Are There Free Government Debt Relief Programs?

Yes—but only for specific types of debt, and only if you qualify

Fact checked by Brendan HarknessFact checked by Brendan Harkness

Unfortunately, the government doesn’t offer any debt relief programs for unsecured debts aside from bankruptcy. You may not be out of luck, though—free government debt relief programs do exist for specific types of debt like federal student loans, and you can find even more options for support in the form of grants and low-cost loans.

The average American was $104,215 in debt in 2023, according to an Experian report from February 2024 (that number includes auto and housing-related debt). Dealing with a six-figure debt load (or smaller) can be difficult, especially if you have a lot of other obligations and don’t earn a very high income. Here are some options that may help.

Key Takeaways

• There aren’t any free government debt relief programs for credit card or personal loan debt other than bankruptcy.
• Many types of government debt relief exist in the form of grants and low-interest loans for specific purposes.
• Government debt relief programs are generally available for people with limited means, such as low income or bad credit. 
• Government support programs for food, healthcare, and housing can help you free up more cash that you can use to pay down your debt more quickly.

Types of Government Debt Relief Programs

The government isn’t generally in the business of offering debt relief programs for most types of unsecured debt, such as credit cards and personal loans. This makes sense, given that these types of credit can be used to pay for just about anything, and taxpayers probably wouldn’t be too happy about covering the cost of someone’s vacation or new hot tub. 

However, the government has an interest in helping citizens who are struggling with certain debts related to health, housing, and education.

These government assistance programs may be ongoing, such as Public Service Loan Forgiveness for federal student loans, or they may be for a limited time only, such as Paycheck Protection Program (PPP) loan forgiveness, which is based on the loan’s maturity date.

Learn more about debt relief options from non-government sources that can help with unsecured debts, like credit card, personal loan, and private student loan debt.

Government Debt Relief for Mortgages

The government is directly or indirectly involved in the majority of Americans’ mortgages, either via loan programs from specific agencies (VA loans, USDA loans, and FHA loans) or through Fannie Mae and Freddie Mac, the two government-sponsored entities. As such, it has a lot of power to dictate the types of support options lenders must offer their borrowers. 

If you’re having trouble making your mortgage payments, contact your loan servicer to see if you qualify for any mortgage relief programs, such as:

• Forbearance: You may qualify for forbearance to postpone your payments for a certain amount of time if you run into temporary financial problems, such as losing your job or recovering from a natural disaster. 
• Loan modification: This process restructures your current mortgage to make it more affordable, such as changing to a longer term length and/or a lower interest rate. 
• Housing counseling: The U.S. Department of Housing and Urban Development (HUD) sponsors nonprofit credit counseling agencies that can provide you with free one-on-one access to a counselor who can help you navigate your mortgage debt relief options.
• Homeowner Assistance Fund (HAF): The federal government has distributed nearly $10 billion to state, local, and tribal governments since 2020 to offer financial assistance to homeowners who have struggled due to the COVID-19 pandemic. You can apply directly for HAF support through your local government housing agency. 

Government Debt Relief for Student Loans 

The government offers an abundance of debt relief options for student loan borrowers—as long as they have federal student loans, not private loans. (Private student loan debt is handled between you and your lender, which won’t be as accommodating as the government.) Contact your student loan servicer to learn more about and apply for these student loan debt relief options.

• Fresh Start: Until September 30, 2024, borrowers with defaulted student loans can qualify for student loan debt relief programs without having to jump through the normal hurdles. Plus, your loans will no longer be in collections and the default will be removed from your credit reports.
• Forbearance: If you’re facing a temporary hardship, you may be able to postpone making payments for up to 12 months, although interest accrues in the meantime. 
• Disability or death discharge: If you die or become permanently disabled and can’t work, your loans will be forgiven and the government won’t pursue you or your heirs for payment. 
• Income-driven repayment (IDR) plans: If you meet income requirements, you may be able to scale your monthly payments down through one of four IDR plan options. After 20 to 25 years, your remaining balance is forgiven, but you may owe taxes on this aid. 
• Teacher Loan Forgiveness (TLF): Teachers working full-time in low-income schools for five continuous years may qualify to have up to $17,500 of their loan debt forgiven through the TLF program. 
• Public Service Loan Forgiveness (PSLF): Borrowers who spend 120 months working in the government or nonprofit sectors may qualify to have the full balance of their student loans forgiven, tax-free. 

In addition, some state and local governments offer student loan repayment programs to attract people with certain skills. Oklahoma, for example, will help doctors repay up to $200,000 of their student loans in exchange for practicing in underserved areas.

Important

Refinancing your private student loan debt is likely the only way to make your payments more affordable if you’ve exhausted your debt relief options with your current lender.

Government Debt Relief for Medical Bills

Federal law requires hospitals to make written financial assistance policies (FAPs) available to patients. You probably received this disclosure while completing the paperwork for your treatment, but if not, you can request it from the hospital at any time. These policies should list—in detail—the types and amounts of financial aid available, who qualifies, and how to apply. 

Some state governments also provide dedicated medical payment assistance funds for people who qualify, or require hospitals to have their own funds in place. These “charity care” programs can help lower your medical bills or even pay for them entirely if you live in a state that offers this support to its residents. 

