For Immediate Release
June 19, 2017
Karen Garrett
Chief of Communications & Marketing
(202) 585-4313

Study Shows Federal Credit Programs Should Focus on Outcomes, Not Output

Washington, DC -  The American Society for Public Administration (ASPA) announces the release of a report by co-authors Thomas H. Stanton, Alan B. Rhinesmith and Michael E. Easterly analyzing federal credit programs. The report finds that federal credit programs need to focus on outcomes so they can strike a balance between providing credit for those who need it and not harming borrowers by burdening them with debt they cannot pay back.

The report’s findings include:
  • Today’s high volumes of federal credit raise the question: Do some programs need to shift their credit standards so that borrowers with the riskiest loans have better outcomes?
  • Many federal programs do not collect sufficient data and evaluate borrower outcomes to improve their programs.
  • Defaults can cause great harm to borrowers not adequately prepared to take on more debt.

The report states that, “Instead of measuring success by the volume of credit they provide, programs need to ask: How much did our work improve circumstances for our borrowers? Above all, programs need to avoid extending credit to borrowers who cannot handle their debt burdens.”

The research and resulting report were generously funded by the Laura and John Arnold Foundation, through a grant administered by ASPA.

The report is based on research conducted through more than 40 interviews with federal credit managers, financial officers and others; and a thorough literature review looking at the economics, history and budget rules of federal credit programs. Report findings were gathered after analysis of a variety of federal loan programs including the Federal Direct Student Loan Program, the Federal Housing Administration single-family mortgage insurance program, Small Business Association loan programs, the U.S. Department of Energy title XVII program and the VA home loan program, among others.

Recommendations to federal managers for improving borrower outcomes, include:
  • Conduct a cost/benefit analysis of outcomes for the riskiest loan borrowers
  • Collaborate with federal agencies such as the GSA Office of Evaluation Sciences to obtain support for evaluating program outcomes
  • Strengthen oversight of lenders and other loan partners to reduce loan defaults
  • To the extent there is authority, increase risk-sharing with lenders to reduce defaults
  • Target support such as credit counseling to borrowers most likely to have difficulty with their debt burdens

Recommendations to federal credit agencies for improving program outcomes include:
  • Anticipate resource constraints and their implications for program management
  • Improve evaluation of borrower outcomes
  • Increase experimentation and pilot projects to improve borrower benefits

In addition,
  • Policymakers should improve budgeting for credit administration
  • Treasury and OMB should ensure that agencies have access to the information they need to evaluate borrower outcomes effectively

The report concludes: “With a focus on outcomes, federal loan and loan guarantee programs can approach the goal of smaller but more effective government needed for agencies to succeed in today’s budget environment.”

View the full report online on this website as well as at Contact ASPA or Thomas Stanton with questions or for more information.

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