WASHINGTON (B)--Delinquency rates on government farm loans have fallen sharply despite slumping crop prices in recent years, because farmers now risk being cut off from credit if they don't keep up their payments.
The Agriculture Department lends directly to farmers and also guarantees loans through private banks.
About 21% of the $8.7 billion in outstanding direct loans was delinquent as of September 2000, down from 41% in 1995, the General Accounting Office reported May 16.
The delinquency rate on the department's $8 billion in guaranteed loans has held relatively steady at 3.5%.
Rules imposed by Congress in 1996 prohibited farmers from getting new loans if they are delinquent on an existing loan or have debt forgiven.
"Prior to these changes, there was no disincentive for borrowers to have... debts written off rather than to repay them," Carolyn Cooksie, deputy administrator of the loan programs, told the Senate Agriculture Committee.
The new rules prompted "borrowers to more carefully consider the consequences of failure to repay," she said.
The loan programs still bear watching, however, because of exemptions to the rules that lawmakers have enacted since 1996, according to GAO, the auditing arm of Congress.
One major farm group, the National Farmers Union, says the restrictions may have gone too far and asked lawmakers to consider easing them further.
USDA is the lender of last resort for farmers who can't get private credit.