What to Know About Free Government Debt Relief Programs

If you’re struggling with debt, you might wonder whether free government debt relief programs can help you. That is indeed the case for certain types of debt, though depending on your financial situation, you may need to pursue other options to get the relief you’re seeking. 

If your debt payments are threatening your financial well-being, here’s what you need to know about relief programs from the federal government and what you need to do to qualify.

Table of Contents

1. Are there free government debt relief programs?
2. Programs for mortgage debt
3. For student loan debt
4. For medical bills
5. For tax debt
6. Can I get a government loan or grant for debt relief?
7. What should I do if I don’t qualify for government debt relief?

Are there free government debt relief programs?

The most well-known form of government debt relief is bankruptcy, which covers a wide range of unsecured and secured debts. However, filing for bankruptcy isn’t free, and it can have a significant negative impact on your credit score. 

Federal agencies may offer relief options for debts where the government is the lender. While they might not offer direct relief for other types of debt, federal laws require certain lenders to provide consumer protections, including debt relief. 

Type of debt	Free government assistance?
Mortgage	No
Federal student loan	Yes
Private student loan	No
Medical bills	No
Credit card	No
Tax	Yes

Federal student loan forgiveness is a well-known form of debt relief, and some federal and even state government agencies offer repayment assistance to eligible borrowers. Eligibility is primarily based on your career choice. 

Federal tax debt relief is also available, but not all of them are free, and approval is far from guaranteed. 

However, in situations where no free government debt relief programs are available, you might be able to obtain assistance in one form or another. Here’s a quick summary of where you can go for help.

Government programs for mortgage debt

The federal government doesn’t offer mortgage debt relief programs directly. However, most mortgage loans originated in the U.S. are under its purview. 

For example, lenders that offer FHA loans, VA loan, and USDA loans must meet certain guidelines set by the federal agency backing the debt. The same is true for conventional loans that conform to the standards required by Fannie Mae and Freddie Mac, both of which are government-sponsored entities. 

If you’re experiencing serious financial hardship, reach out to your lender to find out about options, which may include:

• Forbearance: This allows you to postpone payments for a short period and can be helpful if your financial hardship is temporary.
• Loan modification: With this option, your lender can adjust your loan terms to make payments more affordable. It may include reducing your interest rate or extending your repayment term. 

If the process feels daunting, you can seek housing counseling through an agency approved by the U.S. Department of Housing and Urban Development (HUD). 

Government programs for student loan debt

The U.S. Department of Education offers a variety of student loan forgiveness programs, including:

• Public Service Loan Forgiveness
• Teacher Loan Forgiveness
• Income-driven repayment plan forgiveness
• Perkins Loan Forgiveness

You may also be eligible for federal loan forgiveness if you become totally and permanently disabled, your school has closed or misled you, or you or the student for whom you took out the loan has passed away.

Many federal and state government agencies offer repayment assistance programs for military service members, public defenders and prosecutors, healthcare professionals, and more. 

Keep in mind that these programs typically only include federal loans. If you have private student loans, your lender may not offer relief options. 

Government programs for medical bills

The federal government doesn’t offer relief programs for medical bills. However, the Affordable Care Act requires healthcare providers to maintain a written financial assistance policy, which may include free or discounted services for low-income patients. 

The policy must be widely publicized and include information about your available options and how to apply. To be eligible, you’re unable to pay for all or a portion of the services you received. 

If you have a low income, the federal government offers health insurance programs, including Medicaid and the Children’s Health Insurance Program, that can help you obtain free or low-cost medical care. You may also be eligible for Medicare if you’re 65 or older or if you have an eligible disability or illness.

Government programs for tax debt

If you owe the IRS money, the federal agency offers several relief options that can help:

• Payment plans: The IRS offers both short- and long-term payment plans. While short-term plans are free to use, long-term plans may require a setup fee unless you qualify for a waiver or a discounted fee if you’re a low-income taxpayer. 
• Offer in Compromise: With an Offer in Compromise (OIC), you may be able to settle your tax debt for less than what you owe. This option is accessible if you’re current on your tax filings and estimated tax payments, and you demonstrate that you can’t afford to pay your tax liability, even on a payment plan. You can use the OIC pre-qualifier tool to gauge your eligibility.
• Currently not collectible: If you’re unable to pay your tax debt and your basic living expenses, the IRS may label your liability as currently not collectible, which is a form of forbearance until you can afford to pay. While it doesn’t erase your debt, the IRS won’t attempt to levy your assets for payment—however, it may apply future tax refunds to the amount you owe. 

