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When the Government Lends, Taxpayers Pay

by Demian Brady / /

The government is heavily involved in lending (through both direct loans and taxpayer-backed guarantees) via education, housing, and dozens of other programs.

The good news is that the subsidy rate for defaults is relatively low (although I would like to see how this compares to private lenders): for FY 2009 the government's total direct loan write-off and guaranteed loan termination subsidy rate is 1.3 percent.

The bad news is that this rate will rise to 1.48 percent in FY 2010 and 2.57 percent in FY 2011.

And worse, although these percentages are small, they represent a lot of money. In FY09 taxpayers ate $30.6 billion in loans and guarantees, and the new budget estimates dollar losses of $38.8 billion in FY10 and $68.9 billion in FY11.