NCPA - National Center for Policy Analysis

The Federal Government's Bad Loans

May 19, 1998

Federal ledgers carry $51.9 billion worth of non-tax debt, according to an analysis prepared for the Treasury Department by Price Waterhouse. Delinquent education loans make up a large portion of the amount owed to the government; but debts can be found in virtually every corner of the bureaucracy -- farm loans, housing loans, defaulted guaranteed loans and contractor loans.

  • Some $47 billion of the total is more than 180 days old and only $29 billion appears to be in reach of Treasury collection efforts.
  • Delinquent education loans comprise $20.8 billion of the $51.9 billion.
  • Over the next two years, Treasury is supposed to implement an improved collection program -- after which it should be able to capture from $864 million to $1 billion of the bad debts annually, according to the study.
  • During the 18 months following passage of the 1996 Debt Collection Improvement Act, Treasury was able to collect only $2.5 million of the sums owed.

The Treasury Department spent about $5 million to develop debt-collection software and then decided to cancel the project after it became evident it faced months of testing and would require another $8 million to complete.

The Price Waterhouse analysis underscored the reality that old debts are hard to collect. Private agencies typically collect, at best, only 1 percent of delinquent debt that is four to six years old. About $23 billion of the government's non-tax debt is more than four years old.

In fiscal 1997, the government wrote off about $6 billion in debts officials considered uncollectable.

Source: Stephen Barr, "Treasury Takes Stock of Delinquent Debts," Washington Post, May 19, 1998.  


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