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TeachMeFinance.com - explain credit subsidy credit subsidy -- The estimated long-term cost to the federal government
of a direct loan or loan guarantee. That cost is calculated on the basis
of net present value, excluding federal administrative costs and any incidental
effects on revenues or outlays. For direct loans, the subsidy cost is the
net present value of loan disbursements minus repayments of interest and
principal, adjusted for estimated defaults, prepayments, fees, penalties,
and other recoveries. For loan guarantees, the subsidy cost is the net
present value of estimated payments by the government to cover defaults
and delinquencies, interest subsidies, or other payments, offset by any
payments to the government, including origination and other fees, penalties,
and recoveries.
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