Federal Credit Assistance

Federal credit programs include direct lending activities of federal agencies and loans made by commercial lenders which are guaranteed by federal agencies. Credit assistance provides an alternative to subsidies, tax benefits, price regulation, and other actions seeking to achieve policy objectives. Credit that is outstanding under these programs totals over $300 billion.

Evaluation of federal credit programs consists of determining whether the program is likely to achieve its social objective or whether it is superior to some other type of action and evaluation of program design. Federal credit can be more cost-effective than direct subsidies, but programs with high risk and low expected cash flow may require both a direct subsidy and federal credit. GAO guidelines for program evaluation and design are: (1) the economic advantage of a direct loan must be weighed against the fact that the interest rate on guaranteed loans is determined by the market while the direct loan interest rate is not; (2) if a program is to be self-supporting, the loan guarantee fee or direct loan interest rate should be set according to risk; (3) various mechanisms to control risk should be considered; (4) the agency that bears responsibility for a program should be responsible for risk analysis; and (5) administrative practices during a program's formative stages should include obligational authority, disbursement procedures, allocation of credit when demand exceeds the available authority, and encouragement of investment during recessionary periods.