Federal Credit Programs: Comparing Fair Value and the Federal Credit Reform Act (FCRA)
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Federal Credit Programs: Comparing Fair
Value and the Federal Credit Reform Act
(FCRA)
Updated June 25, 2025
Congressional Research Service
https://crsreports.congress.gov
R44193
Federal Credit Programs: Comparing Fair Value and the FCRA
Summary
The U.S. government uses direct loans and loan guarantees in a range of policy areas. More than
100 programs offering direct federal loans and private financial institution loans guaranteed by
the government, known as federal credit programs, are available to individuals and firms. The
credit programs support a wide range of economic activities, including home ownership,
education, small business, farming, energy, infrastructure investment, and exports. At the end of
FY2024, outstanding federal credit totaled $4.0 trillion, with direct loans at $1.8 trillion and
principal amount of loan guarantees at $2.2 trillion.
For budget formulation, the costs or profits of these government programs are estimated as
prescribed by the Federal Credit Reform Act of 1990 (FCRA, P.L. 101-508). As measured by
FCRA, some of these credit programs generate a profit, while others incur costs to the
government. The costs of these credit programs are commonly referred to as subsidy costs. When
these programs generate a profit, they are considered negative subsidy costs.
Congress has periodically debated the best way to measure subsidy costs. The debate has
revolved around whether the subsidy costs should be measured as prescribed by FCRA or by
what is referred to as the fair value method. Subsidy costs estimates under FCRA adjust the cash
outflows and inflows for the various risks a loan portfolio might face. These cash flows are also
discounted using Treasury interest rates for estimating subsidy costs.
One method of estimating the fair value costs of the credit programs is to use private market
interest rates. Generally, private sector firms charge borrowers with government loan guarantees
lower interest rates than they charge borrowers without government guarantees. Switching to fair
value would be expected to increase the subsidy cost estimates of credit programs recorded in the
federal budget and potentially raise the cost of borrowing. For example, the Congressional
Budget Office (CBO) projects that changing the method of calculating subsidy costs estimates to
the fair value method would increase the 2025 budget cost estimates for all programs by $62.7
billion.
Proponents of fair value cost estimates argue that the government’s cost of credit programs should
reflect market risks, which are currently excluded from FCRA cost estimates. In their view, the
risk posed by the borrowers should be considered as a cost to the taxpayers, because taxpayers are
ultimately responsible for paying the debt of the U.S. government. Supporters of using the FCRA
method argue that it is appropriate for the government to discount at the rate at which it borrows
and that market risk is not the same as budgetary costs. In their view, including market risks to
estimate credit subsidies includes amounts that the government will never incur. Further, adopting
fair value for budget estimates does not necessarily imply that there would be a need to raise
taxes or to borrow additional funds, because such costs affect only the budget projections, not the
actual amount of cash flows.
The Fair-Value Accounting and Budget Act has been introduced in the 119th Congress (H.R.
1388) and in the 118th Congress (H.R. 5571) to expand how subsidy costs are measured. In
addition to FCRA estimates, these proposals would also require estimates based on fair value.
Previously, legislation was introduced in the 114th Congress (S. 399 and H.R. 119) that would
have changed the method of calculating subsidy costs to the fair value method. Similar legislative
proposals passed the House in the 113th Congress but were not acted on in the Senate. FY2016
budget resolutions in the 114th Congress, S.Con.Res. 11 and H.Con.Res. 27, included provisions
that addressed fair value in federal credit programs by requiring CBO to provide fair value
estimates for credit programs at the request of the budget committees. S.Con.Res. 11 was adopted
by the House on April 30, 2015, and by the Senate on May 5, 2015.
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Federal Credit Programs: Comparing Fair Value and the FCRA
Contents
Introduction ..................................................................................................................................... 1
Accounting for Federal Credit Programs......................................................................................... 2
FCRA (Treasury Rates) ............................................................................................................. 2
Fair Value .................................................................................................................................. 4
Congressional Debate ...................................................................................................................... 6
Policy Considerations ...................................................................................................................... 7
Market Risks Versus Risks to the Government ......................................................................... 8
Budgetary Implications ............................................................................................................. 9
Volatility of Estimates ..............................................................................................................11
Aligning Costs with Policy Rationales.................................................................................... 12
Figures
Figure 1. Difference in Subsidy Costs Using FCRA and Fair Value Discount Approaches,
by Department or Agency, FY2025 ............................................................................................ 10
Figure 2. Estimated Total Budgetary Costs of Selected Federal Credit Programs Under
FCRA and Fair Value ..................................................................................................................11
Tables
Table 1. Example of Outlays Recorded on the Federal Budget for $100 Million in Direct
Loans ............................................................................................................................................ 6
Table A-1. Outlays Recorded on the Federal Budget for $100 Million......................................... 14
Table A-2. Disbursements and Receipts Under the Cash Method ................................................. 15
Table A-3. FCRA (Treasury Rate) Subsidy Costs ......................................................................... 17
Table A-4. Fair Value Subsidy Costs ............................................................................................. 18
Appendixes
Appendix A. Comparison of Valuation Methods........................................................................... 14
Appendix B. Topic 820 .................................................................................................................. 20
Appendix C. Key Definitions and Acronyms ................................................................................ 23
Contacts
Author Information........................................................................................................................ 23
Acknowledgments ......................................................................................................................... 23
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Federal Credit Programs: Comparing Fair Value and the FCRA
Introduction
Federal credit programs are comprised of government direct loans and loan guarantees, which are
available to individuals and firms. These credit programs support a wide range of economic
activities, including home ownership, education, small business,1 farming, energy,2 infrastructure
investment,3 and exports. At the end of FY2024, outstanding federal credit included direct loans
at $1.8 trillion and principal amount of loans guaranteed by the United States at $2.2 trillion,
totaling $4.0 trillion.4
The Federal Credit Reform Act of 1990 (FCRA, P.L. 101-508) requires that estimated lifetime net
costs of new loans and loan guarantees be recorded in the budget years in which the loans are
disbursed.5 The costs of these credit programs, referred to as subsidy costs, are measured on a net
present value (NPV) basis—which is the value of expected future cash receipts less expenditures
adjusted or discounted over time using an interest rate. The interest rates used to discount the cash
flows are estimated based on Treasury securities yields. The methodology used for measuring the
costs of these credit programs might affect how Congress allocates the federal budget and
structures the credit programs.
The profitability or costs of individual credit programs had been a topic of discussion and
legislation in recent Congresses. At the core of the congressional debate is whether the subsidy
costs of the federal credit programs should continue to be measured with the current method. If a
different method is used, the subsidy costs could vary substantially from current estimates. For
example, the Fair-Value Accounting and Budget Act has been introduced in the 119th Congress
(H.R. 1388) and in the 118th Congress (H.R. 5571) to expand how subsidy costs are measured and
would require the Congressional Budget Office (CBO) to provide cost estimates based on both
FCRA and fair value estimates. This report explains and analyzes the differences between these
methodologies.
CBO provides subsidy cost estimates using interest rates equivalent to private markets to
determine its fair value estimates. A CBO comparison of 2025 subsidy cost estimates between the
FCRA ($2.4 billion) and fair value ($65.2 billion) resulted in a $62.7 billion increase in budgetary
costs under fair value (see Figure 1).6 FCRA estimates are required to determine budget costs,
whereas fair value estimates are informational only. Typically, interest rates in the private markets
are higher than Treasury rates. In other words, under fair value, CBO seeks to estimate what it
1 For loan programs related to small business, see CRS Report R47909, Small Business Administration (SBA) Business
Loan Program Rule Changes in the 118th Congress: Background and Summary, by Anthony A. Cilluffo.
2 For a few of the loans programs related to the energy sector, see CRS Insight IN11984, Inflation Reduction Act of
2022 (IRA): Department of Energy Loan Guarantee Programs, by Phillip Brown.
3 There are many types of loan programs funded by the federal government related infrastructure. For a discussion of
few of these loans, see CRS Report R46892, Infrastructure Investment and Jobs Act (IIJA): Drinking Water and
Wastewater Infrastructure, by Elena H. Humphreys and Jonathan L. Ramseur; and CRS Report R48097, Energy and
Water Development: FY2025 Appropriations, by Mark Holt and Anna E. Normand.
4 Department of the Treasury, Financial Report of the United States Government: Fiscal Year 2024, January 16, 2025,
pp. 86, 88, https://www.fiscal.treasury.gov/reports-statements/financial-report/current-report.html.
5 2 U.S.C. §661c.
6 Wendy Kiska, Estimates of the Cost of Federal Credit Programs in 2025, CBO, August 2024, https://www.cbo.gov/
publication/60682.
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would cost private industry to offer similar types of loans or loan guarantees.7 Fair value,
therefore, is estimated to increase the subsidy costs of credit programs.8
This report first provides a brief explanation of federal credit programs. Next, it examines recent
legislative proposals. It assesses several policy issues Congress might consider and the benefits
and challenges of remaining on FCRA cost estimates versus using fair value estimates to
determine subsidy costs. Appendix A provides a more detailed explanation of subsidy costs
valuation methods. Appendix B provides an explanation of fair value accounting requirements
for the private sector, known as Topic 820.9 Appendix C contains definitions and acronyms for
certain concepts and terminology used in this report.
