A loan guarantee is a loan that is extended administratively by an entity other than the Federal Government. The entity administratively responsible for the loan, collecting the payments and interest charged. The Federal Government is responsible for the loan if the borrower fails to make payments or in some other way defaults. The Federal Government may charge a fee for the guarantee, though normally a subsidy of some variety is extended to encourage the extension of the loan for policy purposes.
A loan guarantee is defined in section 502, the definitions section of the the Federal Credit Reform Act of 1990, which is title V of the Congressional Budget Act of 1974, as follows:
sec. 502. definitions.
For purposes of this title—
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(3) The term “loan guarantee” means any guarantee, insurance, or other pledge with respect to the payment of all or a part of the principal or interest on any debt obligation of a non-Federal borrower to a non-Federal lender, but does not include the insurance of deposits, shares, or other withdrawable accounts in financial institutions.