The Catch in Government Debt Consolidation Loans
Whenever government sets up a program for the main purpose of advancing what is often considered soft loan to a person, to assist him pay off debt owed to institutions, what is in operation is ‘government debt consolidation loan’
It often involves loans consolidation that enables the debtor to conveniently make only one payment, rather than making several payments to multiple creditors. Yet, all the loans are structured to operate under the same interest rate, which is often times lower than the prevailing rate, since government loans are considered secure debt, unlike the non secure debt arising from loans from institutions.
In the United States, government debt consolidation loan is associated with loans granted college students to help pay off student loans more quickly and easily. When a government agency pays off a person’s debt in full to his creditors, it issues a new loan corresponding to the amount paid out with a secure lower interest rate, which the borrower is required to repay the consolidator according to the pre-determined rules and regulations.
Government, through government debt consolidation loans, offers several options to help the public and students get out of debt more quickly and conveniently. However, a new significant twist was recently added to the idea in the US when government offered several billion Us dollars as bail-out to some financial institutions following the burst in the mortgage industry.
Though the official stand portrays the bail-out as institutional loans, critics perceive it as government indulgence of some over-pampered private individuals who originally messed up the whole set up for their personal gains.
And recently in Nigeria, some commercial banks were ‘taken over’ by the nation’s central bank because the banks’ depositors’ funds were alleged to have been grossly eroded and were on verge of collapse.
The apex bank followed up its action with massive injection of funds running into several million of US dollars, as bail-out loans to the affected banks.
Amidst hot controversies over the status of the bail-out loans, government came up with a company known as AMCON to buy all the affected banks’ debt and issued a new loan for the same amount with a secure interest to be paid back in full by the affected banks.
To many analysts, despite the numerous unresolved controversies surrounding the move, and its bogus status, this government’s initiative qualifies as government debt consolidation loan.
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