Key Concepts
Net Present Value (NPV)—The value of expected future cash receipts less expenditures adjusted, or discounted,
over time using an interest rate.
Discounted Cash Flow—A way of measuring future cash flows. For example, $100 received today is worth more
than $100 received a year from now, as the $100 received today can be invested for a return that is worth more
than $100 in the future. Thus, $100 received a year from now would need to be discounted to account for this
forgone earning opportunity.
Subsidy Costs—The FCRA defines subsidy cost as “the estimated long-term cost to the government of a direct
loan or a loan guarantee … calculated on a NPV basis, excluding administrative costs.”10 NPV measures the
current value of all cash outflows and inflows at a discounted (interest) rate. The higher the interest rate, the
steeper the cash flows in future periods will be discounted.
Negative Subsidy Costs—Negative subsidy costs imply that the government is generating positive net income from
the loan or loan guarantee program for budgetary purposes. These are recorded on the budget as negative
outlays, meaning from a budget perspective they reduce overall spending.
Accounting for Federal Credit Programs
The U.S. government uses direct loans and loan guarantees to allocate financial capital for a
range of purposes. A direct loan is “a disbursement of funds by the government to a non-Federal
borrower under a contract that requires the repayment of such funds with or without interest.”11 A
loan guarantee is “a pledge with respect to the payment of all or part of the principal or interest on
any debt obligation of a non-Federal borrower to a non-federal lender.”12
FCRA (Treasury Rates)
Effective FY1992, the FCRA changed the basis of accounting for federal credit programs from
cash basis to accrual basis.13 Most of the other items in the federal budget are reported on a cash
7 Expected cash receipts and expenditures include the amount disbursed, principal repaid, interest received, fees
charged, and losses from defaults. Wendy Kiska et al., How CBO Produces Fair value Estimates of the Cost of Federal
Credit Programs: A Primer, CBO, July 2018, https://www.cbo.gov/publication/53886.
8 Kiska, Estimates of the Cost of Federal Credit Programs in 2025.
9 Topic 820’s predecessor was referred to as Statement of Financial Accounting Standards 157 (SFAS 157). Financial
Accounting Standards Board (FASB), “Fair Value Measurement (Topic 820),” June 2022, https://www.fasb.org/page/
ShowPdf?path=ASU%202022-03.pdf.
10 2 U.S.C. §661a(5)(A); P.L. 101-508.
11 2 U.S.C. §661a(1).
12 2 U.S.C. §661a(3).
13 Under cash basis accounting, revenue and expenses are recorded when cash is actually paid or received. Under
(continued...)
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basis. Before FY1992, for a given fiscal year, the budgetary cost of a direct loan or loan guarantee
was the net cash flows for that fiscal year. This cash flow measure did not accurately reflect the
ultimate profitability (loss) of the loan. Thus, the methodology arguably did not accurately reflect
the overall cost of the loan and loan guarantee on budget documents. As an example, consider a
loan of $100,000 that is fully repaid in 10 years. Under the pre-FCRA accounting methods, this
loan would be shown as a $100,000 loss in the year it was originated. The annual payments
would be shown as revenue during the repayment years.
Beginning with FY1992, the FCRA required that budget reports for credit programs estimate the
subsidy costs of the credit programs.
The FCRA method discounts the payments’ streams using an interest rate to capture the costs up
front.14 (The fair value method also does this. The subsidy cost estimates under FCRA and fair
value differ because the interest rates are not the same, as discussed in more detail below.) Some
of the factors that help determine subsidy costs are the
•
•
•
•
•
•
amount disbursed,
principal repaid,
fees charged,
interest payments received,
default risks, and
discount rate (or interest rate) used to calculate the value of future cash flows.
Generally, the interest rate used to discount the cash flows is estimated based on yields of
Treasury securities that mature on dates comparable to those on which the loans are substantially
disbursed. A two-year loan, for example, is discounted using two-year Treasury rates. Subsidy
estimates are only projections of future performance of credit programs. The actual cost of any
loans or loan guarantees cannot be determined until the loans have fully matured and all
payments have been received.
Government loan programs generally charge borrowers interest rates that are usually higher than
Treasury rates but lower than the rates private lenders may charge. Similarly, government loan
guarantees are meant to lower the borrowing costs for loans generated by private lenders by
absorbing either partial or significant amounts of the losses in the event of default.15 The interest
rate and fees or insurance premiums charged by the government to borrowers arguably may not
reflect the costs borne by private lenders. Private lenders might be more loss averse and have a
profit motive.16 Their lending rates might also reflect administrative costs as well, which FCRA
omits from subsidy cost estimates.
Risk is another important factor in determining subsidy cost. For example, one type of risk that is
common to the estimation process is the default risk. The text box below reflects some other risks
accrual basis accounting, revenue is recorded when it is earned, and expenses are reported when they are incurred. See
CRS Report R43811, Cash Versus Accrual Basis of Accounting: An Introduction, by Raj Gnanarajah, for more detailed
explanation of cash versus accrual accounting.
14 The Balanced Budget Act of 1997 (P.L. 105-33) amended the FCRA to make technical changes, including codifying
several guidelines developed by the Office of Management and Budget over the previous years.
15 Wendy Kiska et al., Public-Private Risk Sharing in Federal Credit Programs, CBO, September 2024,
https://www.cbo.gov/system/files/2024-09/59408-Public-Private-Risk-Sharing.pdf.
16 Government Accountability Office (GAO), Credit Reform: Current Method to Estimate Credit Subsidy Costs Is
More Appropriate for Budget Estimates Than a Fair Value Approach, GAO-16-41, January 2016, https://www.gao.gov/
assets/gao-16-41.pdf.
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identified by the Export-Import Bank for its credit activities. These risks may or may not reflect
risks borne by other credit programs.
Types of Risks
The risk profile for credit activities can be determined based on either an individual loan or the total portfolio.
Generally, when a decision to lend is made, relevant risks to that individual loan are considered as well as how the
loan affects the risk profile of the total portfolio. A change in risk profile affects how much in reserves should be
recorded to absorb losses. A description of some of the Export-Import Bank’s credit risks is provided as an
example of the types of risks in credit programs.
Default Risk—The risk that a borrower either is unwilling or does not have sufficient resources to make payments.
In the context of the Export-Import Bank, default risk (i.e., repayment risk) is synonymous with credit risk.
Country Risk—The risk that a borrower’s property might be expropriated by a government. Country risk also
considers the borrower’s inability to pay due to war or being unable to convert domestic currency to U.S.
currency.
Concentration Risk—Risks from clustering of the credit portfolio by a specific industry, geographic region, or
borrower.
•
Industry—Business or lending activity narrowly focused on specific companies or industries. Nearly 71%
of the Export-Import Bank’s credit portfolio is concentrated in three industries: air transportation,
manufacturing, and oil and gas. Air transportation represents 29.3% of the bank’s total exposure.17
•
Geographic Region—The risk that events could negatively affect not only one country but several
countries in an entire region and the ability of the obligors from those countries to repay.
•
Obligor—The risk that default by one or more borrowers will have a disproportionate impact on the
credit portfolio.
Foreign Currency Risk—The risk of an appreciation or depreciation in the value of a foreign currency in relation to
the U.S. dollar.
Interest Rate Risk—There are different types of interest rate risks. The Export-Import Bank’s interest rate risks
arise from making fixed-rate loan commitments prior to borrowing to fund loans. The risk arises as the ExportImport Bank borrows at a higher rate than the rate it charges its customers.
Operational Risk—The risk of material losses as a result of human errors, system deficiencies, and management
oversight weaknesses.18
Fair Value
Legislative proposals in the 119th Congress (and previously in the 118th Congress) would require
CBO to provide subsidy cost estimates based on fair value and FCRA. Fair value accounting,
first, requires the value of assets and liabilities to be estimated based on an objective
measurement of how similar types of assets and liabilities are valued in a well-functioning liquid
market. If a well-functioning market does not exist, which may be the case for many federal
credit programs, then fair value accounting requires internal modeling. Internal modeling requires
estimating NPV of future cash flows by using an interest rate. In certain circumstances, some
credit programs might have private market equivalents. In other instances, the credit programs
would require their own internal modeling to determine fair value subsidy cost estimates. The key
difference between CBO’s fair value estimates and FCRA is the use of market interest rates
instead of Treasury rates to determine subsidy cost estimates through discounted cash flow
analysis. Changing the credit program’s subsidy cost estimate methodology to fair value generally
increases the subsidy costs, because a higher interest rate would be assumed in the estimate.
17 Export-Import Bank of the United States, 2024 EXIM Annual Report, November 15, 2024, p. 54,
https://img.exim.gov/s3fs-public/reports/annual/2024/FY2024+Final.pdf.
