Correct Answer:
B
When a private bank issues a student loan that is insured by the government in case of default, the
federal government is acting as a guarantor—not issuing the loan directly, but promising repayment
to the lender if the borrower defaults. This is a classic example of a federal loan guarantee program.
Loan guarantees are off-budget unless called, and the government only incurs a liability if the
student defaults.
Relevant Reference:
FASAB SFFAS No. 2 – Accounting for Direct Loans and Loan Guarantees
Credit Reform Act of 1990
OMB Circular A-11, Section 185 – Federal Credit Programs
Answer : B. a loan guarantee
