Estimates of the Cost of Federal Credit Programs in 2027

The federal government supports some private activities by offering credit assistance to individuals and businesses. That assistance is provided through direct loans and guarantees of loans made by private financial institutions. In this report, the Congressional Budget Office estimates the lifetime costs of new loans and loan guarantees that are projected to be issued in 2027.1

Those lifetime costs can be calculated in two ways. One way uses procedures specified in the Federal Credit Reform Act of 1990 (FCRA), and the other is based on a measure of fair value. Using FCRA procedures—the standard way in which costs of credit programs are measured in the federal budget—CBO estimates that new loans and loan guarantees issued in 2027 would save the federal government $15.3 billion over their lifetime. Using the fair-value approach, which measures the market value of the government’s obligations by accounting for market risk, CBO estimates that those loans and guarantees would have a lifetime cost of $51.9 billion. (Market risk is the component of financial risk that is associated with the overall performance of the economy rather than with the performance of a specific investment; it results from shifts in macroeconomic conditions, such as productivity and employment, and from changes in expectations about future macroeconomic conditions.)

Nearly two-thirds of the difference between those FCRA and fair-value estimates is attributable to three sources:

• Guarantees made by Fannie Mae and Freddie Mac. Analyzed on a FCRA basis, those guarantees would save the federal government $12.5 billion; on a fair-value basis, they would cost the federal government $3.9 billion.
• Loans and loan guarantees made by the Department of Housing and Urban Development (HUD). On a FCRA basis, those loans and guarantees are projected to save $8.7 billion; on a fair-value basis, they would cost $8.1 billion.
• Student loans made by the Department of Education. Those loans are projected to cost $3.6 billion on a FCRA basis and $13.7 billion on a fair-value basis.

On both a FCRA and a fair-value basis, loans made by the Department of Education have by far the largest subsidy costs. The next largest costs are for credit assistance provided by the Department of Veterans Affairs (VA) and the Department of Energy.

In this analysis, the FCRA estimates for the largest federal credit programs and all of the fair-value estimates were produced by CBO. The rest of the FCRA estimates were produced by other federal agencies.

Federal Programs That Provide Credit Assistance

For this report, CBO analyzed the 94 programs through which the federal government proposes to provide credit assistance in 2027. Of those 94 programs, 76 are discretionary, which means they are funded through annual appropriation acts. The remaining 18 are mandatory programs and other commitments. For those programs, lawmakers determine spending by setting eligibility rules and other criteria in authorizing legislation rather than by appropriating specific amounts each year.

The total amount of federal credit assistance projected for 2027 is $1.9 trillion, consisting of new direct loans that total $216 billion and new guarantees that cover $1.7 trillion in loans. Most federal credit assistance—87 percent of the total amount—is provided by the few programs that offer mortgage guarantees and student loans. By far, the largest federal credit programs are those of Fannie Mae and Freddie Mac, two government- sponsored enterprises (GSEs) that guarantee mortgage- backed securities (MBSs).2 Together, those two entities are projected to provide $1.0 trillion in new guarantees in 2027.

Mandatory programs and commitments account for 70 percent of the total projected dollar value of federal loans and loan guarantees in 2027. The largest of the mandatory programs that CBO analyzed are the Department of Education’s student loan programs and the mortgage guarantee program administered by VA. CBO also includes the commitments made through Fannie Mae’s and Freddie Mac’s MBS guarantees in the mandatory category because they are made outside of the annual appropriation process.

Discretionary programs account for the remaining 30 percent of the projected dollar value of loans and loan guarantees in 2027. The largest discretionary programs are the mortgage programs administered by the Federal Housing Administration (FHA), which is part of HUD; the Department of Energy’s Title 17 loans for innovative technologies; and the small-business loans provided by the Small Business Administration (SBA).3

How CBO Projects Subsidy Costs

To compute the estimates in this analysis, CBO used its own projections of the volume of loans and cash flows for the largest credit programs: Fannie Mae’s and Freddie Mac’s MBS guarantee programs, FHA’s single-family mortgage and reverse-mortgage guarantee programs, VA’s mortgage guarantee program, and the Department of Education’s student loan programs. Making such projections is a routine part of preparing CBO’s baseline budget projections because those programs, which account for nearly 90 percent of federal credit assistance, can significantly affect the federal budget.4

For smaller federal credit programs, which are mostly funded by discretionary appropriations, CBO generally projects that subsidy costs would grow at the rate of inflation—the same approach the agency uses to project most discretionary appropriations under current law.5 Because CBO does not estimate cash flows for those smaller credit programs, their estimated subsidy costs are based on cash flow estimates prepared by the Administration, which reflect the President’s proposed funding for 2027. CBO’s baseline projections of subsidy costs for federal credit programs are broadly similar to those produced for this report using FCRA procedures.

Various factors can alter the projected volume of loans and cash flows, including policy changes, the availability of more recent data, new estimating methods, changes in economic conditions, and changing characteristics of participants in programs. CBO and the agencies that produce FCRA estimates have updated many of their projections for 2026 since January 2026, when CBO last published its estimates of the costs of federal credit programs.6 Those revisions have influenced projections of cash flows for new loans and loan guarantees issued in 2027.

FCRA and Fair-Value Approaches to Measuring Costs

In the analysis underlying this report, CBO used two approaches to estimate the cost of federal credit programs. The first approach, which follows the procedures prescribed by FCRA, is what the Office of Management and Budget (OMB) uses to estimate subsidy costs for most programs in the federal budget. The second, the fair-value approach, estimates the market value of the government’s obligations by accounting for market risk.7 For taking on market risk, investors demand greater compensation than they would expect to receive from investing in Treasury securities, which are regarded as risk-free.8 That additional compensation—the difference between the expected return on an investment with market risk and the expected return on Treasury securities—is called the risk premium.9

Both approaches are examples of accrual accounting. Under accrual accounting, the estimated present value of credit programs’ expenses and related receipts is recorded when the legal obligations are first made—not when subsequent cash transactions occur.10 (The present value is a single number that expresses the flows of current and projected future income or payments in terms of an equivalent lump sum received or paid at a specific time. That number depends on the discount rate that is used to convert those cash flows into their equivalent value at a given time.)