18 Export-Import Bank, 2024 EXIM Annual Report.
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Fair Value of Loans and Loan Guarantees
The legislative proposals in the 119th Congress (H.R. 1388) and in the 118th Congress (H.R. 5571) would require
fair value subsidy cost estimates to be based on “Fair Value Measurement and Application,” issued in February
2015 by the Governmental Accounting Standards Board (GASB), GASB’s fair value standard19 is similar to the
standard promulgated by Financial Accounting Standards Board (FASB), Topic 820.20
Unless H.R. 1388 from the 119th Congress or a similar proposal is adopted, GASB’s fair value standards are
applicable only to state and local governments that adopt those standards, not to federal government entities.
Similarly, FASB’s Topic 820 is applicable to private sector companies, not to federal government entities.
Definitions of fair value of a loan and fair value of a loan guarantee in this text box are defined in the context GASB’s
and FASB’s standards.
Fair Value of a Loan—Fair value of a loan (an asset) is the price that would be received if it were sold in a
competitive market in the private sector that does not involve forced liquidation or a distressed sale. See
Appendix B for a more detailed discussion.
Fair Value of a Loan Guarantee—Fair value of a loan guarantee (a liability) is the price that would have to be paid by
the government for the private sector to assume the guarantee commitment.
Another way to consider what constitutes fair value is to examine how government loan
guarantees affect the borrower’s interest rate. Federal loan guarantees also have the full faith and
credit of the United States, which has the power to levy taxes on the largest economy in the world
to meet its obligations. As a result, investors perceive U.S. government debt as facing zero default
risk, which is reflected in the high-quality credit ratings the United States receives from rating
agencies. This allows the U.S. government to easily issue debt at relatively low interest rates,
further enabling it to meet its obligations.21 Therefore, private lenders value governmentguaranteed loans more than loans with no guarantees. The difference between the value of a
government-guaranteed loan and an equivalent one with no guarantee, the fair value, could also
be considered as market risk.
Private sector lenders with or without government loan guarantees also consider both
administrative costs and profit incentives in determining the value of loans. However, FCRA
specifically excludes administrative costs in determining subsidy costs. Among the reasons
administrative costs were excluded from FCRA may have been that Congress wanted to have
direct oversight through appropriations.22 As required by some legislative proposals, if fair value
for government credit programs were determined based on private markets’ fair value accounting
standards, then such fair value measurements would also include administrative costs. To be
comparable, administrative costs would need to be either removed from fair value estimates or
included in FCRA estimates. If administrative costs were included with FCRA estimates, then the
difference between fair value estimates and FCRA estimates would diminish.
While lending programs in the federal government are generally required to be measured based
on FCRA, specific statutes have required fair value estimates to be used in official budget
estimates in limited cases in the past. For example, government-owned assets acquired through
19 Governmental Accounting Standards Board (GASB), “Fair Value Measurement,” February 2015,
https://gars.gasb.org/3154072/2147483431.
20 FASB, “Fair Value Measurement (Topic 820).”
21 The sovereign credit rating of the United States remains one of the highest in the world despite the credit rating being
downgraded by all three major credit rating agencies to the second-highest rank within their ranking system to Aa1.
Peter G Peterson Foundation, “Moody’s Downgrade of U.S. Credit Rating Highlights Risks of Rising National Debt,”
May 19, 2025, https://www.pgpf.org/article/moodys-downgraded-its-us-credit-rating-and-warns-that-recent-policydecisions-will-worsen-fiscal-outlook/.
22 Douglas W. Elmendorf, Estimates of the Cost of the Credit Programs of the Export-Import Bank, CBO, June 25,
2014, p. 11, https://www.cbo.gov/sites/default/files/113th-congress-2013-2014/reports/45468ExportImportBankTestimony.pdf.
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the Trouble Asset Relief Program (TARP) are statutorily required to be valued at fair value.23
However, there are a few differences to consider in the types of assets generally owned through
TARP and other credit programs.24 With TARP, a significant portion of the activity was linked to
the purchase of preferred shares to increase banks’ capital levels, with the government taking an
ownership interest in those firms. CBO has also used fair value to produce its forecasts for the
future activities of Fannie Mae and Freddie Mac.25
A more detailed explanation of how the cost estimates are determined based on cash method (or
pre-FCRA), FCRA (Treasury rates), and fair value is provided in Appendix A, with a brief
numerical example provided in the text box below.
Numerical Comparison of Valuation Methods
To highlight the different cost estimates, consider an example in which the federal government lends $100 million.
The $100 million is expected to be repaid with interest over three years, net of loan defaults.26 The cash method
of accounting for the loan, pre-FCRA, simply allows for the expenditure of the loan in year 0 and repayments in
each of the three years. In contrast, FCRA and fair value estimate the subsidy costs in year 0 with no budget input
in the later years. The subsidy cost estimates between FCRA and fair value differ because of the interest rate used
to discount the future cash flows.
Table 1. Example of Outlays Recorded on the Federal Budget for $100 Million in
Direct Loans
Measured in Millions
Accounting Methods
2025
2026
2027
2028
Cash
$100
$-35
$-34
$-34
FCRA (Treasury
Rates)
$-1.6
NA
NA
NA
Fair Value
$1.3
NA
NA
NA
Source: Adopted from Congressional Budget Office (CBO), How CBO Produces Fair value Estimates of the Cost
of Federal Credit Programs: A Primer, July 2018, pp. 4-5, https://www.cbo.gov/publication/53886.
Notes: Positive numbers reflect cash outlays (i.e., costs) to the government, and negative numbers reflect
cash receipts (i.e., negative costs). For budgetary purposes, subsidy cost estimates based on Treasury rates or
fair value are recognized only in 2025. In subsequent years (2026-2028), if changes in the loan portfolio’s
performance are material, then subsidy costs would be reestimated. This table is included in Appendix A
with a more detailed explanation of how the balances are calculated.
Congressional Debate
The Fair-Value Accounting and Budget Act (as well as H.R. 5571 in the 118th Congress and H.R.
3785 in the 117th Congress) would require CBO to provide fair value credit estimates, in addition
to FCRA estimates, for loan and loan guarantees. The proposal would also require the OMB
director to submit a report to the House and Senate Budget Committees on the cost of federal
23 12 U.S.C. §5232.
24 The Troubled Asset Relief Program (TARP) was created as part of the Emergency Economic Stabilization Act of
2008 (P.L. 110-343). For more information, see CRS Report R41427, Troubled Asset Relief Program (TARP):
Implementation and Status, by Baird Webel.
25 Michael Falkenheim and Mitchell Remy, Fannie Mae and Freddie Mac’s Housing Goals, CBO, November 2024,
https://www.cbo.gov/publication/60978.
26 Default is the failure of a borrower to make interest and principal payments.
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credit programs based on fair value estimates. As stated in the press release related to the
introduction of H.R. 1388, the act “seeks to provide Congress with better oversight and
information on market risk in federal lending, ensuring a more accurate assessment of costs to
taxpayers.”27
Arguably, there was greater interest, previously, in the topic of fair value estimates as discussed
below. The Joint Economic Committee held a hearing in 2015 on the economic exposure of
federal credit programs28 that focused on the difference between how costs of government loans
and loan guarantees are measured under FCRA and fair value estimates.
Some the prior proposals would have also required CBO to provide subsidy costs based on both
fair value and FCRA. Companion legislative proposals—the Budget and Transparency Act of
2015 (S. 399 and H.R. 119)—were introduced in the 114th Congress to change how the subsidy
costs of federal credit programs are determined. Similar companion legislative proposals (S. 2420
and H.R. 1872) were introduced in the 113th Congress. On April 7, 2014, the House passed H.R.
1872 by a recorded vote of 230-165, but the bill was not acted on by the Senate. The Honest
Budget Act of 2013 (H.R. 1270, 113th Congress) included provisions similar to those in S. 399
and H.R. 119. These proposals would have required fair value determination to adhere to Topic
820 as promulgated by FASB, which sets accounting standards for the private sector.29 The
specific requirements of Topic 820 are discussed in Appendix B.
FY2016 budget resolutions in the 114th Congress (S.Con.Res. 11 and H.Con.Res. 27) address fair
value in federal credit programs by requiring CBO to provide fair value of assets and liabilities
for certain federal credit programs at the request of the chairman of the House or Senate Budget
Committees. S.Con.Res. 11 was adopted by the House on April 30, 2015, and by the Senate on
May 5, 2015.30 In the 113th Congress, similar provisions were included in the budget resolutions
(S.Con.Res. 11 and H.Con.Res. 25).
Policy Considerations
The congressional debate has focused on whether market risks should be incorporated in the
subsidy cost estimates of federal credit programs. Incorporation of market risks through fair value
accounting affects the credit programs in several ways. If market risks are incorporated through
cost estimates using the fair value method, from a budgetary perspective many of the credit
programs will change from profit-making programs to loss-incurring programs. This section of
the report first explains the various policy perspectives on incorporating market risks. Next, it
discusses how the changes would affect the budget for the credit programs and presents a
discussion on the volatility of cost estimates. Lastly, it discusses some of the policy rationales for
using fair value or remaining on FCRA.
27 Office of Rep. Ralph Norman, “Rep. Norman Reintroduces Budget Transparency and Reform Package,” press
release, February 14, 2025, https://norman.house.gov/news/documentsingle.aspx?DocumentID=2040.
