Auto loans redux

September 16, 2008

As a follow-up to my previous post on CBO's estimate of the subsidy cost for extending government loans to automobile firms, I thought it might be useful to highlight the deferment feature of the authorized program, which has a significant effect on the estimated subsidy. In particular, under the program, borrowers could defer payments of principal and interest for up to five years after putting into operation the new or modified plant funded by the loan. CBO assumes that most borrowers would take advantage of the deferment option, and our subsidy estimate reflects the resulting cost to the federal government---taking into account the time-value of money---of delaying loan repayments. CBO estimates that the option to defer payments for five years accounts for about half of our current estimate of subsidy costs.