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What is Government Debt Consolidation?

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  • Written By: Ken Black
  • Edited By: Andrew Jones
  • Last Modified Date: 25 August 2014
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Government debt consolidation could mean one of two different things. One type of government debt consolidation may refer to governments themselves consolidating some of their loans, usually issued through bonds. The other type would be the Federal Government offering debt consolidation, or at least allowing debt consolidation, for student loans.

Though it may not seem like it happens very often, governments, especially municipalities, counties and states, choose to consolidate loans quite regularly. This is done when interest rates are advantageous. In essence, the government issues bonds to pay for existing bonds that were outstanding. The only time a local government would choose to do this is when interest rates are low, and there is no penalty for paying off the bonds early.

Recommending a consolidation of bonds is usually up to the city's chief financial officer, also known as the finance director. Recalling bonds and issuing others is often a complicated legal process, requiring the use of a specialized attorney. This attorney is referred to as a bond attorney. Though the expenses during the process are considerable, the loans are usually worth multiple millions of dollars, making the process worth it in the long run.

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In the other case, government debt consolidation exists as an option for student loans. Often, the government is not directly responsible for issuing a consolidation loan, but instead may guarantee any loan, much like original student loans were guaranteed. This is likely the only type of loan borrowers will find available for government debt consolidation. Small business loans and Federal Emergency Management Agency (FEMA) loans, are not subject to consolidation by the government. In those cases, it may be possible to find debt consolidation help from a private agency, such as a bank.

Students may consider a government debt consolidation loan after researching options, and finding there is a more favorable alternative. This will likely mean a better a interest rate and more convenience. These are the two major advantages of doing a consolidation. The student will not have to worry about multiple payments to multiple lenders. Instead, all debts can be consolidated into one package. The benefit to the lender in government debt consolidation is that the loan is guaranteed by the Federal Government. In case of a default, the lender will get the money they are owed form the government.

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