28 U.S. Congress, Joint Economic Committee, The Economic Exposure of Federal Credit Programs, 114th Cong., 1st
sess., June 17, 2015.
29 The Financial Accounting Standards Board (FASB) developed Generally Accepted Accounting Principles (GAAP)
for nongovernmental entities. The Federal Accounting Standards Advisory Board (FASAB) developed GAAP for
federal government entities. GASB developed GAAP for state and local governments.
30 A concurrent resolutions is “an agreement between the House and Senate establishing various enforceable levels of
spending and revenue. It is not submitted to the President for signature and therefore is not considered law.” CRS
Report R48284, The Congressional Budget Resolution: Frequently Asked Questions, by Tori Gorman.
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Market Risks Versus Risks to the Government
Opinions differ between fair value and FCRA proponents as to whether market risks incurred by
private firms should be included in the federal government’s subsidy cost estimates. Proponents
of fair value treatment argue that market risks are borne by all investors and lenders that cannot
be eliminated through diversification. Thus, the argument goes, the government’s credit programs
are subject to the same types of market risks as private lenders are. Therefore, costs should be
estimated based on fair value. According to CBO, “the government is exposed to market risk
through its credit programs because, when the economy is weak, borrowers default on their debt
obligations more frequently and recoveries from defaulting borrowers are smaller. That market
risk is effectively passed along to taxpayers and beneficiaries of government programs because
they bear the consequences of the government’s financial losses.”31 Debt not paid by the
borrowers is a cost to taxpayers, because taxpayers are ultimately responsible for paying the debt
of the U.S. government. Treasury rates fail to capture this risk, proponents argue, because they are
considered risk-free rates and backed by the full faith and credit of the United States.32
Proponents of fair value also contend that current subsidy estimates imply that credit programs
are not subject to market risks and that a higher interest rate should be used to discount the cash
flows to reflect the market risks. The higher interest rates used for fair value estimates are meant
to reflect the market risks that Treasury rates do not currently capture. According to CBO, “to
incorporate the cost of market risk, the fair value approach generally entails using the discount
rates on expected future cash flows that private financial institutions would use. That approach
effectively uses market prices to measure the cost to the public of the lower returns on federal
loans and loan guarantees when the economy is weak and incomes are relatively low.”33
Proponents of FCRA argue that current cost estimates do not understate the actual cost to the
government, because market risks are not the same as budgetary costs. They argue that
accounting for market risks in estimating credit subsidies includes amounts that the government
will never actually incur and does not necessarily lead to additional taxes or increased borrowing.
This is because market costs affect the official budget estimates but not the actual amount of
federal cash flows.34 In this view, credit programs are considered a tool of the U.S. government,
not private lenders. Proponents argue that Treasury interest rates sufficiently reflect the overall
risks borne by the government, and thus there is no need to measure market risks.35
According to FCRA supporters, basing estimates on fair value conflicts with budgetary principles
and how the budget is recorded for most other government activities. In their view, the federal
budget should reflect how much revenue it receives and how much it disburses, not the premium
that applies to the private sector.36 Budgetary cost estimates based on fair value may create a
31 Douglas W. Elmendorf, Estimates of the Cost of the Credit Programs of the Export-Import Bank, CBO, June 25,
2014, p. 1, https://www.cbo.gov/sites/default/files/113th-congress-2013-2014/reports/45468exportimportbanktestimony.pdf.
32 Deborah Lucas, “Introduction,” in Measuring and Managing Federal Financial Risk (University of Chicago Press,
2010), p. 2.
33 Elmendorf, Estimates of the Cost of the Credit Programs of the Export-Import Bank, p. 1.
34 Richard Kogan et al., “House Bill Would Artificially Inflate Cost of Federal Credit Programs,” Center on Budget and
Policy Priorities, June 18, 2013, http://www.cbpp.org/research/house-bill-would-artificially-inflate-cost-of-federalcredit-programs.
35 GAO, Credit Reform.
36 To illustrate why using Treasury rates for FCRA cost estimates closely aligns with most other government activities,
consider the following example. Consider $1 million as the actual cash outflow for the government (including debt
service for the government) to provide loan guarantees for $100 million in loans. Arguably, it is the equivalent of the
(continued...)
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mismatch between how much the Treasury pays out and what it records as a cost of the credit
programs.37
Supporters of FCRA have also stated that the government has certain rights as a sovereign power
to collect payments from borrowers that private lenders do not have. These government rights
arguably lower the cost of lending for the government as compared with the private sector. One
example is the Treasury Offset Program, which gives the federal government certain advantages
over the private sector for collecting debt defaults. If a borrower owes delinquent nontax debt to a
federal or state agency, many types of government payments to the debtor can be withheld or
reduced until the debt obligation is met.38 Federal agencies are required to notify Treasury if a
debt is more than 120 days delinquent.39 Treasury’s ability to collect on debt owed to the federal
government might result in higher recoveries, which could result in higher loan valuations than
loans originated in the private sector.40 However, because federal credit programs are generally
not driven by a profit motive, the government’s incentive to maximize collections might be
lower.41
Budgetary Implications
A CBO comparison of 2025 subsidy cost estimates between FCRA at $2.4 billion and the fair
value $65.2 billion resulted in a $62.7 billion increase in budgetary costs under fair value (see
Figure 1).42 The perspective on whether the federal government makes a profit on a credit
program is arguably a matter of perception. For many programs, when Treasury rates are used,
the costs are less with some programs making a profit, but if fair value estimates are considered,
the costs would be higher. As discussed, higher interest rates under fair value result in higher
subsidy costs, which are recorded as outlays on the budget.
The increased budgetary cost estimates under fair value may or may not add to the U.S. debt, but
they would still be accounted for in the budget. One option is to increase the amount appropriated
for credit programs, as FCRA requires the cost of loan programs to be fully paid through
appropriations for any related subsidy costs.43 The increased appropriation, absent any other
policy changes, would reflect higher deficit spending from a budgetary perspective, but actual
cash outlay might be less than appropriated. Alternatively, these increased costs could be required
to be accounted for within the program without increasing the budget. The increased costs due to
government giving $1 million as grants to the borrowers for them to obtain loans up to $100 million, which would be
recorded on the budget as a $1 million outlay. Cost estimates based on FCRA would record the subsidy cost as a $1
million outlay. If fair value method is applied, the outlay recorded in the budget would include an additional premium
that would exceed $1 million, although the cash outflows are still $1 million. Fair value approach would make the
subsidy cost of federal credit programs appear more costly for budget estimates than providing the same funds through
a grant.
37 Kogan et al., “House Bill Would Artificially Inflate Cost.”
38 The types of federal payments that maybe used to offset delinquent government debt are tax refunds, travel-related
payments, federal salary, retirement pay, Social Security payments, railroad retirement benefits, and state payments of
all kinds. 26 U.S.C. §6402.
39 The Internal Revenue Service has separate legal authority to levy the Treasury Offset Program to collect tax debts
that is distinct from legal authority for nontax debt obligations. Department of the Treasury, Bureau of the Fiscal
Service, “Fact Sheet: Treasury Offset Program, Summary of Program Rules and Requirements,”
https://fiscal.treasury.gov/files/top/TOP-rules-reqs-fact-sheet.pdf.
40 Department of Education, “Collections on Defaulted Loans,” https://studentaid.gov/manage-loans/default/collections.
41 Department of Education, “Student Loan Forgiveness,” https://studentaid.gov/manage-loans/forgivenesscancellation.
42 Kiska, Estimates of the Cost of Federal Credit Programs in 2025.
43 2 U.S.C. §661(c).
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market risks could be passed on to borrowers through higher interest rates or additional fees
required to offset the increased budgetary costs. Alternatively, the government could offset the
increased costs by reducing the amount spent on these credit programs. One consequence of
passing the increased costs under fair value might be that some borrowers are priced out of these
programs.
Figure 1. Difference in Subsidy Costs Using FCRA and Fair Value Discount
Approaches, by Department or Agency, FY2025
In Billions of Dollars
Source: Adopted from Wendy Kiska, Estimates of the Cost of Federal Credit Programs in 2025, CBO, August 2024,
https://www.cbo.gov/publication/60682.
Notes: FCRA estimates of subsidy costs were provided to CBO by the Office of Management and Budget, with
few exceptions. Student loan information was provided by the Department of Education. Estimates related to
housing entities were prepared by CBO. Other departments include Commerce, Health and Human Services,
Homeland Security, the Interior, State, Treasury, and Environmental Protection Agency. Negative values indicate
profits (negative subsidies). Positive values indicate losses (subsidies).
Although federal credit programs may reflect lower profit estimates under fair value, if the higher
costs are passed on to the borrowers, the federal government might actually make more profit
than under estimates based on Treasury rates. In such circumstances, those that are most in need
of government credit programs might pay for costs associated with market risks through either
higher fees or interest rates. Some argue that, if policymakers choose to pass on the higher
budgetary costs to borrowers, the social benefits of these programs might be reduced.44 Others
have proposed to pay for the increased subsidy costs under fair value that the government could
increase tax rates or reduce spending in other program areas.45 The subsidy cost estimates for
FY2025 and subsidy cost reestimates for prior years could be affected by changes by the
President to the loans and loan guarantee programs.46
44 Board of Governors of the Federal Reserve System, Economic Well-Being of the U.S. Households in 2023, May
2024, https://www.federalreserve.gov/publications/2024-economic-well-being-of-us-households-in-2023-highereducation-student-loans.htm.
