Uncle Sam needs fresh strategy to manage federal lending programs

Uncle Sam needs fresh strategy to manage federal lending programs
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The United States government today is one of the largest consumer lending institutions in the world. Its expansive loan portfolio has been growing for years with little attention given to designing a coordinated approach for administering its lending activities. With a credit portfolio now exceeding $4 trillion and comprising more than 100 loan programs dispersed across 20 or so federal agencies, the government must take a serious look at how it plans for and operates its many credit programs.

The United States spends about $3 billion a year managing its portfolio of loans. It is hard to imagine a more disparate jumble of agencies that now make loans to home buyers, college students, small business owners, and various other borrowers. The government and its citizens would benefit significantly from taking a more coordinated approach. The creation of a single credit entity that consolidates the credit actions performed by the various agencies doing the job today would result in significant savings relative to the current approach. It would also realize some significant efficiencies to improve outcomes for borrowers and the government.


Presenting the government as a uniform single entity to lenders and borrowers, rather than a fragmented assortment of agencies, contractors, and programs with unique rules and forms, would benefit all involved. The government would be wise to establish a centralized credit bank to ensure a uniform approach in the planning, budgeting, operations, and evaluation of credit programs. The current federal credit agencies could continue interacting with borrowers and private lending partners.

The credit bank would assist agencies in fulfilling many aspects of their responsibilities, including helping agencies explain the need for loan programs, developing improved and more consistent underwriting and servicing systems, and enhancing budgetary understanding of borrower performance for the numerous programs in the four main federal credit sectors of housing, higher education, small business, and agriculture.

Beyond managing existing loans in its portfolio, the federal government occasionally creates new credit programs to address national priorities. Financial crisis response, water infrastructure improvement, and clean energy technology development are 21st century examples of these. Under current practice, such new programs are typically accompanied with additional bureaucratic structures within agencies, without regard for the true level of credit expertise existing within such organizations.

A well designed credit bank would enable a more flexible governmental mechanism for creating, operating, and sunsetting government loan programs. It would result in significant savings for taxpayers and bring a much more data driven and coordinated approach to ensure that social benefits are being realized whenever taxpayer dollars are placed at risk.

Such a centralized organization would have heightened interaction and coordination with private lenders to share data and close information gaps to ensure any loans provided are additive to the economy and not simply substituting for any loans that would have been granted without federal involvement. Given its bleak fiscal outlook with a growing deficit, the government needs to take every opportunity to reduce its costs. Streamlining its lending apparatus is an idea whose time has come.

Douglas Criscitellois a senior lecturer and executive director of the Golub Center for Finance and Policy at the Massachusetts Institute of Technology.