Government debt relief programs—Do they exist?

Debt affects almost everyone. Did you know that U.S. household debt in 2023 was more than $17 trillion? On top of that, the U.S. government owes more than $32 trillion in debt.

Debt can include student loans, mortgage loans, credit card debt, medical, auto, personal loans, and even everyday bills. Although there are assistance programs and grants offered by the federal government, there's no government-issued debt relief program that simply erases your debts.

What is government debt relief?

Government debt relief refers to various federal, state, or local government programs. The programs are designed to help individuals who are struggling to repay their debts. These programs can help reduce, manage, or even forgive debts for qualified individuals, often depending on factors like income, type of debt, or employment.

The goal is to provide financial relief to those facing hardship and to help them reach a more stable financial situation.

COVID-related government debt relief programs

To help you understand some of the ways government programs work, here are some examples from the COVID era. Although many of these programs don't exist today, they can give you a good idea of how the government can help households manage debt and debt payments.

1. Student Loan Relief: The federal government implemented a pause on federal student loan payments, which also included a 0% interest rate on these loans. This relief measure was extended several times to help borrowers cope with the economic impact of the pandemic.
2. Mortgage Forbearance: Homeowners with federally backed mortgages were allowed to ask for forbearance, temporarily reducing or pausing their mortgage payments. This measure was aimed at preventing foreclosures during the economic downturn caused by the pandemic.
3. Stimulus Payments: The government issued several rounds of direct stimulus payments to individuals and families. These payments were intended to provide immediate financial relief and stimulate economic activity.
4. Expanded Unemployment Benefits: The government significantly expanded unemployment benefits, including increasing the amount of money people received and extending the duration of benefits. This was crucial for those who lost their jobs or faced reduced working hours.
5. Small Business Assistance: The Paycheck Protection Program (PPP) gave small businesses loans to keep workers and manage expenses during the pandemic.
6. Tax Relief: Certain tax relief measures, such as deferring tax filing deadlines and waiving penalties for late payments, were also implemented.
7. Utility and Rent Assistance: Many local governments and utility companies provide relief. This included stopping evictions, providing rent assistance, and suspending utility shut-offs for non-payment.

Government debt relief–different types of debt 

The good news is that the government offers various programs to help with debt management and make monthly payments more feasible. It's important to keep in mind, however, that there is no one solution that can magically solve all financial problems. Most programs have strict eligibility requirements, and often it's wise to look for alternative non-government solutions.

Overview of different government programs by type of debt:

Government debt relief for student loans

The largest consumer non-housing debt in America is student loans. As of Q3 2023, student loan debt surpassed $1.6 billion. Student loan balances increased about sevenfold between 2003 and 2023, comprising more than 33% of non-housing debt.

Taking out student loans can place a significant strain on one's finances. The monthly payments make it a challenge to save, accumulate funds for a house down payment, or cover basic expenses.

Currently, most student loans today are federal student loans, which are often eligible for various government student debt relief programs.

If you have short-term problems, consider a deferment or forbearance plan. However, if you are struggling with payments, consider loan consolidation, loan extension, an income-driven plan, or an income-sensitive plan. There also exist certain loan forgiveness plans.

If you are struggling with your federal student loans, then you should consult your loan servicer. Also, refer to the excellent student aid government website: https://studentaid.gov/h/manage-loans.

In the news: the Biden Student Debt Relief plan

Since October 2023, significant developments have occurred regarding the Biden Administration's Student Loan Debt Relief Plan. Here's a summary of the key updates:

1. Supreme Court decision: The Supreme Court issued a decision that blocked the Biden Administration from moving forward with its one-time student debt relief plan.
2. Transition back to regular payments: President Biden, Vice President Harris, and the U.S. Department of Education's proposal aimed to help federal student loan borrowers resume their regular payments as the pandemic-related support ends. As part of this plan, borrowers could potentially receive up to $20,000 in loan forgiveness. However, the Supreme Court's ruling has impacted the current status of this relief.
3. Student Loan Repayment Pause: The final extension of the student loan repayment pause was part of the plan. However, Congress passed a law preventing further extensions. As a result, student loan interest resumed on September 1, 2023, with payments due starting in October 2023.
4. Targeted Debt Relief: The plan initially provided up to $20,000 in debt relief for Pell Grant recipients and up to $10,000 for non-Pell Grant recipients, subject to income thresholds. The current status and availability of this relief are subject to the Supreme Court's decision.
5. Public Service Loan Forgiveness (PSLF) Program: The plan also included provisions for loan forgiveness through the PSLF program for eligible borrowers. However, the impact of the Supreme Court's decision on this aspect of the plan isn't clear.
6. Proposed New Income-Driven Repayment Plan: The Biden-Harris Administration proposed a new income-driven repayment plan to reduce future monthly payments for lower and middle-income borrowers. The recent legal developments may also influence the progress of this proposal.

For the latest information and updates on how these developments impact borrowers, visiting the U.S. Government's Federal Student Aid website is recommended. It's also important to be vigilant against scams and to work only with the Education Department and its loan servicers.

Mortgages and government debt relief programs

For many homeowners, navigating the challenges of mortgage payments can be daunting, especially during financial hardships. Fortunately, government-backed programs, including those offered by Fannie Mae and Freddie Mac, provide a lifeline. Here are a few examples of the types of programs designed to offer relief and prevent foreclosure for those struggling with their mortgage commitments.