45 Josh Bivens, “There Will Be Pain,” Economic Policy Institute, February 13, 2025, https://www.epi.org/publication/
tcja-extensions-2025/#epi-toc-4.
46 The White House, “Restoring Public Service Loan Forgiveness,” March 2025, https://www.whitehouse.gov/
presidential-actions/2025/03/restoring-public-service-loan-forgiveness/.
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Figure 2 illustrates how the use of Treasury rates versus fair value affects CBO’s cost estimates
of specific programs. The three types of loan programs—housing and real estate loans,47
consumer loans, and student loans48—change from reporting either profits or lower losses under
Treasury rates to higher losses under fair value.
Figure 2. Estimated Total Budgetary Costs of Selected Federal Credit Programs
Under FCRA and Fair Value
In Billions of Dollars
Source: Adopted from Wendy Kiska, Estimates of the Cost of Federal Credit Programs in 2025, CBO, August
2024, https://www.cbo.gov/publication/60682.
Notes: FCRA estimates were determined by either CBO, OMB, or other federal agencies. Fair value estimates
were determined by CBO.
Volatility of Estimates
Fair value subsidy estimates are arguably higher than subsidy estimates based on Treasury rates
and can be more volatile. Thus, subsequent reestimates in future budgets will be higher. Fair
value estimates must respond to market risks.
As discussed earlier in the report, TARP cost estimates have been estimated using market risks.
Market-based cost estimates during the first decade of TARP illustrate the challenge of
incorporating market risks in cost estimates, although the changes in cost estimates are not solely
a result of change in market risks. The largest disparity is between CBO’s March 2009 subsidy
cost estimate of $356 billion49 and its $31 billion estimate50 in its final report on April 2024, a
difference of $325 billion. The significant downward revision in cost estimates is a result of
47 For information related some of the home loan programs, see CRS Report RS20530, FHA-Insured Home Loans: An
Overview, by Katie Jones; and CRS Report R48253, Transportation, Housing and Urban Development, and Related
Agencies (THUD) Appropriations for FY2025, coordinated by Maggie McCarty.
48 For additional information on student loan programs, see CRS In Focus IF12828, Direct Loan Program Student
Loans: Loan Types and Limits, by Alexandra Hegji; and CRS Report R43571, Federal Student Loan Forgiveness and
Loan Repayment Programs, coordinated by Alexandra Hegji.
49 CBO, Trouble Asset Relief Program, April 2017, https://www.cbo.gov/publication/24884.
50 Avi Lerner and Zunara Naeem, Final Report on the Trouble Asset Relief Program, CBO, April 2024, p. 2,
https://www.cbo.gov/system/files/2024-04/59919-TARP.pdf.
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higher-than-expected repayments of principal and interest or dividend payments that Treasury has
collected. Over the course of TARP, CBO continued to revise its cost estimates as the principal
was paid back and the amount of risk was reduced, which resulted in decreased cost estimates.
Further, any amount that is written off or losses realized on sales of stock no longer represent
uncertainty.51
Cost estimates for TARP programs had more inherent uncertainty than typical credit programs
have. Over the life of the TARP programs, CBO identified several factors affecting its revised
estimates, including changes in financial market conditions, new transactions, and timing of
disbursements. Although disbursements were a factor in revised cost estimates, the changing
market conditions arguably had a more significant role in the revised cost estimates.52 To some
extent, the change in default risks would have positively affected TARP estimates in later years
regardless of whether it was estimated based on market risks or Treasury rates.
Current legislative proposals specifically require subsidy cost estimates to be based on GASB
standard 3100—Fair Value Measurement, issued in February 2015.53 GASB’s fair value standard
is similar to the standard promulgated by FASB, Topic 820.54 Similar to FCRA (Treasury rates),
GASB and Topic 820 require fair value estimates be calculated annually.
Topic 820 specifically states that if an insufficient market exists to determine fair value, then
internal modeling is required (see Appendix B). Insufficient markets to determine fair value
might imply that risks borne by a specific credit program are high or that there is a lack of interest
from private firms or that the government has crowded out private activity. If markets freeze for
one or more asset class, then the interest rate to fund such transactions in the private markets
would rise. In such circumstances, fair value estimates based on internal modeling would reflect
the higher discount rate. Thus, the cost of credit programs is likely to be even higher when
markets are volatile. Because FCRA relies on internal modeling and does not use fair value
estimates even when the equivalent fair value markets might exist, its estimates are not as
volatile.
For certain programs, when a market that has been previously liquid becomes less liquid or
freezes, under fair value, estimated subsidy costs are likely to be higher. If the markets become
liquid again in the future, the estimated cost of credit programs could see substantial change. The
volatility of cost estimates under such market conditions might make it challenging for
policymakers and agencies to estimate costs and thus evaluate programs accurately. Even under
normal circumstances, government agencies may need time to develop more accurate financial
models that estimate subsidy costs based on fair value.
Aligning Costs with Policy Rationales
Choosing between FCRA and fair value may depend in part on one’s underlying view of the
purpose of federal credit programs. Fair value proponents argue that the transaction price the
government pays to purchase private sector goods—such as electricity, military hardware,
computers, and buildings—is at a fair value price and that federal credit programs should be as
51 CBO, Report on the Troubled Asset Relief Program, March 2015, p. 2, https://www.cbo.gov/sites/default/files/114th-
congress-2015-2016/reports/50034-TARP.pdf.
52 CBO, A Preliminary Analysis of the President’s Budget and an Update of CBO’s Budget and Economic Outlook,
March 2009, pp. 8-9, https://www.cbo.gov/sites/default/files/111th-congress-2009-2010/reports/03-20presidentbudget.pdf.
53 GASB, “Fair Value Measurement.”
54 FASB, “Fair Value Measurement (Topic 820).”
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well. The transfer of federal funds through loans enables the borrower to purchase goods at fair
value. Therefore, subsidy cost estimates should reflect that.55 A corollary to this line of reasoning
is that government is expected to compensate property owners at fair value—not at a value
determined by the government—when its power of eminent domain is used to acquire
properties.56
Fair value supporters also argue that federal credit programs could crowd out private market
activity if federal credit programs are competing with private lending at below-market rates.
Further, federal credit programs could encourage higher debt levels by lowering borrowing costs
and increase market risks by encouraging excessive risk-taking.57 The more the government
becomes involved in credit markets, the greater the concentration of various risks, including
market risks on the government’s balance sheet.58
Proponents of FCRA argue that adjusting for private sector risks could be a significant barrier to
the federal government taking action in markets that involve risks. It might discourage or
undermine support for the federal government to take action in programs such as student loans,
mortgage guarantees, and many others. In addition, supporters of FCRA state that the effective
functioning of federal credit programs can reduce existing market failures economically,
potentially improving equity and efficiency. Equity addresses distribution of income,
consumption, and wealth. Efficiency focuses on how private financial intermediaries should
allocate capital to its most productive uses. Despite private financial intermediation, market
imperfections may exist when social costs and benefits are not equal to private costs and benefits.
According to previous OMB documents, certain private market imperfections—such as
“information failures, monitoring problems, limited ability to secure resources, insufficient
competition, externalities, and financial market instability”—might justify federal intervention.59
Supporters of federal credit programs suggest that trying to capture the increased costs may affect
the availability of government credit negatively and that fair value estimates ignore the societal
benefits of the credit programs.60 There are many reasons why an individual or business may need
to access credit programs. One reason might be lower borrowing costs. Another might be the
inability to obtain credit from the private market.
55 Lucas, “Introduction,” p. 4.
56 Jason Delisle, “Credit Reform Act: Another Budget Loophole,” Manhattan Institute, September 17, 2010,
https://manhattan.institute/article/credit-reform-act-another-budget-loophole.
57 Deborah J. Lucas, “Credit Policy as Fiscal Policy,” Brookings Institution, 2016, https://www.brookings.edu/wpcontent/uploads/2016/03/lucastextspring16bpea.pdf.
58 Supporters of fair value have also stated that, because the government makes profit on certain credit programs using
Treasury discount rates, if all other market factors remain the same, the government, in essence, could substantially
expand these credit programs and pay off the debt and avoid deficit spending. U.S. Congress, Joint Economic
Committee, The Economic Exposure of Federal Credit Programs, 114th Cong., 1st sess., June 17, 2015.
59 Office of Management and Budget, Analytical Perspectives of the U.S. Government: FY2016, February 2, 2015, pp.
301-302, https://www.govinfo.gov/content/pkg/BUDGET-2016-PER/pdf/BUDGET-2016-PER.pdf.