In CBO’s view, fair-value estimates of the costs of federal credit programs are more comprehensive than FCRA estimates and thus help lawmakers better understand the advantages and drawbacks of various policies. For purposes of comparison, this analysis includes both FCRA and fair-value estimates. The differences between the two sets of estimates—which are based on the same projected cash flows—highlight the effect of incorporating market risk into the costs of federal credit programs.

Estimation Methods Used in the Fair-Value Approach

Fair-value estimates are calculated using discounting methods that are consistent with the way the loan or loan guarantee would be priced in a competitive market. By contrast, for FCRA estimates, the projected interest rates on Treasury securities with corresponding terms to maturity are used as the discount rates. The difference between the FCRA and fair-value discount rates can be interpreted as a risk premium. In general, the cost of a direct loan or a loan guarantee calculated using FCRA procedures and recorded in the federal budget is smaller than the fair-value cost that private institutions would assign to similar credit assistance on the basis of market prices.

CBO used two methods to estimate fair values. A common method for estimating the fair value of a direct loan or loan guarantee is to use market-based discount rates to calculate the present value. CBO used that method for all housing and real estate programs analyzed in this report.11 An alternative method is to adjust projected cash flows and then discount them using the interest rates on Treasury securities.12 Under that method, projected losses from defaults on the underlying loans and amounts recovered from defaulting borrowers are multiplied by a factor called a loss multiple to directly incorporate the market risk into the cash flows. The loss multiple is an alternative measure of the compensation that investors require to take on market risk; it is equal to the ratio of a loan’s risk premium to its loss rate (defaults minus recoveries as a percentage of the loan balance).13 CBO used that estimating method for all student, commercial, and consumer loan programs analyzed in this report.

The choice of method used (adjusting the discount rates or adjusting the cash flows) depends on the desired level of accuracy and ease of implementation. The loss-multiple method better fits the data for federal student, commercial, and consumer loans and is likely to be more accurate when extrapolated to longer maturities. It also is more sensitive to special features of some federal credit programs, such as their nonstandard amortization schedules. For housing and real estate programs, maturities of loans and loan guarantees made through government programs are like those in the private sector, so the adjusted-discount-rate and loss-multiple methods are likely to generate similar results. CBO therefore continues to use the adjusted-discount-rate method for those programs because it is easier to implement.

Projected Costs of Federal Credit Programs Under FCRA and Fair-Value Approaches

Using FCRA procedures, CBO estimates that the $1.9 trillion in new loans and loan guarantees projected to be issued by the federal government in 2027 would result in budgetary savings of $15.3 billion over their lifetime and thus reduce the deficit in 2027 by that amount.14 Using the fair-value approach, CBO estimates that those loans and guarantees would have a lifetime cost of $51.9 billion, thus adding to the deficit in 2027.

Differences Between FCRA and Fair-Value Subsidy Rates

For every program that CBO analyzed, the projected fair-value subsidy rate is higher than the projected FCRA subsidy rate—by 3.5 percentage points, on average. (The subsidy rate is the cost divided by the amount disbursed; a positive rate indicates a government subsidy, and therefore a cost to the government, and a negative rate indicates budgetary savings.)15 Weighted by the amount of the programs’ credit, the average subsidy rate is −0.8 percent on a FCRA basis and 2.7 percent on a fair-value basis (see Table 1).

The difference between the fair-value and FCRA subsidy rates varies considerably by program. The largest difference—20.8 percentage points—is between the subsidy rates for SBA’s guarantees on loans issued by small business investment companies to fund long-term investments in small businesses; that difference reflects the high degree of market risk in that program. For lending programs subject to less market risk, the differences are much smaller. For instance, the average fair-value subsidy rate for housing and real estate loans is 2.3 percentage points higher than the FCRA subsidy rate.

Housing and real estate loans are the only broad category of lending with a negative FCRA subsidy rate and a positive fair-value subsidy rate. Those loans generate budgetary savings when the subsidy rates are calculated using FCRA procedures; under the fair-value approach, most of those savings become costs.

How Negative Subsidy Rates Could Occur Under the Fair-Value Approach

Although most programs that have a negative subsidy rate under FCRA procedures have a positive subsidy rate under the fair-value approach, some subsidy rates are estimated to be negative under the fair-value approach. That is the case for the portion of three of the Department of Education’s student loan programs (PLUS loans for parents, PLUS loans for graduate students, and unsubsidized Stafford loans for graduate students) with borrowers enrolled in fixed-payment repayment plans; two of the Department of Agriculture’s electricity-related loan programs, which are used to finance facilities that generate, transmit, or distribute electricity; HUD’s mortgage programs for apartments and residential care facilities; and several smaller programs.16

In principle, programs with a negative fair-value subsidy rate should be rare because such a rate should represent a profitable opportunity for a private financial institution to provide credit on the same or better terms. But negative fair-value subsidy rates could arise in situations that private entities might not find attractive—if, for example, there were barriers to entry (such as the need for private lenders to incur large fixed costs to enter a particular credit market) or if the profit opportunity was expected to be short-lived. Furthermore, in some cases, such as for student loans, the federal government has tools to collect from delinquent borrowers that private lenders do not have, giving federal programs an advantage over private-sector competitors.

Another possibility is that a fair-value subsidy rate might be estimated to be negative because of an error in one of the factors used to calculate the rate. For example, the appropriate risk premium could be underestimated because of a lack of comparable assets in the market, or the true cost of a program could be underestimated because the calculation does not include the program’s administrative costs.

