Recent Developments:
Thursday, Jan 22, 2026:
Congressional Budget Office releases Estimates of the Cost of Federal Credit Programs in 2026 - CBO
Background:
The federal government has 118 programs providing credit assistance. According to CBO, the total amount of federal credit assistance projected for FY 2024 is $1.6 trillion, consisting of $1.3 trillion in new loan guarantees and $221 billion in new direct loans. Eighty-three percent of this credit assistance flows from mortgage guarantees and student loans. The largest federal credit programs are the guarantees of mortgage-backed securities provided by Fannie Mae and Freddie Mac. The two GSEs were projected to provide $804 billion in new mortgage guarantees in 2024.
The current method by which Congress and the Administration track and evaluate federal credit activities was agreed to in the 1990 Bipartisan Budget Summit Agreement between the Bush Administration and congressional leaders, and enacted as a new Title V in the 1974 Budget Act, referred to as the Federal Credit Reform Act of 1990 (FCRA or “credit reform”).
FCRA dramatically changed the budget process for federal credit programs. The FCRA budget reforms were significant because direct loans and loan guarantees have, for many years, been critical components of federal housing, education, agriculture, small business, disaster assistance, and trade programs.
Prior to credit reform, credit transactions were generally recorded on a cash basis in the fiscal year in which they occurred. Direct loans were recorded as outlays in the year the loan was made; direct loan repayments were recorded as receipts in the year paid; loan guarantee claim payments were recorded as outlays in the year disbursed; and fees charged for direct loans or loan guarantees were recorded as receipts in the year received. However, this cash approach did not provide a viable way to compare the actual long-term costs of new credit programs with other budget items.
For example, because the federal government did not have to show any outlays for loan guarantees until lenders filed claims on defaulted loans, the granting of new loan guarantees appeared to have no cost when enacted, while direct loans—which were treated like grants in the year they were issued—appeared to be overly expensive and ignored anticipated repayments. This created a misleading bias in favor of loan guarantees over direct loans.
Congress enacted FCRA to address these flaws. FCRA changed the budget rules for credit programs to require appropriations up-front for projected delinquencies, defaults, and interest rate subsidies over the life of credit programs. FCRA therefore allowed Congress to compare in an apples-to-apples way the budgetary costs of direct loans and loan guarantees, with more traditional grant programs.
For example, the President’s FY 2025 Budget proposed direct loan levels of $284 billion. Under FCRA, this would require that Congress appropriate $51 billion for FY 2025 to cover interest subsidies and estimated uncollectible principal and interest. This approach enables Congress to compare the up-front costs of the proposed direct loans with grants or other program options.
On the loan guarantee side, as an example, the President’s FY 2025 Budget proposed loan guarantees for the Innovative Technology Loan Guarantee Program of $1.9 billion. Under FCRA, this would require up-front appropriations of $360 million to cover projected liability for loan defaults. Prior to the enactment of FCRA, the authorization of these new loan guarantee commitments in FY 2023 may have shown up as costing nothing at the time of enactment.
More than three decades after enactment of FCRA, considerable debate remains among Administration and congressional budget estimators about the best methodologies for estimating the long-term costs of direct loans, loan guarantees and other credit programs. For example, CBO, in their periodic reviews of federal credit programs, evaluates the programs using both the FCRA methodology and a market-based “Fair-Value” approach. But importantly, the budget process no longer uses the earlier cash flow approach that understated the cost of loan guarantees and vastly overstated the cost of direct loans.
For additional background on Federal Credit Reform, including a table of major loan guarantees and direct loans, see TRILLIONS: A Primer on Federal Spending, Taxes, the U.S. Debt Ceiling, and Fiscal Law.