A personal government loan is a loan made by the government to an individual, who may then use the money for any number of specific purposes. Using the money for a purpose not authorized could result in very stiff penalties and even civil action. It is up to the borrower to understand what money from each loan may or may not be used for. Though there may be some exceptions, personal government loans come in four major categories: student loans, home loans, small business loans and disaster relief loans. The borrower will likely be required to work with one of three divisions of the federal government to secure the loan.
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Many have the mistaken understanding that a personal government loan comes directly from the U.S. government. In most cases, this is not true. Rather, the government simply acts as the guarantor of the loan. However, there may be times when the government becomes the primary lender in the process.
One of the major benefits of a personal government loan is the fact that the government is able to secure better terms than a borrower may be able to get on his own. In some cases, the borrower may not even be able to secure a loan at all without the help of the federal government.
The most common type of government loan known to most people may be those relating to the sale of homes. These loans are often guaranteed by one of two government agencies, both closely related: Fannie Mae and Freddie Mac. These agencies have special programs in place for low-income or first-time buyers.
This is one case where the federal government may be involved directly in some of the loans. However, most of the loans will still be secured through a bank. To qualify for federal student loans, and any other type of federal student aid, borrowers must fill out the Free Application for Federal Student Aid. See "Additional Resources" below for a link to the site to start the application process.
Small Business Loans
These loans are administered by the U.S. Small Business Administration (SBA). Loans for businesses are often available, especially in underserved areas of the country, to encourage more economic activity in those locations. Again, the SBA often serves as the guarantor, not the actual lending body. For more information on what may qualify, see "Additional Resources" below for the SBA's website.
Disaster Relief Loans
These loans may be administered by the SBA, even if it is for a residence, or through the Federal Emergency Management Agency (FEMA). They are specifically intended to help residents and businesses rebuild after a devastating natural disaster, such as a flood, earthquake, fire, tornado or hurricane.
Just because the loans are guaranteed by the federal government does not mean they are not to be paid back. In fact, the federal government may have more tools than a private lending institution would have to go after bad debt, including holding any tax refunds. Wage garnishments may also be a possibility.