Why federal lending feels like a maze, and how to fix it
Matt Lira argues in FedScoop that the $5 trillion federal credit portfolio, spread across 135+ programs on separate systems, is failing borrowers less on eligibility than on navigation. He makes the case for Lending.gov, a bill that would drive back-office shared infrastructure for credit agencies while leaving agency loan-making authority intact. “When government uses modern, commercially proven technology to dramatically improve the citizen experience,” writes Lira, “we see clearer steps, faster decisions, fewer errors, and more transparency about what’s happening and why. The public doesn’t experience ‘IT modernization.’ They experience ease and efficiency in programs that impact their daily lives.”
Doug Criscitello at AGA’s Performance Counts Summit
Center CEO Doug Criscitello spoke on a panel at AGA’s annual Performance Counts Summit. Asked what policymakers most misunderstand about federal credit programs, Doug pointed to loan-level data infrastructure enhancements needed to measure program outcomes. Default rates and subsidy costs are relatively easy to count. Whether the program actually reaches the people it was designed to serve is harder, and that is the measure that matters. He also cautioned policymakers to be careful when designing programs: a continuum of options exists for providing financial assistance: a loan program is just one of them.
Unlocking AI in federal credit programs
Oliver Wyman’s Ugur Koyluoglu wrote a compelling piece on where AI can improve access, loan processing, and risk management across federal lending, and the governance questions that come with it. “AI augments human decision making to help federal credit agencies deliver more efficient, accurate, and borrower‑centric services while protecting taxpayer funds,” writes Koyluoglu. But, he warns, “[R]ealizing those gains responsibly requires rigorous governance and ethics architecture.”
The average student loan defaulter is nearly 40
The pandemic era pause on student loan repayment ended in 2023 and, to no one’s surprise, defaults are on the rise. The Wall Street Journal reported on New York Fed data that show 3.5 million federal borrowers defaulted between October and March, with the average defaulter close to 40 years old and concentrated in the South. Cross-product delinquency rates are high, too: 56% past due on a credit card, 40% on an auto loan, 20% on a mortgage. “The biggest consequence for defaulted borrowers is that they could have their wages, tax returns and Social Security garnished,” according to the story. “But the Education Department has delayed its garnishment plans.”
RISE final rule reshapes the federal student loan system
The Department of Education finalized the Reimagining and Improving Student Education rule on May 1, implementing the student loan provisions of the Working Families Tax Cuts Act. For loans originated after July 1, new borrowers will have just two repayment options: a new Tiered Standard plan and the Repayment Assistance Plan, which becomes the sole income-driven option going forward. Existing income-driven plans phase out by July 2028. The rule also eliminates the Grad PLUS program and caps annual borrowing at $20,500 for graduate students ($100,000 aggregate) and $50,000 for professional students ($200,000 aggregate). The Department estimates the changes will reduce federal outlays by $409 billion and student loan debt by $224 billion over the budget window.
FEMA Review Council recommends a leaner model
The final report of the President’s Council to Assess the Federal Emergency Management Agency’s calls for replacing FEMA with a smaller entity oriented around state, local, and tribal execution. Public Assistance grants would convert to direct payments within 30 days of a declaration, Individual Assistance would consolidate into a single household payment, and the National Flood Insurance Program (over $20 billion of insurance in force) would shift to the private market.
Speaking of disasters…
Two new GAO reports flag information gaps on both ends of the disaster assistance pipeline. The first finds that SBA’s outreach to disaster survivors varies in quality and reach, leaving eligible borrowers without the information they need to access loans when they need them most. The second concludes that consumer education and awareness are the most effective protection against the scams targeting disaster survivors, a risk that grows as direct payment models expand.
The $1.6 Trillion Rollercoaster: Inside the Federal Student Loan Portfolio
In this episode of The Center for USA Lending’s The Lending Brief, sponsored by Allocore, we’re joined by Jay Hurt, former CFO of the Office of Federal Student Aid and a 34-year veteran of the U.S. Department of Education, for a candid look at one of the federal government’s most complex and politically charged credit programs. From a $37 billion profit in 2015 to a $493 billion liability by 2024, Jay unpacks how administrative actions — not just legislation — drove a half-trillion-dollar swing in portfolio value, and what that rollercoaster means for American taxpayers.
He also breaks down the coming waves of student loan defaults, what the collapse of the SAVE plan means for the 8.8 million borrowers currently in forbearance, and why the new Education-Treasury partnership to restart collections may be a critical turning point for the portfolio’s long-term health.
Loan fraud risk on the front end and the back end
Two recent items highlight the extent of the federal lending fraud picture. On prevention, GAO recommends the Export-Import Bank of the United States strengthen its engagement with external stakeholders to improve fraud risk management across an export finance portfolio whose complexity makes early detection difficult. On the recovery side, SBA referred 562,000 borrowers tied to $22.2 billion in suspected fraudulent PPP and EIDL loans to Treasury for collection in April, the largest single referral on record, while SBA OIG separately facilitated the return of more than $86.7 million directly from financial institutions.