The US government doesn’t offer any government debt consolidation loans to its customers. But, it supports the financial organizations that give debt consolidation loans. By selecting any of these organizations, you will get a low interest rate, because of the support given by federal government to these organizations.
You can get a grant from the government and repay your debts. However, before getting a grant you have to fulfil a long list of their requirements.
When you sign up for a government debt consolidation loan, the consolidating organization pays off all your debt to the collectors. Then consolidator issues a new loan of the same amount with secured interest rate. Hence, the rate is not going to change until or unless the borrower is unable to make the payment.
The government offers some low-interest loans only for specific purposes like for home and disaster property loans, rural housing loans and other single purpose loans.
There are two types of government debt consolidation loans. Both of them can be used to consolidate student debt. You can get a Federal Family Education Loan i.e., FFEL if you are having a credit card for education and student loans from various sources. However, the funds for these loans come from the private lenders like Credit Unions and other banks which are supported by the US government.
The Federal Direct Student Loan program is another government debt consolidation loan scheme. This program makes all the eligible student loans under one loan, so the monthly payment is reduced and you get the opportunity to restore subsidies you have for subsidized loans.
If you don’t have any student loan for consolidation, then you get the debt consolidation loan from your credit unions or banks. There are generally two types of debt consolidation loan – secured loan and unsecured loans. They are often mistaken as the government debt consolidation loans.
Secured loans are collateralized, for which you must take the pledge for your asset in order to secure it. The assets can be your house, boat, mobile homes, etc. Well, if you are unable to make the payment, then your asset will be seized by the lenders or they may ask you to sell it for repayment. The second, unsecured loan doesn’t comes under the government and doesn’t require any assets to be pledged. The common type of unsecured loan is a personal loan. The downside of the unsecured loan is that if you are in heavy debt then you won’t get a personal loan or if you get a personal loan in these circumstances, then you will have to pay a high interest rate. The lender takes a big risk by giving an unsecured loan, as in case of failure in re-payment, the lender won’t be able to seize anything to recover the money. Moreover, if you are proved default by taking an unsecured loan the lender can garnish your wages or sue you.
The biggest demerit for any debt consolidation loan is that, it does not help you to reduce your debt, whether it may or may not be supported by the US government. It transfers your debt from one to another lender.