA procedures—the standard way in which costs of credit programs are measured in the federal budget—CBO estimates that new loans and loan guarantees issued in 2025 would cost the federal government $2.4 billion over their lifetime. Using the fair-value approach, which measures the market value of the government’s obligations by accounting for market risk, CBO estimates that those loans and guarantees would have a lifetime cost of $65.2 billion. (Market risk is the component of financial risk that remains even with a well-diversified portfolio; it arises from shifts in macroeconomic conditions, such as productivity and employment, and from changes in expectations about future macroeconomic conditions.)
More than half of the difference between those amounts is attributable to three sources:
- Guarantees Made by Fannie Mae and Freddie Mac. Analyzed on a FCRA basis, those guarantees would save the federal government $15.7 billion; on a fair-value basis, they would cost the federal government $0.1 billion.
- Loans and Loan Guarantees Made by the Department of Housing and Urban Development (HUD). On a FCRA basis, those programs are projected to save $8.1 billion; on a fair-value basis, they would cost $3.1 billion.
- Student Loans Made by the Department of Education. Those programs are projected to cost $16.3 billion on a FCRA basis and cost $22.1 billion on a fair-value basis.
On both a FCRA and fair-value basis, loans made by the Department of Education have by far the largest subsidy costs. The next largest costs are for credit assistance provided by the Department of Energy.
In this analysis, most of the FCRA estimates were produced by other federal agencies. CBO produced the FCRA estimates for the largest federal credit programs and all of the fair-value estimates. Originally published at https://www.cbo.gov/publication/60517