60 Kogan et al., “House Bill Would Artificially Inflate Cost.”
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Appendix A. Comparison of Valuation Methods
This appendix provides a comparison of three different methods of estimating federal credit
programs’ costs: cash, FCRA, and fair value. The amount disbursed—that is, cash lent to
borrowers and received as repayments of principal and interest—is the same under each method.
The amount recorded as costs (outlays) for the budget is different under each method.
For example, consider a $100 million portfolio of direct loans made by the government. The cash
method does not recognize the lifetime costs of the loan at inception. It records the costs of the
loan each year based on cash flows (see Table A-1). The cash method recognizes the cash outlay
of $100 million as costs to the government in 2025 (the current year), and in subsequent years,
the cash method recognizes the principal and interest payments as negative cash outlays.
By contrast, both FCRA and fair value methods recognize the lifetime costs (subsidy costs) of the
loan at inception. FCRA defines subsidy costs as “the estimated long-term cost to the Government
of a direct loan or loan guarantee, … calculated on a net present value basis, excluding
administrative costs.”61 In Table A-1, the $100 million direct loan has an estimated negative
subsidy cost (positive return) of $1.6 million based on FCRA estimates, whereas the subsidy cost
to the government is $1.3 million based on fair value estimates. Unlike the cash method, neither
FCRA nor fair value generally records budget outlays in subsequent years once the loans have
been substantially disbursed. If the estimated value of the loan portfolio changes, then subsidy
costs would also need to be reestimated. The reestimated costs are incorporated into the budget
for future years.62
Table A-1. Outlays Recorded on the Federal Budget for $100 Million
Measured in Millions
Accounting Methods
2025
2026
2027
2028
Cash
$100
$-35
$-34
$-34
Treasury Rates
$-1.6
NA
NA
NA
Fair Value
$1.3
NA
NA
NA
Source: Adopted from Congressional Budget Office (CBO), How CBO Produces Fair value Estimates of the Cost of
Federal Credit Programs: A Primer, July 2018, pp. 4-5, https://www.cbo.gov/publication/53886.
Notes: Positive numbers reflect cash outlays (i.e., costs) to the government, and negative numbers reflect cash
receipts (i.e., negative costs). For budgetary purposes, subsidy cost estimates based on Treasury rates or fair
value are recognized only in 2025. In subsequent years (2026-2028), if changes in the loan portfolio’s
performance are material, then subsidy costs would be reestimated.
The remainder of this appendix discusses in more detail how the outlays in Table A-1 are
determined for the same loan under each of these approaches. It begins with the cash method—
which was used prior to the enactment of FCRA—explains how credit programs’ costs are
currently determined under FCRA, and lastly explains the proposed fair value method.
Cash Method
The federal government generally records revenue (i.e., cash receipts) and spending (i.e., cash
outlays) on a cash basis. The difference between revenue and spending results in either a budget
61 2 U.S.C. §661a(5)(A).
62 Congressional Budget Office, Estimating the Value of Subsidies for Federal Loans and Loan Guarantees, August
2004, p. 3, https://www.cbo.gov/publication/15923.
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deficit or a surplus. As shown in Table A-2, under the cash method, disbursements are recorded
as outlays, and interest and principal repayments are recorded as cash inflows (or negative
outlays) in the respective fiscal years in which the transaction occurs.63
Table A-2 provides an example of how federal direct loans64 and repayments with interest would
be recorded under the cash method over three years. The positive numbers reflect cash
expenditure by the government, and negative numbers reflect cash receipts. In FY2025, the
example assumes that $100 million in direct loans is recorded as cash outlays. Over the next three
years (FY2026-FY2028), the principal with interest at 3% is repaid to the government, while $1
million in loan defaults is anticipated each year.
Table A-2. Disbursements and Receipts Under the Cash Method
Measured in Millions
Year
2025
2026
2027
2028
A. Disbursementsa
$100
$0
$0
$0
B. Scheduled Interest Paymentsb
$0
$-3
$-2
$-1
C. Scheduled Principal Repaymentsc
$0
$-33
$-33
$-34
D. Default Lossesd
$0
$1
$1
$1
E. Cash Flows for the Federal Government
(A+B+C+D)e
$100
$-35
$-34
$-34
Source: Adopted from CBO, How CBO Produces Fair value Estimates of the Cost of Federal Credit Programs: A
Primer, July 2018, pp. 4-5, https://www.cbo.gov/publication/53886.
Notes: Positive numbers reflect cash outlays (costs) to the government, and negative numbers reflect cash
inflows (negative costs).
a. The $100 million in the first year is considered an expense to the government.
b. Interest payments are calculated at 3% of the principal. In subsequent years, the interest payments decline as
a portion of the principal is repaid. For example, in FY2026 interest is determined as 3% of the $100 million
principal: $100 million x 3% = $3 million. In FY2027, as $33 million was repaid the previous year, the
interest is calculated on the remaining balance: $66 million x 3%= $2 million. In FY2028, as an additional $33
million was repaid in the previous year (total of $66 million repaid), interest is determined based on $33
million x 3% = $1million.
c. Repayment of the original loan.
d. Default losses are the amount that is not expected to be repaid by the borrower.
e. The $100 million in direct loans at inception is considered an expenditure. In subsequent years, the amount
recorded reflects the portion of the loan principal repaid net of interest payments and defaults. For FY2026,
the amount received by the government is as follows: interest payment $3 million + $33 million principal
repayment - $1 million default, resulting in the government receiving $35 million.
The cash method did not accurately measure the estimated long-term costs of the credit programs
to the government. Before FCRA, $100 million in direct loans had the same effect on the budget
estimates in the first year as $100 million in federal grants did. Direct loans had a significantly
smaller impact than did grants on the budget outlays over the term of the loan, but budget
estimates under the cash method did not account for the cash the government received in
subsequent years for principal repayment and interest. In other words, the costs to the government
are exaggerated when loans are disbursed, because the cash flows over the life of the loan are not
63 Neill Perry and Puja Seam, “Accrual Accounting for Federal Credit Programs: The Federal Credit Reform Act of
1990,” Harvard Law School, Federal Budget Policy Seminar, April 20, 2005, p. 2.
64 FCRA defines direct loan as “a disbursement of funds by the Government to a non-Federal borrower under a
contract that requires the repayment of such funds with or without interest” (2 U.S.C. §661a(1)).
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considered for the respective year’s budget. Similarly, revenues received by the government are
exaggerated in subsequent years as the initial cash outflow is not taken into consideration. If the
loan matured outside of the budget windows, the loan could appear to have a cost even if it were
profitable to the government.
By contrast, loan guarantees appeared to produce income for the government, because borrowers
were required to pay premiums or origination fees at inception without any cash outlays by the
government. In subsequent years, if the borrower defaulted, then cash outlays by the government
were recorded as expenses. The cash method favored loan guarantees over direct loans, because it
appeared to reflect lower costs. Even when direct loans might have been the most feasible way
for Congress to achieve its policy objectives, the more favorable budgetary treatment of loan
guarantees arguably made it difficult for Congress to justify direct loans over loan guarantees.
The cash method also has no discounting for NPV determination. If interest payments were
greater than loan defaults, then all loans appear to be moneymakers. For these reasons, cash-basis
accounting made it challenging to measure the actual cost of the credit programs and led to the
enactment of FCRA.
FCRA (Treasury Rates)
Unlike the cash method, FCRA recognizes subsidy costs of the loans at inception. Currently,
subsidy costs are estimated as the NPV of future cash flows using a method prescribed in FCRA.
NPV helps analyze financial information by making loan inflows and outflows over the life of the
loan comparable. Subsidy costs are estimated using Treasury interest rates at the time loans or
loan guarantees are substantially disbursed.65 The interest rate charged to the borrowers varies,
but they are generally higher than Treasury rates. The difference between the two interest rates
could result in credit programs reporting positive net cash flows if loan losses are minimized.
Positive net cash flow is called negative subsidy. In the private sector, these gains would be
equivalent to firms making profits. FCRA estimates exclude administrative costs when
determining subsidy costs, giving Congress flexibility to have greater input on administrative
costs through appropriations.
The discount rate applied to determine the NPV of disbursed loans is based on the average
interest rate of Treasury securities of similar maturity dates as the loans. The NPV of cash flows
takes into consideration both cash outflows (e.g., disbursements, adjustments for defaults,
delinquencies, and interest subsidies) and inflows (e.g., repayments of principal and interest,
prepayments, fees, and penalties).66
Table A-3 provides an example of how subsidy costs of federal direct loans are determined using
Treasury rates. The Treasury discount rates are higher in later years to account for various risk
factors. Generally, the longer the repayment terms of the loan, the higher the interest rate to
account for the risks. To determine the subsidy costs, the net cash flows for each year are
discounted based on the Treasury rate applicable to that year (row G). The sum of these cash
flows determines the subsidy costs (row H).
65 The federal government borrows at the Treasury interest rates to finance its operations when revenue (generally
taxes) is not sufficient to meet spending. The government may also borrow for short-term cash management needs and
to repay maturing debt by reissuing that debt.
66 2 U.S.C. §661.