Projected Costs of Discretionary and Mandatory Programs Under Both Approaches

For loans and loan guarantees that are projected to be issued in 2027, all discretionary credit programs, considered together, are projected to save $8.4 billion on a FCRA basis, and all mandatory credit programs are projected to save $6.9 billion.17 Those 2027 amounts represent a decrease in costs of $4.8 billion for discretionary programs and an increase in costs of $2.1 billion for mandatory programs from the costs that were projected in January for 2026.

On a fair-value basis, discretionary programs providing loans and loan guarantees in 2027 are projected to cost $26.2 billion, and mandatory programs are projected to cost $25.8 billion. Those costs are, respectively, $2.6 billion less and $2.0 billion more than the costs that were projected in January for 2026.

The largest changes—on both a FCRA and a fair-value basis—are in the costs of the Department of Energy’s Title 17 loan programs for innovative technologies, largely because of changes in the amount of proposed credit obligations. There were also large changes in the subsidy costs for the mortgage guarantees made by FHA and VA.

Of the 76 discretionary federal credit programs that CBO analyzed, 45 have a subsidy rate that is estimated to be zero or negative in 2027 when calculated on a FCRA basis. (In this analysis, a subsidy rate was deemed to be zero if it fell between −0.1 percent and 0.1 percent.) When calculated on a fair-value basis, the subsidy rate for 26 of those programs is estimated to be positive, indicating a cost to the federal government.18 Of the 18 mandatory programs, 10 have a subsidy rate that is estimated to be zero or negative in 2027 when calculated on a FCRA basis.19 When calculated on a fair-value basis, the subsidy rate for 4 of those programs is estimated to be positive, indicating a cost to the federal government.

Projected Costs for Particular Categories of Lending Under Both Approaches

For ease of reference, CBO divided the loans and loan guarantees that it analyzed into four categories: housing and real estate loans, student loans, commercial loans, and consumer loans. (The order of the categories in the text of this report is based on the average size of the commitments for each program within each category of lending. The ordering in the table and figure differs slightly because the categories are arrayed by the size of commitments in the table and by the difference between the FCRA and fair-value subsidy amounts in the figure.)

In the discussion that follows, CBO presents the current projections for 2027 and compares them with the projections for 2026 that it published in January 2026.20 For the programs for which CBO reported its own projections, the projections are based on the version of agency’s economic forecast that reflected developments in the economy as of December 4, 2024. For discretionary programs, the outcomes depend on the funding provided through appropriations for 2026 and 2027. (Appropriations for 2026 were enacted after CBO’s report was issued in January and therefore were not reflected in those estimates.)

Housing and Real Estate Loans

The federal government’s credit assistance in the form of housing and real estate loans and loan guarantees is projected to amount to $1.6 trillion in 2027, or 84 percent of the $1.9 trillion in total credit assistance. In CBO’s projections, most of that assistance—$1.0 trillion in mortgage guarantees—is provided by Fannie Mae and Freddie Mac. The two GSEs primarily buy mortgages from lenders and pool the mortgages to create mortgage- backed securities, which they guarantee against default and sell to investors. Because the GSEs are in federal conservatorship, CBO regards those loan guarantees as governmental commitments. (The Administration takes another view and therefore accounts for those guarantees differently.)

Even without considering the two GSEs, the category of housing and real estate loans accounts for the bulk of federal credit assistance. Without the GSEs, federal credit assistance in this category would amount to $623 billion, or 67 percent, of a total of $929 billion in 2027. Other housing and real estate programs include loan guarantees provided by HUD ($361 billion), VA ($245 billion), and the Rural Housing Service (RHS, $14 billion). Of the $361 billion in loan guarantees provided by HUD, $339 billion is attributable to guarantees of single-family mortgages provided through FHA.

The federal government also provides guarantees through Ginnie Mae (which is part of HUD) for securities that are themselves backed by federally guaranteed mortgages, including mortgages guaranteed by FHA and VA.21 In CBO’s projections, guarantees provided through Ginnie Mae amount to $579 billion in 2027. CBO has excluded those guarantees from its estimate of total credit assistance, however, because they are incremental guarantees on loans already included in the totals for loans guaranteed by FHA, VA, and other federal housing guarantors. In CBO’s estimation, the fair-value subsidy rate for Ginnie Mae is effectively zero.

Projected Subsidies. Calculated on a FCRA basis, the average subsidy rate for housing and real estate programs in 2027 is estimated to be −1.2 percent, and the lifetime budgetary savings are projected to be $19.2 billion (see Table 1).22 Subsidy rates vary considerably among housing and real estate programs, from −26.6 percent for VA’s Vendee Loan program (which offers qualified borrowers the option to purchase VA-owned properties with little or no money down) to 64.7 percent for RHS’s Multifamily Housing Preservation and Revitalization Seconds program (which offers second mortgages to finance the repair and rehabilitation of multifamily housing projects).

Calculated on a fair-value basis, the average subsidy rate for housing and real estate programs in 2027 is estimated to be 1.2 percent, and the lifetime cost is projected to be $19.2 billion. The difference between the FCRA and fair-value estimates of the budgetary impact is thus $38.4 billion (see Figure 1).23

CBO also examined the sensitivity of those fair-value estimates to a 10 percent increase or decrease in the estimated risk premium.24 The resulting lifetime cost of the federal credit assistance provided by housing and real estate programs ranged from $15.6 billion to $22.8 billion, and the fair-value subsidy rate varied by plus or minus 0.2 percentage points from the central estimate of 1.2 percent.

Comparison With January’s Projections. The projected subsidy rate for housing and real estate loans in 2027—regardless of whether the GSEs’ loan guarantees are included—is projected to remain unchanged from the rate projected in January for 2026 when calculated on a FCRA basis. On a fair-value basis, the average subsidy rate for credit assistance for housing and real estate loans is projected to increase by 0.5 percentage points when excluding assistance provided through the GSEs and by 0.2 percentage points when including the assistance.

