What Is a Government Debt Relief Program?

Do government debt relief programs exist? Yes, there are several programs available to people with financial problems who need help. These programs include:

• IRS “Fresh Start” program

• Income-driven student loan repayment

• Student loan disability discharge

• Public service loan forgiveness

If you qualify, these programs can help you get out from under unaffordable debt. However, there are no government debt relief programs for credit card balances.

Learn more about credit card debt relief.

Understanding Federal Relief Programs for Different Types of Debt

Can the government help with your debt? It’s possible. There are a few different ways the government can help make your debt more manageable.

Federal relief programs can help with debts like unpaid taxes and student loans. These programs can provide a range of solutions to make your debt more affordable. Solutions may include lowering your monthly payment or even forgiving certain debts.

If you have credit card debt or other types of non-government debt, federal debt relief programs might still be part of the solution for you. Making the most of government relief for taxes or student loans could leave you with more resources to deal with other types of debt. 

Take the time to review the government debt relief options outlined below to see if you might qualify. 

IRS Debt Relief

If you have a tax bill you can’t pay, you can apply to the IRS for various types of help.

IRS debt relief options include:

• Pay over time - you can apply to the IRS to set up an installment payment plan instead of having to pay all at once

• Offer in compromise - this is a negotiated settlement to pay less than the full amount you owe

• Currently not collectible - if the IRS determines you cannot pay your debt at this time, they may agree to delay collection until you are better able to

• Penalty abatement - the IRS may agree to waive certain penalties. 

Your chances of benefiting from any of the above forms of tax relief are better if you reach out to the IRS as soon as you realize you are going to have a problem paying your taxes. 

If you cannot afford to pay your state income taxes, reach out to your state’s department of taxation.

Income-Driven Student Loan Repayment

Income-driven repayment plans are designed to make your student loan payments more affordable. They do this by basing your monthly payments on how much money you make.

There are four types of income-driven student loan repayment plans: 

• Save on a Valuable Education (SAVE - formerly the REPAYE Plan). Limits payments to 5% of discretionary income for undergraduate borrowers, and 10% for graduate borrowers. Forgives remaining debt after 20 to 25 years.

• Pay As You Earn Repayment Plan (PAYE Plan). Limits repayment to 10% of discretionary income. Forgives remaining debt after 20 years. 

• Income-Based Repayment Plan (IBR Plan). Limits repayment to 10% or 15% of discretionary income. Forgives remaining debt after 20 to 25 years.

• Income-Contingent Repayment Plan (ICR Plan). Limits repayment to 20% of discretionary income. Forgives remaining debt after 25 years. 

Note: these plans are subject to change over time, and some of them are facing legal challenges. Check out the government’s Student Aid website for the latest information. 

These plans are not automatic. You must apply for them, and renew your application every year. Qualification for these programs depends on your financial circumstances, what type of loan you have and when you borrowed it. See the StudentAid.gov website for details on your eligibility.

Student Loan Disability Discharge

If you have federal student loans and you become totally and permanently disabled, you may be able to get your loans discharged. This means you'd no longer be responsible for paying them off. Loans eligible for disability discharge include:

• William D. Ford Federal Direct Loans

• Federal Family Education Loans (FFEL)

• Federal Perkins Loans

To qualify for a student loan discharge on the grounds of disability, you need to be able to document your disability status. This documentation can come from the U.S. Department of Veterans Affairs (VA), the Social Security Administration (SSA) or a physician. 

If your request for a student loan disability discharge is approved, you'll still be subject to a three-year monitoring period. During this time, the Department of Education could reinstate your obligation to your loans if it's determined that you're no longer disabled, your household income exceeds certain allowed limits or you take out new federal student loans.  

Public Service Loan Forgiveness

The Public Service Loan Forgiveness (PSLF) Program offers forgiveness for certain federal borrowers who work for eligible employers. You still have to pay something toward your loans but this could be a good debt relief option if you plan to work in public service. 

To qualify for federal student loan forgiveness, you must:

• Make 120 qualifying payments toward your loans

• Be employed by a U.S. federal, state, local or tribal government or a non-profit organization 

• Work full-time for that agency or organization

• Owe eligible Direct Loans (or consolidate other federal loans into a Direct Loan)

• Enroll in an income-driven repayment plan

If you skip payments during your loan grace period, while you're enrolled in school or during certain deferment and forbearance periods, those won't count toward the 120 qualifying payments you need for loan forgiveness. But borrowers can receive credit for payments that were suspended as part of federal COVID-19 forbearance initiatives. To get this benefit, you'll need to submit a PSLF form certifying that you were employed with an eligible organization or agency for the duration of the forbearance period. 

You can also take advantage of federal student loan forgiveness if you're working full-time for AmeriCorps or as a Peace Corps volunteer. But most other types of employers, including labor unions, partisan political organizations and for-profit organizations, are ineligible.

What Is Debt Relief for Credit Card Debt?

There is no government debt relief program for credit cards. You can, however, find debt relief for credit cards through other avenues. 

