What Is a Government Debt Relief Program?
- There are no government relief programs for credit card debt.
- The phrase government debt relief program applies mainly to IRS and student loan debt.
- Private solutions to too much credit card debt include debt settlement and bankruptcy.
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.
IRS Fresh Start
IRS Fresh Start is a government debt relief program that was established in 2011 to help people who owe federal tax debt. This program helps both individual taxpayers and small business taxpayers by offering them flexible solutions for repaying outstanding taxes.
Debt relief options under IRS Fresh Start include:
Offer In Compromise (OIC)
Installment Agreement (IA)
Currently Not Collectible (CNC)
The Offer In Compromise program allows you to settle your tax debt with the federal government for less than what's owed. The IRS approves Offers In Compromise on a case-by-case basis and approval isn't guaranteed.
Installment Agreements are payment plans you can set up with the IRS to pay off your tax debt over time. You might consider this option if you don't qualify for an Offer In Compromise. If you're approved, you can take up to 72 months to pay off your tax debt in monthly installments which are deducted from your bank account automatically.
Currently Not Collectible isn't a payment plan but it can offer temporary tax debt relief. If the IRS agrees that you're not financially able to pay your tax debt, they can place your account in CNC status which would halt certain collection actions, such as levies or wage garnishments. The IRS could, however, offset your tax refund and use that money to pay what you owe.
Penalty Abatement allows you to get debt relief from penalties associated with unpaid taxes. This can help to shrink the total amount you owe to the IRS. You may qualify for a penalty abatement if you:
Didn’t previously have to file a return or you have no penalties for the three tax years prior to the tax year in which you received a penalty
Have filed all currently required returns or filed a tax extension
Have paid, or arranged to pay, any taxes due
If you also owe state taxes, you can reach out to your state's tax office to discuss possible debt relief options.
Income-Driven Student Loan Repayment
Income-driven repayment plans are designed to help make federal student loan repayment more affordable for eligible borrowers. There are four income-driven student loan repayment plans to choose from:
Revised Pay As You Earn Repayment Plan (REPAYE Plan)
Pay As You Earn Repayment Plan (PAYE Plan)
Income-Based Repayment Plan (IBR Plan)
Income-Contingent Repayment Plan (ICR Plan)
The Revised Pay As You Earn Repayment Plan calculates your payment as 10% of your monthly discretionary income. Meanwhile, the Pay As You Earn Repayment Plan sets your payment at generally 10% of your discretionary income but never more than what you'd pay under the Standard 10-Year Repayment Plan.
Income-Based Repayment calculates your payments one of two ways, based on when you took out your loans:
10% of your discretionary income if you're a new borrower on or after July 1, 2014, but never more than the 10-year Standard Repayment Plan amount OR
15% of your discretionary income if you're not a new borrower on or after July 1, 2014, but never more than the 10-year Standard Repayment Plan amount
Finally, Income-Contingent Repayment uses the lesser of the following to determine your student loan payments: 20% of your discretionary income or what you'd pay on a repayment plan with a fixed payment over the course of 12 years, adjusted according to your income.
Depending on which debt relief program you choose, your repayment period can last 20 to 25 years. Amounts still owed toward your student loans after the repayment period ends are forgiven and are not included in your taxable income. Keep in mind that you have to recertify your income each year to remain eligible for an income-driven repayment plan.
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.