GSEs’ Mortgage Guarantees. The projected budgetary savings in 2027 from the GSEs’ mortgage guarantees are $0.8 billion less on a FCRA basis than the savings that were projected in January for 2026. On a fair-value basis, the projected budgetary costs are $0.2 billion lower than the costs that were projected in January for 2026. Those differences are driven primarily by a decrease of $41 billion in projected credit obligations.25

The changes in the projected subsidy costs are the result of updates to CBO’s economic forecast, including higher interest rates in the near term, which led to a decrease in the expected volume of mortgages guaranteed by the GSEs in 2027.

FHA’s Single-Family Mortgage Guarantees. The projected budgetary savings in 2027 from FHA’s single- family mortgage guarantee program are $2.0 billion more on a FCRA basis than the savings that were projected in January for 2026. That change results from a decrease of 0.6 percentage points in the subsidy rate (resulting in a $1.9 billion increase in savings) and an increase of $6 billion in projected credit obligations (resulting in a $0.1 billion increase in savings).26

The projected budgetary costs on a fair-value basis are $2.0 billion more than the costs that were projected in January for 2026. That change results from an increase of 0.6 percentage points in the projected subsidy rate (resulting in a $1.9 billion increase in subsidy costs) and the increase in projected credit obligations (resulting in a $0.1 billion increase in subsidy costs).27 The projected increase in the subsidy rate is driven primarily by an expected slower rate of prepayment of mortgages guaranteed in 2027, which increased the cost of defaults (net of recoveries).

VA’s Home Loan Guarantees. The projected budgetary cost of VA’s home loan guarantees in 2027 is $0.9 billion more on a FCRA basis and $2.1 billion more on a fair-value basis than the cost that was projected in January for 2026. Those increases are driven by increases of 0.2 percentage points in the projected subsidy rate on a FCRA basis (resulting in a $0.5 billion increase in subsidy costs) and 0.3 percentage points on a fair-value basis (resulting in a $0.7 billion increase in subsidy costs). An increase in the projected amount of credit obligations, from $191 billion in 2026 to $245 billion in 2027, pushes up budgetary costs by an additional $0.4 billion on a FCRA basis and $1.4 billion on a fair-value basis.28 The change in the FCRA and fair-value subsidy rates is driven by the combination of a decrease in expected prepayments of mortgages guaranteed in 2027—which pushes up projected default costs (net of recoveries)—and a decrease in the expected fee revenue collected from borrowers (as a result of an increase in the number of borrowers receiving a fee waiver).

Student Loans

The Department of Education’s student loan programs provide several types of loans—subsidized Stafford loans (which are available to undergraduate students), unsubsidized Stafford loans (which are available to undergraduate and graduate students), and PLUS loans (which are available to parents of students and to returning graduate students).29 Those programs are projected to account for $80 billion of federal credit assistance in 2027.

CBO uses a hybrid approach to estimate fair-value subsidies separately for the portion of each student loan program whose borrowers are enrolled in fixed-payment repayment plans and income-driven repayment (IDR) plans. For borrowers enrolled in fixed-payment repayment plans, CBO uses the loss-multiple approach to estimate the subsidy rate. For borrowers enrolled in IDR plans, CBO uses the loss-multiple approach and incorporates an adjustment to the projection of wages earned by those borrowers.

IDR plans tie required payments to borrowers’ income and provide loan forgiveness after a certain period. Those plans involve an additional form of market risk because the required payments depend on borrowers’ income. When the economy performs poorly, borrowers’ earnings are more likely to decrease, lowering the required payments. (That additional risk is partly offset because borrowers enrolled in IDR plans are less likely than borrowers enrolled in fixed-payment repayment plans to default on their loans.)30 To develop an adjustment for IDR plans, CBO applied methods from academic studies that have estimated the financial value of required payments that are a function of future wages. Those studies developed methods to adjust projections of future wages on the basis of their relationship with stock prices.31

Legislative Changes to Student Loans. The 2025 reconciliation act (Public Law 119-21) eliminated all existing student loan repayment plans and created two new repayment plans for loans made on or after July 1, 2026: a standard fixed-payment repayment plan and a single new IDR plan called the Repayment Assistance Plan (RAP). Loans entering repayment will automatically be enrolled in the fixed-payment plan, with the length of the repayment term determined by the amount borrowed, ranging from 10 to 25 years. Alternatively, borrowers may enroll in the RAP, which does the following:

• Sets payments to between 1 percent and 10 percent of a borrower’s total adjusted gross income, with a minimum monthly payment of $10, and reduces payments by $50 per month for every dependent;
• Waives any accrued interest that is not covered by a borrower’s calculated monthly payment;
• Matches up to $50 of the monthly amount paid by borrowers and applies that match to the outstanding principal balance; and
• Forgives any outstanding balance after 30 years of payments.32

CBO estimates that on average, borrowers will pay more under the RAP than they would have under the IDR plans eliminated by the 2025 reconciliation act. That change will lower the costs of student loan programs as a whole.

Projected Subsidies. CBO estimates that the average subsidy rate for student loan programs in 2027 is 4.6 percent when calculated on a FCRA basis, and the lifetime budgetary cost of those programs is $3.6 billion. But FCRA subsidy rates vary considerably among the loan programs and repayment plans.

For borrowers enrolled in fixed-payment repayment plans, subsidy rates in 2027 are projected to vary from −25.5 percent for the PLUS loan program for graduate students to 12.4 percent for the subsidized Stafford loan program—both calculated on a FCRA basis. The difference is explained by three key factors:

• The interest rate in the PLUS loan program for graduate students is 2.55 percentage points higher than the interest rate in the subsidized Stafford loan program, as prescribed by a formula in the Higher Education Act.
• Subsidized Stafford loans accrue no interest while borrowers are enrolled in school at least half-time or during other periods of deferment, whereas PLUS loans for graduate students begin to accrue interest immediately after origination.33
• The origination fee is 1.1 percent for subsidized Stafford loans but 4.2 percent for PLUS loans for graduate students.

