Government-backed Debt Consolidation Loans

This is a kind of are loan that is made available (usually through the Federal government) to pay off multiple loans that you may have. By borrowing a sum of money from the government, you can pay back multiple creditors. This allows you the relative luxury of having one single monthly payment compared to three or four (or more). also helps you by offering a lower the interest rate. This is done by converting the debt from unsecured to secured, e.g., using your home for collateral.

What are my options for a government backed loan?

The most readily available government backed loans are for students. Many students (and also recent graduates) have multiple student loans, credit card debt, and medical bills. There are Department of Education loans available that will pay off the original federal education loans and issue the student a new loan for the consolidated amount of the old loans.

What should I look for?

The Higher Education Act (HEA) provides for a loan consolidation program under both the Federal Family Education Loan (FFEL) Programs and the Direct Loan Program. With these programs, your loans are paid off and a new consolidation loan is created.

What sorts of benefits does this give me?

Your loans may all have different terms and repayment schedules; also, they may have been issued by different lenders. By consolidating your debts, this simplifies your loan repayment by paying back several types of Federal education loans into one new loan. Also, the interest rate may be lower than on one or more of the underlying loans. In addition, the monthly payment amount on a consolidation loan is usually lower and the amount of time to repay may be extended beyond what was available in the separate loan programs. These features should result in more manageable debt and should make borrowers less prone to default.

How can I get a loan like this?

To qualify for Direct Consolidation Loans, you must have at least one Direct Loan or Federal Family Education Loan (FFEL) Program loan that is in grace, repayment, deferment, or default status. Loans that are in a in-school status cannot be included in a Direct Consolidation Loan. Contact Federal Student Aid at the US Department of Education for more details.