A number of government credit programs cost taxpayers more than is shown in official budget figures, the Congressional Budget Office reported. Those include politically sensitive programs such as federal student loans and credit guarantees made through the Export-Import Bank.

Under normal federal accounting methods, according to the CBO, "the Department of Education's four largest student loan programs would yield budgetary savings of roughly $135 billion" over the course of the years 2015-2024.

But using different accounting, a "fair-value" approach, the same program would cost $88 billion.

Student loans are currently a major topic on Capitol Hill, where some Democrats have introduced legislation to reduce costs for student borrowers. Sen. Elizabeth Warren, D-Mass., among others, has said the government profits from its transactions with student borrowers.

CBO's analysis suggests that, using accounting methods that it has said are more comprehensive, federal student loan programs represent subsidies to borrowers and costs to taxpayers.

Applying fair-value accounting to other programs yields similar results. The six largest programs of the Export-Import Bank, which provides loans and loan guarantees to U.S. exporters, create $14 billion in savings under normal terms, but in the fair-value analysis, they cost $2 billion. Ex-Im, as it's known, faces a reauthorization vote in the fall.

The Federal Housing Administration's single-family mortgage guarantee program for low-income families is credited with budgetary savings of $63 billion, but costs $30 billion on a fair-value basis.



The CBO, Congress' non-partisan budget scorekeeper, normally does not provide fair-value budget estimates when assessing the costs of credit programs. Instead, it uses a methodology mandated by the Federal Credit Reform Act of 1990 (FCRA) for federal budgeting purposes. Before 1992, the costs of federal credit programs were measured on a cash-flow basis, meaning that the budget showed the inflows and outflows of cash through credit programs when those flows occurred.

But the tax hike bill that President George H.W. Bush signed in 1990 included FCRA, which transitioned the government to accrual accounting. In accrual accounting, the lifetime cost of a loan or a loan guarantee is recorded at the time it is made.

That process involves estimating the cash flow from a given credit measure, and then discounting that cash flow by a specific interest rate to arrive at a present-value estimate of its lifetime costs. FCRA specified that the rate on riskless Treasury securities be used as the applicable discount rate.

The CBO wrote in 2012 that estimates based on the FCRA method of accounting "do not provide a full accounting of what federal credit programs actually cost the government because they do not incorporate the full cost of the risk associated with the loans."

To account for all the risks involved in the government extending a loan, according to the CBO, it's necessary to do a fair-value analysis, which instead uses interest rates on comparable private securities to discount cash flows from a loan. Doing so accounts for market risk — the "component of financial risk that remains even after investors have diversified their portfolios as much as possible, and that arises from shifts in current and expected macroeconomic conditions." It also makes government programs appear more expensive.

Not all budget analysts agree about the wisdom of using market interest rates rather than Treasury rates in accounting for government loans. In particular, the Government Accountability Office has said it is in favor of FCRA accounting, noting that market risk is not relevant for the federal government in the same way it is for individuals. Private-sector investors are risk-averse, meaning that they demand higher interest payments than warranted for the underlying riskiness of a given security. The government, some budget experts argue, does not need to be compensated similarly because it is not risk-averse.

Nevertheless, fair-value accounting for government credit program has been endorsed by both Republican and Democratic appointees to the CBO, as well as by outside groups like the Financial Economists Roundtable.