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What is Government Debt Consolidation?

Ken Black
Ken Black

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.

Man climbing a rope
Man climbing a rope

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.

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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Discussion Comments


@Logicfest -- I hate those temporary sales taxes. Those things are supposed to sunset when enough money is raised to pay for the improvements the taxes are supposed to earn revenue for, but governments always find a way to extend them. If a "temporary" sales tax is paid, you can almost always count on it never going away.

Government debt, while not desirable, will actually save consumers more money than sales taxes is loans are consolidated so better interest rates are found.


@Vincenzo -- But governments do raise taxes to pay for things all the time. That is why there are sales tax increases proposed. It is worth mentioning that voters typically have to approve those things, and they often do. That said, I am not sure it is accurate to say that people want things but don't want to pay for them with higher taxes. We had a sales tax election around here recently to pay for a new library. It passed with no problem.

I would much rather see the government pay for things through temporary sales taxes than take on a bunch of debt. Interest payments alone represent a huge waste of money. With a little planning, governments can get boosts in tax revenue when necessary rather than having to take on debt and try to lower payments like a consumer enrolling in a credit card consolidation program.


@Markerrag - I don't have a problem with government debt consolidation so long it does not get out of hand. Here is the thing about government debt. Governments borrow money to pay for things that citizens insist on having. New roads, sewer plants and other items costs a heck of a lot of money, so where is that going to come from?

People complain about taxes, so trying to raise those to pay for expensive items is often viewed as political suicide. If people want things but they don't want to pay for them through higher taxes, what is the government to do? That's right. Borrow money.

The good news is that taking out debt is a common thing and local and state governments typically pay them back. Now, the federal government's debt is somewhat out of control, but the same factors gave rise to it. People want things and services but they don't want to be hit with higher taxes to pay for them.


It is a sad thing when governments run up enough debt so they have to consolidate to take advantage of better interest rates. If the government can't run without taking on debt, then it is time to cut some expenses so that the tax revenue coming in will be enough to run the government.

We often hear about irresponsible consumers running up too much debt. We ought to gripe about the government doing the same thing.

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