Are There Government Debt Relief Programs Out There?

Question: Are there legitimate government debt consolidation programs out there? I see a lot of commercials advertising things like this, but I’m skeptical. If this is true, who are these programs for? If I sign up for them, do I have to pay anything? Where will my money go? How can a government relief program get me out of debt, anyway? The more I think about it, the more the whole thing seems too good to be true.

— Paul in Virginia

Howard Dvorkin CPA answers…

Yes, there really are numerous government debt relief programs, including consolidation programs. These programs should be seen by a wider audience. However, the federal government has, by its own admission, done a poor job advertising them.

Government debt consolidation and relief programs

IRS Fresh Start Program

The government has programs to relieve crushing tax debt. If you’ve fallen far behind on income taxes owed to the government, the IRS has set up the Fresh Start program, a series of rules changes that make it much easier to pay back that debt to the government. One part of Fresh Start makes it easier to use a government debt consolidation program called an Installment Agreement for repaying multiple years of back taxes. The other part of Fresh Start makes it easier to use the government’s tax debt settlement program, known as an Offer in Compromise.

Income-Driven Student Loan Repayment

On the student loan side, government debt consolidation programs are intended to relieve the awful impact of $1.4 trillion in student loan debt. That’s more than all the credit card debt in the nation. Why would the federal government want to help you with your student loans? Simple, it has a vested interest.

As Debt.com has reported, the crushing burden of student loans has meant millennials aren’t buying houses as soon as they’d like, which could slow the economy. Those with student loans are also taking more time to pay them back, which means more Americans will spend more time in debt.

For these dire reasons and a few more, the federal government offers a slew of programs that can reduce your monthly payments. The repayment term and new payment amounts depend on your monthly income and family size. The goal is to make your student loan payments more affordable by ensuring they only take up a certain low percentage of your income.

Student Loan Disability Discharge

If you’re disabled on a long-term basis, you may also qualify for a Total and Permanent Disability (TPD) Discharge. There are numerous conditions that must be met first, but if you can manage all of them, you could discharge your entire student loan balance.

Public Service Loan Forgiveness

Finally, if you’re a nurse or EMT that works for a public hospital, or a firefighter or first responder, you may be eligible for public service loan forgiveness. By following all the steps provided over the course of ten years, your remaining student loan balance may be forgiven.

There are no government debt consolidation programs for credit cards

One type of debt that the government doesn’t offer relief for is credit card debt. There is no government program that forgives or even minimizes the burden of paying off your credit card balances. There are, however, 501(c)3 nonprofit consumer credit counseling services that work with you to provide debt relief. These agencies are funded through grants from credit card companies. They provide funds to these agencies in order to help rehabilitate customers that have gotten overextended with credit.

Finding the right debt relief programs for your needs

Depending on the type or types of debt you have, there may be a government debt consolidation or relief program that you can use. And even if you can’t use a government program, there are plenty of programs out there that can help you get out of debt. Identifying programs that you can qualify for is usually the first step to making a real plan to eliminate your debt. A credit counselor can help you with this.