1. Short Sale Program: This option allows homeowners to sell their property for less than the outstanding mortgage balance. It offers a way out for those who owe more than their home's current value.
2. Deed-in-Lieu of Foreclosure: Instead of going through foreclosure, homeowners can transfer the property's deed back to the lender, releasing them from their mortgage debt.
3. Loan Modification and Assistance: Various programs are available to modify loan terms, making payments more manageable for homeowners facing financial difficulties.

These programs aim to provide struggling homeowners with practical solutions, helping them manage or even restructure their mortgage obligations to avoid foreclosure.

Tip: If you are behind on your mortgage payments, contact your mortgage servicer or an HUD-approved housing counselor. Seek personalized advice to explore the most suitable options for your situation.

Medical and hardship government debt relief

While there is no universal program to help with personal debt, some local programs help people in financial hardships. One of the main sources of financial hardship is due to illness and medical bills. Not only do people lose income, but medical debt can be costly. Many people use their savings and credit card debt to pay for medical care.

The government has a website to help with medical and other bills. You can learn about state and federal health insurance programs that help pay for bills or payment options. Here are some other areas that the government can offer relief: Paying for Telephone Service, Home Energy Bill, Medical Bills, Prescription Drug Costs, and Welfare or Temporary Assistance for Needy Families (TANF).

The government also provides information and programs about medical debt on its MedlinePlus site. As the saying goes: "an ounce of prevention is worth a pound of cure." While much of the information doesn't help with past debt, avoiding some medical debt may be possible by arming yourself with knowledge.

Low-income debt relief programs:

Managing debt can be difficult for people with lower incomes. Some programs directly help families with their budget and help with important costs such as rent, utilities, and groceries. While these programs don't reduce or consolidate debt, they do help provide important relief to manage monthly payments. Here are a few types of low-income debt relief programs:

1. Utility Assistance Programs: Many local governments and non-profit organizations offer programs to help low-income households manage their utility bills, preventing debts from accumulating.
2. Credit Counseling Services: Non-profit credit counseling agencies offer free or low-cost services to help low-income individuals regain control of their finances.
3. Housing and Rent Assistance Programs: These programs help low-income families with housing costs, helping to prevent the accrual of debt related to rent or mortgages.
4. Supplemental Nutrition Assistance Program (SNAP): Easing the Burden of Food Costs: SNAP aims to help low-income households get enough food, reducing financial pressure. By supplementing their food budgets, SNAP helps recipients have more money to spend on other things like rent, utilities, and debt payments.

Programs like these help people with limited income get financial stability. They offer immediate relief and help long-term, where individuals learn to manage their finances better. For those with low income, exploring these programs can help get to a secure financial future.

What about credit card debt and government debt relief?

The government doesn't provide debt relief programs for credit card debt as it does for student loans and mortgages. However, government-endorsed strategies and protections are in place to help individuals manage and overcome credit card debt.

Consumer Protection Laws: Various federal laws protect consumers from unfair credit billing and debt collection practices. The Fair Credit Billing Act (FCBA) and Credit Card Act of 2009 help consumers with their credit card bills. For example, they address billing issues, restrict the rise of interest rates, and ensure transparent disclosure of account conditions.

Government protection against debt collectors

Unfair and deceptive collection practices can add strain to a debt problem. The government offers many consumers debt relief through its legal protections. Here are a few examples of how the government can help:

Regulating debt collection: This includes the Fair Debt Collection Practices Act (FDCPA), which limits the actions of debt collectors. If you are behind in payments, then the last thing you want to face is harassment from a debt collector. The FDCPA prohibits debt collectors from very specific behavior, including using abusive or threatening language and threats of arrest.

Collection laws: Another area that the government offers debt relief is through collection laws and statutes of limitations. These offer you protection in the case of a lawsuit and a potential judgment. These laws are both state-specific and relate to the type of debt and assets.

Bankruptcy: The government also offers debt relief through a court-approved bankruptcy. This is called a Chapter 7 liquidation or a Chapter 13 payment plan. Bankruptcy is a last resort, so not many people can qualify for a Chapter 7 bankruptcy or complete a Chapter 13 bankruptcy.

It's important for individuals dealing with credit card debt to understand their rights and options. Government websites, like the Federal Trade Commission and the Consumer Financial Protection Bureau, can help with credit card and other types of debt by providing resources and information.

Good News: alternatives to government debt relief Options

The good news for many people in debt is that there are several debt relief options that don't include the government. There are solutions for people in good financial shape and for those in a financial hardship and struggling with credit card debt.

Here are a few options that require the means and discipline of sticking to a budget and repayment plan.

1. The snowball debt method or taking out a debt consolidation loan are effective ways to pay back your debt aggressively.
2. Some credit cards offer a 0% introductory rate for balance transfers, allowing you to pay off your credit card debt without paying interest.
3. Non-profit credit counseling agencies help with debt management, budgeting, and lowering interest rates.

If you're struggling to make the minimum payments and prefer to focus on paying off your debt rather than your credit, then consider a debt settlement program. The good news is that the government oversees this industry, meaning you won't have to pay anything in advance.

Private industry, with firms such as bills.com sister company Freedom Debt Relief, can offer you debt relief for credit card debt and other unsecured debt, in cases where the government can't help.

Bills action plan–Government debt relief programs

Here are some valuable tips for managing debt:

1. Keep a budget: If you need help setting or managing a budget, check out the bills.com Budget Guide or an online app like Achieve MOLO.
2. Take a good look at your debt: There are many different types of debt, and each one might have a special program. Pay special attention to government-backed student loan programs.
3. If you are struggling with monthly payments, talk to your lender.
4. Look beyond government debt relief programs. Talk to a debt consultant to help analyze your situation and find a personalized debt solution.