You can also consider applying for Medicare, Medicaid, or the Children’s Health Insurance Program (CHIP) in your state to help you pay for healthcare costs going forward, although they won’t help you pay for medical bills you incur outside of these programs. 

Other Government Programs and Services

In addition to the resources mentioned above, the federal, state, and local governments offer many other tools and programs that can potentially help you manage your debt. Here are a few highlights.

Government Loans and Grants

The federal government generally prefers to offer debt assistance in the form of grants and low-interest loans. These programs can help lower the cost of borrowing money in the first place, but they may not be as helpful for debt you’ve already taken out. If you plan in advance, however, they can prevent you from needing those higher-cost debts in the first place. 

You can search through the government loans database to find options that may apply to you. Here are a few popular programs:

• Federal Pell Grants
• HUD home improvement loans
• Small Business Administration (SBA) loans
• Weatherization Assistance Program (WAP)
• Low Income Home Energy Assistance Program (LIHEAP)

State and Local Programs

Like the federal government, state and local governments prefer to offer low-cost loans and grants for specific purchases rather than wiping away debt you already have. State and local governments often have more tailored options available, as well as a smaller pool of applicants. Here are some popular programs to look into:

• Unemployment insurance
• State financial aid programs for college
• Your state’s housing finance commission
• Temporary Assistance for Needy Families (TANF)
• Women, Infants, and Children (WIC) nutrition program
• Supplemental Nutrition Assistance Program (SNAP, also known as food stamps)

Servicemembers Civil Relief Act

The Servicemembers Civil Relief Act provides active-duty servicemembers with special protections on certain debts they take out before and during their service. You can request that lenders lower the interest rates on eligible pre-service debts down to 6%.

The act offers protections against creditors in cases of foreclosure or repossession and against default judgments in civil lawsuits. You may also be able to break rental leases without penalty in certain cases, such as if you’re reassigned to a new duty station.

Alternatives to Government Debt Relief Programs

Government debt relief programs are only a tiny slice of the full range of options available to most people to help pay off their debt. Here are some popular alternatives available through nonprofits and private companies:

• Bankruptcy: This legal process helps you repay or release certain unsecured debts, but may not apply to student loans, housing debt, or other collateral-backed loans. 
• Debt payoff apps: Debt payoff apps can help you plan the best way to pay down your debt, such as by comparing debt payoff strategies or finding extra cash to send to lenders. 
• Credit counseling: Nonprofit credit counseling services offer free or low-cost support with an individual counselor to help you develop a budget and make a debt management plan to pay down your debt. 
• Debt consolidation/refinance loans: A personal loan, home equity loan, or other lower-interest loan can help you pay off higher-interest debt and save money.
• Balance transfer credit cards: A new credit card that offers 0% APR on balance transfers for several months could be an option if you have good credit.
• DIY debt settlement: Work with your creditors to negotiate a lower rate or a different loan term, or even to forgive some of your debt. 
• Debt settlement companies: For-profit debt settlement companies require you to default on your debt while saving up money that they can use in an attempt to settle your debt for less.
• Medical debt payment plans: The billing or financial assistance department of your healthcare provider may offer this option. Contact the provider to ask about interest-free payment plans that can help preserve your credit score. 

Warning

Government agencies generally caution against hiring debt settlement companies due to the uncertainty involved in whether they will work, as well as the high costs and credit damage you’ll incur if they do.

Frequently Asked Questions (FAQs)

Is There a Federal Credit Card Debt Relief Program?

No, the federal government does not offer credit card debt relief programs. However, depending on where you live and what type of debt you have, you may be able to access other types of debt relief from federal, state, or local governments. These programs can help you free up money that you can use to pay down your credit card debt faster.   

Who Qualifies for Government Debt Relief?

To qualify for most government debt relief and assistance programs, you’ll need to be facing some sort of financial hardship or have limited means to repay your bills. Government debt relief programs tend to focus on helping relieve debts and lower costs related to housing, education, or medical bills, rather than unsecured debts from credit cards or personal loans. 

Can I Get a Government Debt Consolidation Loan?

The government doesn’t offer debt consolidation loans, except in specific cases such as for federal student loans. These can offer certain benefits but may come with drawbacks, too, so it’s important to consider federal student loan consolidation carefully. If you decide it’s right for you, you can apply to consolidate your federal student loans in your online account. Or, if you’re dealing with personal unsecured debt, you can explore general debt consolidation loans from private lenders.

Can I Get Free Money From the U.S. Government?

There are several ways to get “free” money from the U.S. government if you qualify, such as Pell Grants for college education or tax credits or deductions that lower your tax bill. But in general, no, the federal government will not give you free money for your personal needs. If you receive an offer that sounds too good to be true, that’s probably the case.

The Bottom Line

Although free government debt relief programs aren’t available for unsecured debt problems, there are dozens of other ways to get help paying back your debts. 

If you’re having trouble sorting out your options, call or visit 211.org to get free one-on-one help in navigating local debt relief support. Reaching out to the National Foundation for Credit Counseling for a referral to a nonprofit credit counseling agency for a free consultation can also be a good way to locate resources and create a plan to manage your debt.

Read the original article on Investopedia.