For loans whose borrowers are enrolled in the RAP created by the 2025 reconciliation act, subsidy rates in 2027 (calculated on a FCRA basis) range from 5.1 percent for the unsubsidized Stafford loan program for undergraduate students to 29.3 percent for the subsidized Stafford loan program. Those subsidy rates are considerably higher than the rates for loans whose borrowers are enrolled in fixed-payment repayment plans. The large difference in those rates is primarily explained by the loans’ terms of repayment and expected defaults as well as by borrowers’ income.

In CBO’s assessment, several factors explain the difference in subsidy rates between fixed-payment repayment plans and the RAP. For example, borrowers with lower income are more likely to enroll in the RAP than in fixed-payment repayment plans. The RAP offers matching principal payments and waives unpaid interest, whereas fixed-payment repayment plans do not. Furthermore, borrowers enrolled in the RAP may be eligible for loan forgiveness through the Public Service Loan Forgiveness program after 10 years of qualified payments.

CBO estimates that the average subsidy rate for student loan programs in 2027 is 17.2 percent in 2027 when calculated on a fair-value basis, and the lifetime cost of those programs is $13.7 billion. The difference between the FCRA and fair-value estimates of the programs’ budgetary effect is thus $10.1 billion. Like the FCRA subsidy rates, the fair-value subsidy rates vary substantially among programs and repayment plans. For loans whose borrowers are enrolled in fixed-payment repayment plans, subsidy rates range from −15.1 percent for the PLUS loan program for graduate students to 22.5 percent for the subsidized Stafford loan program. For loans whose borrowers are enrolled in IDR plans, subsidy rates range from 23.7 percent for the unsubsidized Stafford loan program for graduate students to 47.5 percent for the subsidized Stafford loan program.

When CBO calculated subsidy costs by using loss multiples that were 0.5 higher or lower and wage adjustments of plus or minus 0.5 percentage points, the resulting fair-value estimates ranged from $10.0 billion to $17.5 billion. Similarly, the fair-value subsidy rate varied by plus or minus 4.8 percentage points from the central estimate of 17.2 percent.

Comparison With January’s Projections. Calculated on a FCRA basis, the projected subsidy rates for student loans in 2027 are higher than those projected in January for 2026. The average subsidy rate for student loans is projected to increase by 0.7 percentage points, from 3.9 percent in 2026 to 4.6 percent in 2027, resulting in a $0.4 billion increase in projected budgetary costs. Calculated on a fair-value basis, the average subsidy rate for student loans is projected to decrease by 0.4 percentage points, from 17.6 percent in 2026 to 17.2 percent in 2027, and the projected cost of student loans issued in 2027 is $1.2 billion less than January’s projected amount for loans issued in 2026.

Most of the changes to CBO’s estimates of subsidy rates are explained by changes made to projections of the following factors: interest rates (which affect the interest rates paid by borrowers and the rates used to discount cash flows), the income of borrowers, and the repayment plans that borrowers choose.34

Commercial Loans

The federal government provides assistance to commercial entities in the form of direct loans and loan guarantees. Such assistance is projected to total $226 billion in 2027, most of it provided through the Department of Energy ($77 billion), the Small Business Administration ($65 billion), international assistance programs ($35 billion), and the Department of Agriculture ($24 billion). The SBA also guarantees securities that are themselves backed by federally guaranteed loans, but CBO excluded those guarantees from its estimate of total credit assistance because they are incremental guarantees on loans already included in the totals for loans guaranteed by the SBA. In CBO’s estimation, the fair-value subsidy rate for those guarantees is effectively zero.

Projected Subsidies. Calculated on a FCRA basis, the average subsidy rate for commercial loan programs in 2027 is estimated to be 0.1 percent, and the lifetime budgetary cost of those programs is projected to be $0.2 billion.

Thirty-one of the 56 commercial loan programs that CBO analyzed have a subsidy rate that is zero or negative when calculated on a FCRA basis; in total, those programs are projected to save the federal government $1.1 billion. Most of those savings, 89 percent, are attributable to direct loans offered by the International Development Finance Corporation, the Export-Import Bank’s long-term guarantee program and direct loans for export financing, and the Department of Agriculture’s electricity-related loan programs.35

Those budgetary savings are largely offset by the combined subsidy cost of $1.0 billion for four programs:

• The SBA’s disaster assistance loans ($0.4 billion),
• The Department of Defense’s direct loans issued by the Office of Strategic Capital to support private investment in critical supply chain technologies for national security ($0.2 billion),
• The Department of Energy’s Section 1703 direct loans for innovative technologies ($0.2 billion), and
• The Department of Transportation’s direct loans made under the Transportation Infrastructure Finance and Innovation Act (TIFIA, $0.2 billion).

Calculated on a fair-value basis, the average subsidy rate for commercial loan programs in 2027 is estimated to be 8.4 percent, and the lifetime cost of those programs is projected to be $19.0 billion. The difference between the two estimates of the budgetary effect is $18.7 billion. More than three-quarters of the projected fair-value cost comes from the following programs:

• The Department of Energy’s Title 17 Section 1703 and Section 1706 direct loans ($7.1 billion);36
• The SBA’s 7(a) loan guarantees for small businesses ($2.3 billion), Section 504 loan guarantees for debentures (a type of security) issued through certified development companies ($1.4 billion), and loan guarantees for debentures issued by small-business investment companies ($1.3 billion);
• Direct loans issued by the Foreign Military Financing (FMF) program for the purchase of American defense articles, services, and training ($1.7 billion); and
• Direct loans made by the Department of Transportation under the Transportation Infrastructure Finance and Innovation Act ($1.2 billion).

