Long-Term Cost Implications of Rural Electrification Administration Direct and Guaranteed Loan Programs

GAO projected the long-term costs of the Rural Electrification Administration (REA) loan programs. REA programs grant both direct and guaranteed loans. Direct loans are made by the Federal Government at lower than private lender interest rates. Guaranteed loans are those made by private lenders at lower than normal interest rates. If the interest rates or the fee required on guaranteed loans is not high enough to cover costs, the Government incurs the losses. The GAO review did not evaluate program benefits, management, or effectiveness. It merely identified and estimated the various cost elements in the loan programs using a money cost rather than opportunity cost concept. Direct loans incur interest, default, delinquency, and administration costs. Only administrative costs are incurred with guaranteed loans.