Debt relief companies can offer services to help you manage and pay off credit card debt for less than you owe. This is known as debt settlement. When you settle credit card debt, you and the credit card company agree on an amount you'll pay which is less than the total balance. The credit card company then forgives the remaining amount due. 

If you don’t have a lump sum to offer your creditors (most people don’t), you’ll stop making credit card payments and pay into a debt relief savings account. When there is enough saved to offer your creditors, negotiations can begin.

You could also technically get relief from credit card debts by filing bankruptcy. But this is a last resort option, since it can be exceptionally damaging to your credit score. Bankruptcy filings are public records and can make you ineligible for certain jobs. You also give up control when you file bankruptcy – the court tells you how much you will pay (Chapter 13) or what assets you must give up (Chapter 7) to satisfy your creditors. 

So who can benefit from debt relief? It could work for you if you:

• Are struggling to pay credit card debts or have already fallen behind on more credit card bills

• Don't think you'd be able to resume making regular payments to your cards based on your current income and budget

• Would like to clear your debt for less than what's owed 

Of course, there are pros and cons associated with debt relief. On the pro side, debt settlement could help you to get out of debt faster since you're paying less than the total balance. 

One disadvantage of choosing debt settlement for debt relief is that it can be damaging to your credit score. But the damage to your credit scores is usually less than what it might be if you were to file bankruptcy. 

If you're considering credit card debt relief programs, it helps to research your options carefully. Check the services offered, the fees and online reviews to see what other people are saying. Regardless of which debt relief program you choose, the most important thing is taking action to get your finances and credit back on track. 

Pros and cons of government debt relief programs

Government debt relief programs can offer significant benefits. There may also be some drawbacks. It's important to understand both the pros and cons.

Pros:

• Borrowers with government student loans may qualify for income-driven repayment plans. These plans can make a big difference. They base your monthly payments on a percentage of your income. This helps make sure you can afford those payments.  

• Just signing up for automatic payments could lower your student loan interest rate. Automatic payments could qualify you for a 0.25% interest rate discount. This strategy also helps you avoid missing payments. 

• There are a few ways to get at least some of your student loan debt forgiven. Working long enough in certain public service professions can qualify you to have the remainder of your debt forgiven. So can paying into an income-driven repayment program for 20 or 25 years. Also, if you’ve become totally and permanently disabled you may not have to repay your student loans. Check StudentAid.gov for more details and to see if you qualify.

Cons:

• Eligibility criteria for these programs can be quite strict. For example, student loan disability discharge requires specific proof of your condition. These programs are for people in genuine need, so not everyone will qualify. 

• Having loans forgiven or just closing a loan account could temporarily affect your credit score. This depends on your situation. In the long run, having less debt can make it easier to work towards a higher score. 

• In some cases, forgiven debt is taxable income. However, debt forgiven under federal student loan programs is generally an exception. There are a few states where forgiven federal student loan debt may be treated as taxable income. 

By understanding these pros and cons, you can decide whether a government debt relief program is right for you.

Common myths about government debt relief programs

Let’s address some common myths about government debt relief programs to clear up any confusion.

Myth 1: Government programs erase all debt.

• Reality: In many cases, IRS and student loan debt forgiveness programs are based on your ability to pay. So, while they reduce the amount you owe, they may not completely eliminate your debt. 

Myth 2: Only people in severe financial distress qualify.

• Reality: Different programs have different eligibility criteria. For instance, Public Service Loan Forgiveness is available to individuals working in public service jobs, not just those in financial distress. Individuals from a variety of financial backgrounds can benefit. It's just a matter of meeting specific requirements.

Myth 3: Applying for government debt relief is too complicated and not worth the effort.

• Reality: The application process may take some time. But, there are many resources and support systems available to assist you. With the right guidance, you can work through the application process. Doing so is generally easier than living with high debt payments for years to come.

By debunking these myths, you can better understand what government debt relief programs can offer. That puts you in position to decide whether they might be right for you. These programs are designed to help, not to add more stress. It's worth exploring your options.

What to do if You Don’t Qualify for Government Debt Relief

Government debt relief programs don’t cover all types of debt, but there are other options that can help. Private specialists and hardship programs can provide support and solutions.

Here’s what you can do if you have debt problems the government can’t solve:

Explore private alternatives

There are private organizations that can help ease your debt burden. These organizations include private debt relief companies and nonprofit credit counselors. 

Here are some of the solutions they might offer:

• Hardship Programs: Many creditors offer hardship programs that can help you get through tough times. These programs might reduce or pause payments, lower interest rates, or waive fees for individuals experiencing financial difficulty.

• Debt Settlement Services: You can get professional help to negotiate with creditors. This can result in settling your debt for less than the full amount owed.

• Credit Counseling: Certified credit counselors can help you create a budget. They may even develop a tailored repayment plan so you can regain control of your finances.

Take the next steps

If you have debt problems, start taking steps to solve them:

• Reach out to creditors to ask about hardship programs

• Speak with a credit counselor or debt relief professional for a free consultation

• Consider which solution best fits your situation

• Act soon so you don’t build up more debt or face collection actions

Government debt relief programs may be part of the solution for you. Even if they can’t solve allf your debt problems, you still have private options to get you on the right track.