When CBO used loss multiples that were higher or lower by 0.5, the resulting cost on a fair-value basis ranged from $15.4 billion to $22.5 billion. Similarly, the fair-value subsidy rate varied by plus or minus 1.6 percentage points from the central estimate of 8.4 percent.

Comparison With January’s Projections. Calculated on a FCRA basis, the average subsidy rate for commercial loans is projected to decrease from 1.9 percent in 2026 to 0.1 percent in 2027, and the budgetary cost projected for 2027 is $3.3 billion less than the amount that was projected for 2026 in January. Some of the decrease in the cost ($0.9 billion) is attributable to the discontinuation of funding for 11 programs that the Administration proposed funding for in 2026. One program with funding proposed in 2027 but not in 2026 is projected to have a subsidy cost of $9 million in 2027.37

There were notable changes in the FCRA subsidies for two commercial loan programs. First, the projected budgetary cost of the Section 1703 loan program for innovative technologies decreased by $2.1 billion. A decrease of 10.7 percentage points in the subsidy rate—primarily stemming from a decrease in the projected default rate (net of recoveries)—lowered projected costs by $1.2 billion. That effect was magnified by a decrease of $10.0 billion in proposed credit obligations (from $16.0 billion in 2026 to $6.0 billion in 2027), which lowered costs by an additional $0.9 billion.38

Second, the projected budgetary cost of the International Development Finance Corporation’s (DFC’s) direct loan program to support private-sector projects in developing nations decreased by $0.5 billion on a FCRA basis. A decrease of 5.5 percentage points in the subsidy rate—primarily stemming from an increase in projected fees—accounts for nearly all of the decrease.

For other commercial loan programs, the total cost projected for 2027 on a FCRA basis is $0.2 billion more than the cost projected in January for 2026.

Calculated on a fair-value basis, the average subsidy rate for commercial loans is projected to decrease from 12.1 percent in 2026 to 8.4 percent in 2027, and the projected cost of those programs in 2027 is $3.3 billion less than the cost projected in January for 2026. The programs discontinued in 2027 account for $2.9 billion of the decrease in subsidy costs.

The decrease in fair-value subsidies for commercial loans offered under the remaining programs is driven mainly by decreases in the projected credit obligations and subsidy rates for the same two direct loan programs that decreased subsidy costs on a FCRA basis: the Section 1703 program for innovative technologies and the DFC’s program to support private-sector projects in developing nations. Decreases in projected credit obligations lowered subsidy costs by $2.5 billion for the Section 1703 program and $0.6 billion for the DFC’s program. A decrease of 22.4 percentage points in the subsidy rate for the Section 1703 program—primarily attributable to a decrease in the projected default rates (net of recoveries)—further lowered subsidy costs for that program by $2.2 billion on a fair-value basis.

The overall decrease in fair-value subsidies for commercial loans is partially offset by increases in the projected credit obligations for two programs. First, an increase of $45.8 billion in proposed credit obligations (from $24.2 billion in 2026 to $70.0 billion in 2027) for the Section 1706 program for innovative technologies raised the projected budgetary cost of that program by $4.7 billion on a fair-value basis.39 Second, an increase of $12.0 billion in the projected credit obligations (from $4.0 billion in 2026 to $16.0 billion in 2027) for the FMF program for the purchase of American defense articles, services, and training increased subsidy costs by $1.3 billion.40 Partially offsetting those effects was a decrease of 1.9 percentage points in the subsidy rate for the Section 1706 program—primarily attributable to a decrease in the projected default rate (net of recoveries)—which lowered projected costs by $0.9 billion.

On a fair-value basis, the projected cost of other existing commercial loan programs in 2027 is $0.2 billion less than the cost projected in January for 2026.

Consumer Loans

The federal government also provides loans and loan guarantees to individual borrowers. The dollar amounts for that category of loans are small compared with amounts for the other categories: In 2027, such credit assistance is projected to total $7 million for the two programs that make up the category—the State Department’s repatriation loans and VA’s vocational rehabilitation loans.41 In most cases, consumer loans and loan guarantees are secured only by borrowers’ income and not by their other assets, which elevates the amount of market risk.

Projected Subsidies. The average subsidy rate for consumer loan programs in 2027 is estimated to be 54.5 percent, calculated on a FCRA basis, and the lifetime budgetary cost of those programs is projected to be $3.8 million. Of the four lending categories described in this report, credit assistance to consumers has the highest positive subsidy rate when analyzed under FCRA procedures.

Calculated on a fair-value basis, the average subsidy rate for consumer loans in 2027 is estimated to be 68.7 percent—the highest among the four lending categories—and the lifetime cost of the loans is projected to be $4.8 million. The $1.0 million difference between the FCRA and fair-value estimates is attributable entirely to the State Department’s repatriation loans. VA’s vocational rehabilitation loans have a maturity of one year with no expected defaults; thus, there is no risk adjustment for that program, and the fair-value estimate is the same as the FCRA estimate.

When CBO used loss multiples for the State Department’s repatriation loans that were higher or lower by 0.5, the resulting cost on a fair-value basis ranged from $3.8 million to $4.7 million, and the fair-value subsidy rate varied from 65.5 percent up to the central estimate of 82.8 percent, which represents an upper bound in this case. (The central estimate of the subsidy cost reached its maximum value and created a binding limit on the sensitivity range for the loss multiple.)

Comparison With January’s Projections. The projected subsidy costs for consumer loans in 2027 are greater than the costs projected in January for 2026. For the State Department’s repatriation loans, the subsidy cost increased by $0.2 million on a FCRA basis and by $0.3 million on a fair-value basis, largely because of a $0.2 million increase in projected credit obligations (which rose from $5.5 million in 2026 to $5.7 million in 2027). For VA’s vocational rehabilitation loans, the estimated FCRA and fair-value subsidy rates fell from 3.3 percent to 2.8 percent, and the subsidy cost decreased very little—by $10,000.