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Table A-3. FCRA (Treasury Rate) Subsidy Costs
Measured in Millions
Year
2025
2026
2027
2028
A. Disbursementsa
$100
$0
$0
$0
B. Scheduled Interest Paymentsb
$0
$-3
$-2
$-1
C. Scheduled Principal Paymentsc
$0
$-33
$-33
$-34
D. Default Lossesd
$0
$1
$1
$1
E. Cash Flows Before Discountinge
(A+B+C+D)
$100
$-35
$-34
$-34
0
0.25
0.50
1.00
G. Discounted Cash Flow Based on Treasury
Ratesg
(row E discounted based on Treasury rates)
$100
$-34.9
$-33.7
$-33.0
H. Subsidy Costs
Sum of row G ($100-$34.9-$33.7-$33.0) = $-1.6
$-1.6
NA
NA
NA
F. Treasury Discount Rate (percentage per annum)f
Source: Adopted from Wendy Kiska et al., How CBO Produces Fair value Estimates of the Cost of Federal Credit
Programs: A Primer, CBO, July 2018, pp. 4-5, https://www.cbo.gov/publication/53886.
Notes: Positive numbers reflect cash outlays (costs) to the government, whereas negative numbers reflect cash
receipts (negative costs). For budgetary purposes, subsidy cost estimates based on Treasury rates or fair value
are recognized only in 2025. In subsequent years (2026-2028), the subsidy costs estimates based on Treasury
rates or fair value are not reestimated or recognized unless the loan portfolio’s performance expectations
change substantially.
a. The amount disbursed by the government, $100 million.
b. Interest payments received per year at 3% of principal, as Table A-3 reflects the interest payments decline
in subsequent years as a portion of the principal is repaid. For example, in FY2026 interest is determined as
3% of the $100 million principal: $100 million x 3% = $3 million. In FY2027, as $33 million was repaid in the
previous year, the interest is calculated for the remaining balance: $66 million x 3%= $2 million. In FY2028,
as an additional $33 million is repaid in the previous year (total of $66 million repaid), interest is determined
based on $33 million x 3% = $1million.
c. Repayment of the original loan.
d. Default losses are the amount that is not expected to be repaid by the borrower.
e. For each respective year, row E reflects the amount disbursed or the amount expected to be received by
the government.
f.
Treasury discount rates for each year. Generally, the longer the repayment terms of a loan, the higher the
interest rate that is charged to the borrower to account for various risks borne by the lender.
g. The balance from row E discounted based on Treasury rates, NPV. For example, as the Treasury discount
rate is 0.25% in FY2026, the discounted cash flow rate is determined by 1 ÷ 1.0025 = 0.998. Thus, the
discounted cash flow is $35 million x 0.998 = $34.9 million. FY2027 discounted rate is determined by 1 ÷
1.005^2 = 0.990. The discounted cash flow for FY2027 is $34 million x 0.99 = $33.7 million. FY2028 cash
flows are determined similarly to FY2026 and FY2027.
The same Treasury discount rate tables are used across all federal credit programs for loans of
similar maturity dates. Use of Treasury rates creates a certain degree of consistency in how credit
programs subsidy costs are determined and increases comparability across programs. The same
discount rate tables are also used for budget formulation and financial reporting by the federal
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government, creating further consistency in how financial transactions within the government are
measured.67
After the enactment of FCRA, OMB created new guidelines for determining subsidy costs.
Congress codified several of the OMB guidelines through the Balanced Budget Act of 1997.68
One of those requirements is for government agencies to have a data-driven decision making
model, which includes statistical models to predict loan defaults and other deviations from loan
contracts. Further, prior to making loans or issuing loan guarantees, the agencies are required to
regularly analyze and provide estimated subsidy costs to obtain budgetary approval.69
Fair Value
Treasury discount rates are the interest rates at which the federal government borrows. Fair value
rates are closer to the interest rates that private lenders charge borrowers. Interest rates that
private lenders charge are higher than Treasury rates. Higher interest rates result in cash flows
being discounted more in later years. Which interest rates are used to determine the subsidy costs
is a significant driver in determining the cost of federal credit programs.
Table A-4 provides an example of how subsidy costs of federal direct loans might be determined
using private market interest rates. Similar to FCRA, subsidy costs of the loans would be
determined at inception. To determine subsidy costs, net cash flows for each year are discounted
based on the market rates applicable to that year (see Table A-4, row G). The sum of these cash
flows determines the subsidy costs (see Table A-4, row H). Similar to Treasury discount rates,
market rates are higher in later years to account for various risk factors. In this example, the
switch from Treasury rates to market rates reduces the discounted value of inflows (row G) in
FY2026-FY2028 enough to switch the program from a negative subsidy to a positive subsidy.
Table A-4. Fair Value Subsidy Costs
Measured in Millions
Year
2025
2026
2027
2028
A. Disbursementsa
$100
$0
$0
$0
B. Scheduled Interest Paymentsb
$0
$-3
$-2
$-1
C. Scheduled Principal Paymentsc
$0
$-33
$-33
$-34
D. Default Lossesd
$0
$1
$1
$1
E. Cash Flows before discountinge
$100
$-35
$-34
$-34
F. Fair value Discount Rate (percent per annum)f
0
1.75
2.00
2.50
G. Discounted Cash Flow Based on Fair Valueg
(row E discounted based on fair value)
$100
$-34.4
$-32.7
$-31.6
H. Subsidy Costs
Sum of row G. ($100-$34.4-$32.7-$31.6) = -$1.3h
$1.3
NA
NA
NA
(A+B+C+D)
67 Anthony Curcio and Roger Von Elm, “Fair Value in Federal Credit,” Summit, March 12, 2025,
https://www.summitllc.us/blog/fair value-accounting-federal-creditwhite-paper.
68 P.L. 105-33.
69 OMB, Policies for Federal Credit Programs and Non-Tax Receivables, Circular A-129, September 2024, pp. 3-8,
https://www.whitehouse.gov/wp-content/uploads/legacy_drupal_files/omb/circulars/A129/a-129.pdf.
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Source: Adopted from Wendy Kiska et al., How CBO Produces Fair value Estimates of the Cost of Federal Credit
Programs: A Primer, CBO, July 2018, pp. 4-5, https://www.cbo.gov/publication/53886.
Notes: Positive numbers reflect cash outlays (costs) to the government, whereas negative numbers reflect cash
receipts (negative costs). For budgetary purposes, subsidy cost estimates based on Treasury rates or fair value
are recognized only in 2025. In subsequent years (2026-2028), the subsidy cost estimates based on Treasury
rates or fair value are not reestimated or recognized unless the loan portfolio’s performance expectations
change materially.
a. The amount disbursed by the government, $100 million.
b. Interest payments received per year at 3% of principal, as Table A-4 reflects the interest payments decline
in subsequent years as a portion of the principal is repaid. For example, in FY2026 interest is determined as
3% of the $100 million principal: $100 million x 3% = $3 million. In FY2027, as $33 million was repaid in the
previous year, the interest is calculated for the remaining balance: $66 million x 3% = $2 million. In FY2028,
as an additional $33 million is repaid in the previous year (total of $66 million repaid), interest is determined
based on $33 million x 3% = $1million.
c. Repayment of the original loan.
d. Default losses are the amount that is not expected to be repaid by the borrower.
e. For each respective year, row E reflects the amount disbursed or the amount expected to be received by
the government.
f.
Fair value discount rates for each year. Generally, the longer the repayment terms of a loan, the higher the
interest rate that is charged to the borrower to account for various risks borne by the lender.
g. The balance from row E discounted based on fair value rates, NPV. As an example, since the fair value rate
is 1.75% in FY2026, the discounted cash flow rate is determined by 1 ÷ 1.0175 = 0.983. Thus, the
discounted cash flow is $35 million x 0.983 = $34.4 million, which is remitted to the Treasury. FY2027
discounted rate is determined by 1 ÷ 1.0200^2 = 0.961. The discounted cash flow for FY2027 is $34 million
x 0.961 = $32.7 million. FY2028 cash flows are determined similarly to FY2026 and FY2027.
h. As in this example, when there is a negative cash flow, it is a budgetary expense. Thus, in the table, the cost
is recorded as a positive number reflecting the budgetary cost.
Unlike FCRA requirements in which Treasury discount rates apply across all federal credit
programs, fair value takes into consideration the various risks that are unique to each type of loan
portfolio. Consequently, various credit programs and loan categories within each program would
use different market rates. Further, the credit programs interest rates will no longer be the same
rates used for budget formulation and financial reporting.
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Appendix B. Topic 820
The legislative proposals in the 119th Congress (H.R. 1388) and in the 118th Congress (H.R. 5571)
would require fair value subsidy cost estimates to be based on GASB’s “Fair Value Measurement
and Application,” issued in February 2015. This standard70 is similar to the standard promulgated
by Financial Accounting Standard Board (FASB), called Topic 820.71
Currently, GASB’s fair value standards are applicable only to state and local governments that
adopt those standards, not to federal government entities. Similarly, FASB’s standard on fair
value measurement, Topic 820, is applicable to private sector companies, not to federal
government entities. Definitions of fair value of a loan and fair value of a loan guarantee below
are explained in the context of FASB’s Topic 820, updated in June 2022. They could be
considered to more reflective of current economic circumstances.72 H.R. 1388 would require fair
value standards to be applied in addition to FCRA when measuring costs of federal credit
programs.
