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 legitimate government debt relief programs and it’s a shame they’re not more widely known. The federal government has, by its own admission, done a poor job advertising them. Here are five that everyone should know about:
5 Government debt relief programs
1. Homeowners Assistance Fund (HAF)
The Homeowner Assistance Fund (HAF) was established under the American Rescue Plan Act of 2021 in response to the financial hardships American homeowners faced due to the COVID-19 pandemic. It’s a $9 billion federal program that was created to:
- Help homeowners avoid mortgage delinquencies, defaults, and foreclosures
- Prevent the loss of utilities and protections like electricity, internet, or property insurance
- Assist with homeowner or condominium association fees.
Homeowners facing financial hardship may get up to $80,000 in non-taxed relief toward their primary residence. These funds are not distributed directly to the individual and instead are sent directly to the service provider.
The maximum amount of aid will vary by state. Although the program is overseen by the U.S. Treasury Department, the funds are managed and distributed by individual states, territories, and tribes, and each has its own program guidelines, eligibility criteria, and application process.
Homeowners must demonstrate that they have 1) experienced financial hardship after January 21, 2020, and 2) have a household income that’s less than 150% of the area’s median income based on household size (which excludes public benefits like SNAP). Some states may have additional requirements that need to be met. Only one applicant per household is allowed.
Eligible homeowners include residents of all 50 states as well as the District of Columbia, the Commonwealth of Puerto Rico, Guam, American Samoa, the United States Virgin Islands, and the Commonwealth of the Northern Mariana Islands.
You need to visit the specific HAF application page for your state or territory. Refer to the National Council of State Housing Agencies’ interactive map. It has links to each area’s application page and includes an at-a-glance status of whether that state program is still accepting applications.
2. 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 and 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.
3. Income-Driven Student Loan Repayment
There are also government debt consolidation programs to relieve some of the $1.4 trillion in student loan debt that currently plagues Americans (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 previously 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 several student loan assistance programs that can reduce your monthly payments. The repayment terms 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.
4. 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 which would discharge your entire student loan balance.
5. Public Service Loan Forgiveness
If you’re a nurse or EMT that works for a public hospital, or a firefighter or first responder, you may be eligible for the Public Service Loan Forgiveness program (PSLF). Those who work in an eligible field and make student loan payments for ten years can have their remaining student loan balance forgiven. Getting approved can be challenging but it’s certainly worth the hassle.
Are there government debt consolidation programs for credit cards?
No, the government doesn’t have any federal programs for dealing with 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 provide free advice and assistance.
These agencies are funded through grants from credit card companies. With these funds, credit counseling agencies can offer special programs and educational resources to rehabilitate customers that have gotten overextended with credit.
Can’t find a government debt relief program for your type of debt?
Government debt relief programs exist and yes, they are legitimate. However, they’re limited in the types of debt relief they offer and are only applicable to student loans, homeowners, and tax debt. Fortunately, there are several other legitimate debt relief options outside of those that are government-run that can help you with your debt struggles.
The best way to find these programs is to contact a debt relief specialist. These trained experts can help you create a strategy for tackling your debt and identify debt relief programs you might qualify for. Consultations are free and no commitment.