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1. 1. Lifetime costs represent the net value of the federal government’s expected cash flows from loans or loan guarantees, estimated at the time the loans are disbursed. Those estimates account for the fact that available dollars are worth more in the present than in the future.

2. 2. Fannie Mae and Freddie Mac have been in federal conservatorship since September 2008. CBO treats them as government entities in its budget estimates because, under the terms of the conservatorships, the federal government retains operational control and effective ownership of the two GSEs. For further discussion, see Congressional Budget Office, Effects of Recapitalizing Fannie Mae and Freddie Mac Through Administrative Actions (August 2020), www.cbo.gov/publication/56496, and The Effects of Increasing Fannie Mae’s and Freddie Mac’s Capital (October 2016), www.cbo.gov/publication/52089.

3. 3. Although funding for the Department of Energy’s Title 17 loan programs for innovative technologies typically is discretionary, those programs are also operating with mandatory authority provided by the 2022 and 2025 reconciliation acts (Public Laws 117-169 and 119-21).

4. 4. Those baseline projections, which CBO usually publishes two or three times a year, reflect the assumption that current laws governing taxes and spending will generally remain unchanged. For CBO’s latest baseline budget and economic projections, see Congressional Budget Office, The Budget and Economic Outlook: 2026 to 2036 (February 2026), www.cbo.gov/publication/61882.

5. 5. To estimate subsidy costs for some of the Department of Energy’s credit programs, CBO used a different approach. Under that approach, the agency’s projections incorporate assumptions about loan volume, disbursement schedules, and subsidy rates.

6. 6. Congressional Budget Office, Estimates of the Cost of Federal Credit Programs in 2026 (January 2026), www.cbo.gov/publication/61645.

7. 7. For further discussion, see Congressional Budget Office, How CBO Produces Fair-Value Estimates of the Cost of Federal Credit Programs: A Primer (July 2018), www.cbo.gov/publication/53886.

8. 8. Although a Treasury security is generally viewed as being free from credit risk (the risk that the federal government will default), it is subject to interest rate risk (the risk that arises when prevailing interest rates change) if the holder sells the security before its maturity date.

9. 9. For more details, see Michael Falkenheim and Wendy Kiska, How CBO Estimates the Market Risk of Federal Credit Programs, Working Paper 2021-14 (Congressional Budget Office, November 2021), www.cbo.gov/publication/57581.

10. 10. For further discussion, see Congressional Budget Office, Cash and Accrual Measures in Federal Budgeting (January 2018), www.cbo.gov/publication/53461.

11. 11. For more information about the fair-value cost of mortgage obligations, see Michael Falkenheim and Jeffrey Perry, A Model for Pricing Federal Housing Finance Obligations, Working Paper 2022-06 (Congressional Budget Office, April 2022), www.cbo.gov/publication/57844.

12. 12. Incorporating market risk in the discount rate and in cash flows are two equivalent approaches to calculating fair-value estimates. For further discussion, see Michael Falkenheim, Governmental Risk Taking Under Market Imperfections, Working Paper 2021-07 (Congressional Budget Office, June 2021), www.cbo.gov/publication/57255, and Fair-Value Cost Estimation and Government Cash Flows, Working Paper 2021-05 (Congressional Budget Office, April 2021), www.cbo.gov/publication/57062.

13. 13. The loss rate of a loan is equal to the loan’s default rate multiplied by one minus the recovery rate. For example, a loan with a 10 percent default rate and a 90 percent recovery rate has a loss rate of 1 percent: 0.1 × (1 – 0.9) = 0.01.

14. 14. More than half of that credit assistance would be provided by Fannie Mae and Freddie Mac. Because CBO considers them to be federally owned and controlled, it treats their loan guarantees as federal commitments and accounts for them on a fair-value basis when preparing its baseline budget projections. By contrast, OMB treats the GSEs as private companies and generally displays only their cash transactions with the Treasury in the federal budget. See Congressional Budget Office, Accounting for Fannie Mae and Freddie Mac in the Federal Budget (September 2018), www.cbo.gov/publication/54475. For other credit programs analyzed in this report, both CBO and OMB account for budgetary costs on a FCRA basis.

15. 15. To calculate the budgetary effects, CBO and other federal agencies multiply the size of the commitment or obligation by the subsidy rate, so programs with high subsidy rates do not always have the largest budgetary impacts. For example, on a FCRA basis, the Federal Emergency Management Agency’s Community Disaster Loan Program has the highest subsidy rate (91.1 percent) and a budgetary cost of $6 million. By contrast, VA’s mortgage guarantee program has a much lower subsidy rate (0.8 percent) but is projected to cost $2.0 billion.

16. 16. The two electricity-related loan programs administered by the Department of Agriculture are similar but charge different interest rates. One adds an interest rate spread to the rate on Treasury securities; the other, which is funded through the Federal Financing Bank, adds a liquidity premium to the Treasury rate. The Federal Financing Bank borrows from the Treasury and lends to federal agencies and private entities that receive federal loan guarantees. Because one of its purposes is to reduce the costs of federal borrowing in a way that is least disruptive to private markets, it can provide loans of any amount and nearly any maturity. See Federal Financing Bank Act of 1973, 12 U.S.C. § 2281, et seq.

17. 17. See Supplemental Table 1, which is posted along with this report at www.cbo.gov/publication/62265#data.

18. 18. See Supplemental Table 2, which is posted along with this report at www.cbo.gov/publication/62265#data.

19. 19. The PLUS loan program for graduate students and the unsubsidized loan program for graduate students are generally counted as single programs in this report even though subsidy details are reported separately by type of repayment plan. On a FCRA basis, the portion of each program with borrowers enrolled in fixed-payment repayment plans has a negative subsidy rate (−25.5 percent for the PLUS loan program and −10.7 percent for the unsubsidized loan program) and is included as one of the 10 mandatory programs with a zero or negative subsidy rate. The portion of the programs with borrowers enrolled in income-driven repayment plans has a positive subsidy rate (21.9 percent for the PLUS loan program and 9.3 percent for the unsubsidized loan program).

