Government consolidation loans are the kind of loans that are made available, usually through the Federal government, to pay off multiple loans that the customers may have. By borrowing a sum of money from the government, the customer can pay back multiple creditors. This allows the customers the luxury of having one single monthly payment compared to many. Debt consolidation also helps the customers by offering a lower interest rate. This is done by converting the debt from unsecured to secured, e.g., using any of the customer’s assets for collateral.

The most readily available government loans are for students. Many students have multiple student loans, credit card debt, and medical bills. The US Department of Education offers debt consolidation loans for the purpose of paying off federal education loans. Then they will issue the student a new loan for the amount of the old loans. This is also a form of debt consolidation service.

The Higher Education Act (HEA) mandates a loan consolidation program under the Federal Family Education Loan (FFEL) Programs and the Direct Loan Program. This means that the students have an opportunity to pay off their multiple student loans by getting a new loan. 

The loans may all have different terms and repayment schedules; also, they may have been issued by different lenders. By consolidating the debts, the loans and the loan repayment gets simplified because the various loans get consolidated to one single repayment schedule. Also, the interest rate may be lower than on one or more of the underlying loans. 

The amount the customers pay every month on a loan is often going to be lower and the amount of time to repay may be stretched out as well, compared to the original loan. Eventually, the debts become more manageable and can be repaid back in the stipulated time.

To get a direct government consolidation Loan, the customer has to already have at least one Direct Loan or Federal Family Education Loan (FFEL) Program loan. In addition, that loan must be in a “grace period,” or have been granted a deferment, or default status. Hence the government consolidation loan is very useful for the customers who are in bad dent situations and are seeking for a debt free life.