A majority of the time, we will work with clients to alleviate the problem by establishing budgeting and cash flow guidelines. This will assist with freeing up cash flow to dedicate to the debt source.

Second, we recommend calling the debt servicer to see whether better payment options are available. The servicer maybe able to adjust the minimum due or provide other options to assist in your payment options.

Eric Kirste, CFP®

Can I get a government loan or grant for debt relief?

The federal government doesn’t offer any kind of loan or grant you can use to obtain relief from debt you’ve already incurred. 

However, it offers grants and lower-interest loans in lieu of more expensive debt options. Here are a couple of examples:

• SBA loans: Backed by the U.S. Small Business Administration, SBA loans tend to offer lower interest rates compared to other business financing options. What’s more, you can use certain types of SBA loans to refinance current debt, which may help you reduce your interest costs.   
• Pell Grants: If you’re an undergraduate college student who demonstrates exceptional financial need, you may be eligible for a Pell Grant, which doesn’t need to be repaid. The maximum award for the 2024 – 2025 school year is $7,395. 

Other government programs you can check out include:

• HUD home improvement loans
• Low Income Home Energy Assistance Program grants
• Disability housing grants for veterans  
• Small business disaster loans
• USDA farm and ranch loans

State and local programs

Depending on where you live, you may also have access to low-interest loans and grants from state and local government agencies. 

Again, these won’t help you obtain relief from current debt, but they can help minimize new debt through grants and other forms of financial assistance. Here are a few examples:

• Weatherization assistance programs
• Homebuying programs
• Temporary Assistance for Needy Families (TANF)
• Supplemental Nutrition Assistance Program (SNAP)
• Special Supplemental Nutrition Program for Women, Infants, and Children (WIC)
• State-based college financial aid programs

What should I do if I don’t qualify for government debt relief?

If you’re looking for debt relief options beyond government assistance, several alternatives can help you manage or reduce what you owe. 

When I have worked with clients who needed further assistance with their debt management, we would look at debt consolidation options. The goal is to prevent further damage to their credit while seeking help to simplify their debt picture.

Eric Kirste, CFP®

Here are several paths to consider, from professional services to DIY approaches, each with its own benefits and considerations:

Debt relief companies

Debt relief companies work with creditors to negotiate a reduction in the total amount of debt you owe, typically in exchange for a lump-sum payment or structured settlement. This option may be appealing if you’re struggling with unsecured debts such as credit card balances, personal loans, medical bills, or private student loans. However, these programs typically require you to stop making payments to your creditors during the negotiation process, which can damage your credit score.

It’s important to understand the benefits and drawbacks of using a debt relief company. While these companies may help you achieve significant debt reduction, they often charge fees—usually a percentage of the debt enrolled—which can reduce overall savings. And there’s no guarantee that all creditors will agree to a settlement.

Read More

Is Debt Relief a Good Idea?

Debt consolidation loans

Debt consolidation loans combine multiple debts into one loan, ideally with a lower interest rate. This approach can simplify payments and even reduce your interest costs over time. However, approval often requires good credit, and consolidating doesn’t eliminate the debt; it just restructures it.

Read More

Best Debt Consolidation Loans

Balance transfer credit cards

For those with high-interest credit card debt, a balance transfer credit card offers an introductory 0% rate, allowing interest-free repayments for several months. This option is often most beneficial for borrowers with good credit who can pay off the balance before the promotional period ends: Interest rates rise significantly afterward.

Read More

Balance Transfer Card vs. Personal Loan

Bankruptcy

Filing for bankruptcy is a legal process that can help discharge or reorganize debts. Chapter 7 bankruptcy may eliminate unsecured debts, such as credit card balances, and Chapter 13 allows for a payment plan to repay debts over time. While impactful, bankruptcy has long-term effects on credit and should be a last resort.

Negotiate with your lender

Many lenders are willing to negotiate repayment plans or reduce interest rates, especially if you’re experiencing financial hardship. Explaining your situation to creditors can sometimes lead to a more manageable payment arrangement without the need for third-party intervention.

Payment plan

Setting up a structured payment plan allows you to tackle debts over time. For medical bills and certain other types of debt, many providers are open to interest-free payment arrangements if you commit to regular payments. This approach helps avoid extra fees or interest and can keep you on track toward debt freedom.

Credit counseling

Credit counseling agencies, especially nonprofit ones, provide guidance on managing debt and budgeting. Many offer debt management plans (DMPs) to help pay off unsecured debt. They work with your creditors to negotiate better terms, often without the high fees associated with for-profit debt relief companies.