20. 20. Congressional Budget Office, Estimates of the Cost of Federal Credit Programs in 2026 (January 2026), www.cbo.gov/publication/61645.

21. 21. For further discussion, see Congressional Budget Office, Ginnie Mae and the Securitization of Federally Guaranteed Mortgages (January 2022), www.cbo.gov/publication/57176.

22. 22. Those estimates include the FCRA estimate of the budgetary costs of loan guarantees made by Fannie Mae and Freddie Mac. Excluding those guarantees, the average subsidy rate for other housing and real estate loans is −1.1 percent, and the lifetime budgetary savings are projected to be $6.6 billion.

23. 23. More than 40 percent of that difference is attributable to the loan guarantees made by Fannie Mae and Freddie Mac. When making its baseline projections, CBO uses fair-value methods to estimate the cost of those loan guarantees and FCRA methods to estimate the cost of guarantees made by other housing and real estate credit programs. Excluding loans guaranteed by the GSEs, the average fair-value subsidy rate for housing and real estate loans is 2.5 percent, and the estimated cost of housing and real estate credit programs is $15.3 billion, resulting in a $22.0 billion difference between the FCRA and fair-value estimates of the programs’ budgetary impact.

24. 24. CBO used 10 percent differences partly because most annual shifts in the risk premium for stocks are smaller than 10 percent; differences amounting to 20 percent would have larger effects than those reported here, although those differences would not necessarily be twice as large.

25. 25. CBO now estimates that obligations in 2026 for the GSEs were $1.0 trillion, which is slightly less than the amount that CBO projected in January for 2026 and the amount that it now projects for 2027.

26. 26. CBO now estimates that obligations in 2026 for FHA’s single-family mortgage guarantees were $330 billion, which is more than the amount that CBO projected in January for 2026 and the amount that it now projects for 2027.

27. 27. Throughout this report, changes in subsidy costs attributed to changes in credit obligations and subsidy rates are approximate because those factors have overlapping effects. CBO allocated 50 percent of the change from overlapping effects to the change in obligations and the rest to the change in subsidy rates.

28. 28. CBO now estimates that obligations in 2026 for VA’s mortgage guarantees were $239 billion, which is more than the amount that CBO projected in January for 2026 and less than the amount that it now projects for 2027.

29. 29. The 2025 reconciliation act (P.L. 119-21), enacted on July 4, 2025, eliminated PLUS loans to new graduate students starting on July 1, 2026. Graduate students that are continuously enrolled and borrowed through the federal program before July 1, 2026, may continue to borrow graduate PLUS loans for a maximum of three academic years. For a graduate student who first took out a loan in the 2026–2027 academic year, the last year of eligibility for a PLUS loan is the 2028–2029 academic year.

30. 30. Congressional Budget Office, Income-Driven Repayment Plans for Student Loans: Budgetary Costs and Policy Options (February 2020), www.cbo.gov/publication/55968.

31. 31. For details about those methods and references to the studies, see Michael Falkenheim and Wendy Kiska, How CBO Estimates the Market Risk of Federal Credit Programs, Working Paper 2021-14 (Congressional Budget Office, November 2021), www.cbo.gov/publication/57581; and Congressional Budget Office, “Including Market Risk in Estimates of the Budgetary Effects of Changing the Federal Retirement System for Civilian Workers” (supplemental material for Options for Changing the Retirement System for Federal Civilian Workers, August 2017), www.cbo.gov/publication/53003#data.

32. 32. Rita R. Zota, The Repayment Assistance Plan (RAP) in P.L. 119-21, the FY2025 Reconciliation Law, Report IF13075, version 2 (Congressional Research Service, July 31, 2025), www.congress.gov/crs-product/IF13075.

33. 33. Under deferment, borrowers may temporarily stop making payments on their student loans, usually without interest accruing on the balance of subsidized loans.

34. 34. The estimates in this report for 2027 and 2026 include the effects from changes to student loan programs made in the 2025 reconciliation act. The estimates in the 2026 report compared estimates for 2026, including the effects from the 2025 reconciliation act, with estimates for 2025, before the introduction of the RAP. See Congressional Budget Office, Estimates of the Cost of Federal Credit Programs in 2026 (January 2026), www.cbo.gov/publication/61645.

35. 35. Under current law, the Export-Import Bank’s statutory expiration date is December 31, 2026. The Administration proposed new obligations for the agency in 2027, but CBO’s baseline estimates reflect the assumption that the agency’s authorization will not be extended.

36. 36. The Energy Policy Act of 2005 provides broad authority for the Department of Energy to finance projects that support clean energy and energy infrastructure reinvestment. See secs. 1703 and 1706 of the Energy Policy Act of 2005, P.L. 109-58, 42 U.S.C. §§ 16513, 16517.

37. 37. Those programs are identified in Supplemental Table 3, which is posted along with this report at www.cbo.gov/publication/62265#data.

38. 38. The Administration now estimates that the Section 1703 program’s obligations in 2026 were $1.0 billion, which is significantly less than the amount projected in the 2026 budget and the amount that the Administration has proposed for 2027.

39. 39. The Administration now estimates that the Section 1706 program’s obligations in 2026 were $36.0 billion, which is significantly more than the amount projected in the 2026 budget and significantly less than the amount that the Administration has proposed for 2027.

40. 40. The Administration now estimates that the FMF direct loan program’s obligations in 2026 were $8.0 billion, which is significantly more than the amount projected in the 2026 budget and significantly less the amount that the Administration has proposed for 2027.

41. 41. The State Department provides emergency repatriation loans to Americans abroad who cannot finance their return to the United States. VA provides interest-free loans to veterans with service-connected disabilities who are participating in job training and other employment-related services in the vocational rehabilitation program.