FASB defines fair value as “the price that would be received to sell an asset or paid to transfer a
liability in an orderly transaction between market participants at the measurement date.”73 Market
participants is defined as buyers and sellers that are (1) not related parties, (2) knowledgeable
about the asset or liability and the transaction, and (3) willing and able to enter into the
transaction. In simpler terms, fair value might be described as how much someone who is not
influenced by any other incentives is willing to pay for an asset or receive for a liability.
Alternatively, it is the entry or exit price at which a willing buyer and seller would agree to
exchange an asset or liability.74
Topic 820 does not specify how to develop a fair value model. It does not have specific rules on
how to identify active markets, nor does it specify which model or how many models to use when
valuing assets or liabilities.75 Topic 820 specifies disclosure objectives but does not specify
disclosure requirements.
Federal financial reporting standards are promulgated by the Federal Accounting Standards
Advisory Board (FASAB). Should Congress adopt legislative proposals requiring fair value,
FASAB would need to update the federal government’s accounting standards in conjunction with
OMB. Currently, Statement of Federal Financial Accounting Standards 2 specifies how to account
for loans and loan guarantees. It was customized to meet the requirements of FCRA. As further
explained below, should private markets not exist for a specific loan program, FASAB would
need to develop accounting standards that are specific to the needs of the federal government.
Alternatively, Congress could require FASAB to create accounting standards that are similar to
Topic 820 for federal credit programs without specifically requiring Topic 820. The remainder of
this section provides an overview of the two main parts of Topic 820: levels 1-3 fair value
hierarchy and disclosure objectives.
70 GASB, “Fair Value Measurement.”
71 FASB, “Fair Value Measurement (Topic 820),” https://asc.fasb.org/820/showallinonepage.
72 FASB, “Fair Value Measurement (Topic 820).”
73 FASB, “Glossary Term Usage,” May 2025.
74 Curcio and Von Elm, “Fair Value in Federal Credit.”
75 CCH, “Fair Value Measurement—Measurement of Fair Value,” May 2025, https://answerconnect.cch.com/app/acr/
combinable-document?nodeId=csh-da-filter!WKUS-TAL-DOCS-PHC-%7B4cf775fd-fc29-3e35-ad51b3b90fc37a40%7D-%7B08eee09a-b1e2-3220-8379-01455b5d29fc%7D—
WKUS_TAL_20189%23ARMFASBTOCtopic820.
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Three Levels of Fair Value Hierarchy
Topic 820 creates a three-level fair value hierarchy based on the type of information (inputs)
available to determine the fair value. In essence, based on the available information, level 1 is the
most preferred, whereas level 3 is the least preferred because it is the most subjective. At level 3,
Topic 820 allows the management substantial discretion in how fair value is determined and
interpreted.76
Level 1—This represents the most objective fair value estimate, and it includes assets and
liabilities that have an active market.
Inputs for determining the fair value for level 1 are measured based on active independent
markets (e.g., equity that is actively traded on a major exchange, such as the New York Stock
Exchange or Chicago Board of Exchange). The markets must be active and trade in identical
assets or liabilities regularly.
Level 2—Assets and liabilities at level 2 have no active markets, but they have either a parallel
market or alternate means to estimate fair value.
Inputs for determining the fair value for level 2 are observable data elements, but they are not
from an active independent market as with level 1. Quotes from similar but not identical assets or
liabilities that were recently traded or transferred between external entities might be used to
determine fair value. Other observable inputs, such as interest rates and default rates, may also be
used. Unlike level 3 inputs, level 2 inputs are not influenced or provided by the reporting entity.
Rather, they are all external and independent.
Level 3—For this level, fair value estimates for assets and liabilities are based on an agency’s
own internal assumption about how the market would price the asset or liability. There are no
observable (market) data on the asset or liability, but data may include interest rates and default
rates.
Inputs for determining the fair value for level 3 are provided by the reporting entity. Inputs might
include the entity’s estimation of future cash flows, earnings, revenue, or sales as well as other
information.
Unlike Topic 820, the majority of the accounting standards as promulgated by FASB are
considered rules-based. Topic 820 is considered principles-based and does not include specific
rules on how entities should adopt fair value measures.
Further, most federal direct loans and loan guarantees issued by the government are held to
maturity. By contrast, private lenders often sell their loan portfolios to third parties at fair value.
Fair value considers the price someone is willing to pay to buy the asset or to assume the liability.
Similar to how the federal government currently holds loans and loan guarantees to maturity,
certain investments in state and local governments and private entities are also held to maturity.
Topic 820 as promulgated by FASB for the private sector requires that investments held to
maturity be valued at amortized cost.77 Similarly, Statement Number 72 promulgated by the
76 CCH, “Fair Value Measurement—Measurement of Fair Value.”
77 Amortization refers to the increase or decrease in investments or debt as a result of interest and principal payments.
Santander, “What Is Amortization and Why Is It Important?,” December 19, 2022, https://www.santander.com/en/
stories/amortization.
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Governmental Accounting Standards Board (GASB) also requires that investments held to
maturity be valued at amortized cost.78
Disclosure Requirements
Topic 820 states that disclosure in financial statements should help users understand the valuation
technique and inputs used to develop fair value measurements. Disclosures should communicate
the effects on net assets of the entity due to fair value measurements.79 If an asset or a liability is
measured at a different level than how it was reported in the prior period, the circumstances that
led to the change should be disclosed. For levels 2 and 3, any changes to the approach (e.g.,
market, income, or cost) and any changes to inputs should be disclosed. The reason for the
changes in the methodology should also be sufficiently explained.
Credit risks and counterparty credit risks are required to be disclosed. Credit risks in the private
sector take into consideration any changes to the reporting entity’s credit ratings and how it
affects the fair value of its assets and liabilities. Counterparty credit risks account for the
borrower’s ability to meet its debt obligation. For federal credit programs, it may be difficult to
gauge the credit risks of individual programs. Each credit program needs to be evaluated based on
the overall credit risk of the U.S. government, because credit programs are backed by the full
faith and credit of the United States. The credit risk of the United States is generally assumed to
be zero. Counterparty risks for each credit program would need to be individually evaluated, as
each program might have unique factors that are applicable to its portfolio. Many of these types
of disclosures are not relevant under FCRA.
78 GASB establishes the accounting standards—Generally Accepted Accounting Principles (GAAP)—for state and
local municipalities. GASB, “Fair Value Measurement.” FASAB is the designated organization for promulgating
GAAP for federal entities. FASAB, “Standards and Guidance,” https://fasab.gov/accounting-standards/.
79 Net assets is the equity or net worth of for-profit companies reported on the balance sheet (Assets - Liabilities = Net
Assets). For the federal government, the equivalent of net assets is Total Net Position reported on the Balance Sheet of
the Financial Report of the United States Government. Department of the Treasury, Financial Report of the United
States Government - Fiscal Year 2024, January 16, 2015, p. 65, https://www.fiscal.treasury.gov/files/reportsstatements/financial-report/2024/01-16-2025-FR-(Final).pdf.
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Appendix C. Key Definitions and Acronyms
The following definitions are described in the context of how they are discussed in this report.
They are not meant to be precise legal or finance definitions.
Amortized Cost—The increase or decrease in investments or debt as a result of interest and
principal payments.
Default—The failure of a borrower to make interest and principal payments.
Direct Loan—FCRA defines direct loan as “a disbursement of funds by the Government to a
non-Federal borrower under a contract that requires the repayment of such funds with or without
interest.”80
Discounted Cash Flows—The value of future cash flows based on a discounted rate (i.e., interest
rate).
Efficiency—How private financial intermediaries should allocate capital to its most productive
uses.
Equity—The issues of distribution of income, consumption, and wealth.
Federal Grant—A financial asset transferred or awarded by the federal government to an
eligible state, municipality, or individual that is not expected to be repaid.
Loan Guarantee—FCRA defines loan guarantee as “any guarantee, insurance, or other pledge
with respect to the payment of all or a part of the principal or interest on any debt obligation of a
non-Federal borrower to a non-Federal lender, but does not include the insurance of deposits,
shares, or other withdrawable accounts in financial institutions.”81
Negative Subsidy Costs—An instance where the current value of all cash inflows is greater than
for all cash outflow. This implies that for budgetary purposes the government is generating
income from the loan or loan guarantee programs. See Subsidy Costs.
Net Present Value (NPV)—The current value of all cash outflows and inflows at a discounted
rate (or interest rate). It is a way to measure against competing investment choices.
Subsidy Costs—The estimated long-term cost to the government of a direct loan or loan
guarantee calculated on a net present basis, excluding administrative costs.
Author Information
Raj Gnanarajah
Analyst in Financial Economics
Acknowledgments
Marc Labonte, Darryl Getter, and Anthony Cilluffo provided valuable help in writing this report.
80 2 U.S.C. §661a(1).
81 2 U.S.C. §661a(3).
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Congressional Research Service
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