The federal government does not approve private debt consolidation loan programs or companies.

However, it does back and fund debt consolidation loan programs to lower monthly payments for college graduates and homeowners.

The government also recommends non-profit debt counseling companies. However, these companies provide the required education in the last step to bankruptcy.

Scan through this list of available debt consolidation and relief options if you are not ready to file bankruptcy just yet. Some of these alternatives require an open mind. Decide for yourself if they offer the type of assistance you need.

Government Debt Consolidation Loan Facts

Here are some interesting facts about government debt consolidation loans.

  • Fact # 1 – free government grants are not very realistic
  • Fact # 2 – government backed and funded options use alternative names
  • Fact # 3 – bad credit borrowers often lack the assets to take full advantage
  • Fact # 4 – the government does not approve private loan programs. It regulates them.

The government does offer help in a few areas – mostly for college graduates and homeowners.

Private Companies

Request an unsecured debt consolidation loan here from private companies. Private lenders will review the request and present options to those they deem qualified. The federal government regulates the activities of online lenders through an array of banking laws.

Combining all your obligations into a single lower monthly payment can provide breathing room. It can also increase the total amount of interest you pay over time. Unsecured contracts do not require collateral (equity in a home, boat, or car).

Borrowers with bad credit do not have to risk losing their house or work transportation to repossession with this option. However, the government does not offer unsecured debt consolidation loans for most bad credit borrowers.

Trades school and college graduates are the one exception.

School Loans

Unsecured debt consolidation school loans are the one instance where the government funds, approves and backs an alternative. Graduates can combine multiple loans and extend the term to achieve a lower monthly payment. The interest rate does not change.

Trade school and college graduates with bad credit can consolidate their federal student loans. The process does not involve a credit check. You must make three consecutive monthly payments on a defaulted loan, or enroll the new consolidation loan into a repayment plan.1

  1. Income-Based
  2. Pay As You Earn
  3. Revised Pay As You Earn
  4. Income-Contingent

People with low credit scores rarely qualify to consolidate private student loans. They are not part of this government-backed, funded, and approved program.

Home Loans

The government funds and backs many debt consolidation home equity loans. Refinancing a mortgage can lower monthly payments by spreading the term over 30 years. Pledging a house as security also offers better interest rates.

The government funding comes from IRS tax deductions. Mortgage interest on a primary residence is tax deductible on Schedule A. Borrowers with higher income often save the most.

The backing comes from Government-Sponsored Enterprises (GSE). GSEs are financial services corporations created by Congress. They issue mortgage-backed securities with an implicit guarantee that the government will not allow them to fail.2

Bad credit borrowers are more likely to qualify for a debt consolidation loan using a home as collateral. The GSE implicit guarantee makes it easier for sub-prime borrowers to find a willing lender. The lender’s ability to repossess the house in the event of default also improves the odds.

Available Government Debt Consolidation Programs

The government approved debt consolidation programs are more widely available. This category does not include loans that lower monthly payments by lengthening the term. These alternatives help consumers to manage their finances more effectively.

The options include bill assistance, credit counseling, and a list of recommended companies.

Bill Assistance

Do you qualify for debt relief? National Debt Relief is not affiliated with any federal government agency. It is a private company. Consumers with more than $10,000 in unsecured obligations meet the criteria – this includes credit cards, unpaid medical bills, and payday loans.

The process works by consolidating payments into a single escrow account. Once the amount of money in the account grows to a sufficient size, the company uses the fund to negotiate a settlement with creditors.

The government does not operate a bill assistance or debt relief program. Only private companies offer this service. These companies must adhere to the federal telemarketing sales rule, which stipulates the following.3

  • May no longer charge a fee before they settle or reduce obligations
  • Must make specific disclosures to consumers
    • How long it will take
    • How much it will cost
    • Possible negative consequences
  • Prohibits them from making misrepresentations
  • Extends the rules to borrowers calling in response to advertising

Credit Counseling

The government does publish a list of approved credit counseling debt consolidation programs. The Department of Justice provides a state-by-state listing of sanctioned credit counseling agencies.

These approved counselors provide two forms of required education programs for consumers seeking debt relief through the legal system.4

  1. Pre-bankruptcy counseling – includes an evaluation of your financial situation, discussion of alternatives, and a personal budgeting plan. The course is required and costs approximately $50 for most consumers. You can complete the course online, over the phone, or in person. Upon completion, the organization must provide you with a certificate of completion.
  2. Post-filing debtor education – covers how to develop and meet a budget, manage finances, borrow money wisely. Consumers must complete this course prior to discharge.

Recommended Companies

The government does not publish a list of recommended debt consolidation companies. Consumers looking for a loan should perform their own due diligence. Those seeking a debt relief specialists fall into the same category.

The Department of Justice does publish a list of recommended non-profit debt counseling companies. These agencies perform the required education that individuals must take before they are eligible to file for bankruptcy protection.

These same companies also offer services to assist individuals not considering bankruptcy. The United States Trustee Program has not reviewed nor approved this other content.5


  1. Student loan consolidation
  2. Government-sponsored enterprises
  3. Telemarketing sales rule
  4. Non-profit credit counseling
  5. List of approved agencies

Posted 04/27/17 9:33 PM by Kevin Haney MBA