Government Debt Relief Programs

Andrea Miller
Expert Contributor
Last Updated:
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Although government debt relief programs are rare, you may have some federally-sponsored options if you’re struggling with a mortgage or student loan debt.

The Home Affordable Refinance Program (HARP)

This mortgage relief program was established by the Federal Housing Finance Agency (FHFA) to provide refinancing options for homeowners who have little or no equity in their homes. This program may allow you to access a lower monthly payment or interest rate. You can also shorten the term of your loan to decrease the total interest amount you will pay.  To qualify for HARP, you must:

  • Be current on your monthly mortgage payments
  • Have a mortgage loan that is backed or owned by either Freddie Mac or Fannie Mae
  • Have a mortgage loan to home value ratio of at least 80%
  • Have no more than one late mortgage payment in the past 12 months and no payments later than 30 days in the past six months
  • Have a mortgage that originated on or before May 31, 2009

According to data from the FHFA, most homeowners who qualify for HARP lower their mortgage payments by about $179.

Public Service Loan Forgiveness

This program forgives federal Direct student loans for qualifying individuals who work for tax-exempt non-profit organizations and government agencies. If you have a Direct Loan, you may be eligible for public service forgiveness if:

Government Debt Relief Programs
  • You have made at least 120 qualifying monthly payments on the loan while working full-time for a qualifying employer, which may not be a partisan political organization or labor union.
  • You have completed the Public Service Loan Forgiveness Employment Certification Form before making those payments.
  • You complete and submit the Application for Forgiveness.

If you have a federal Perkins Loans or Federal Family Education Loan, you can become eligible for this program by meeting the above criteria and consolidating your student debt with a Direct Consolidation Loan.

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Teacher Loan Forgiveness

If you are a teacher who used Direct Subsidized and Unsubsidized Loans or Subsidized and Unsubsidized Federal Stafford Loans to pay for college, you can have up to $17,500 of your loan balance forgiven by teaching for at least five consecutive years at a low-income school or education agency. To qualify, you must:

  • Have a bachelor’s degree
  • Be certified to teach in your state
  • Never have lost your teaching license or certification
  • Possess demonstrated knowledge of the curriculum and subject matter for your specific teaching area
  • Not be in default on your student loans

The maximum amount of loan forgiveness is reserved for full-time secondary school math and science teachers and special education teachers for students with disabilities.

Perkins Loan Cancellation

If you have a federal Perkins Loan, cancellation of your loan balance may be available if you are a teacher, librarian, speech or occupational therapist, or guidance counselor who provides direct services to students. To qualify, you must be employed full-time in one of the following settings:

  • Low-income non-profit or public school
  • Special education for students of all ages who have disabilities
  • A subject area with a shortage of qualified teachers in your state (commonly math, foreign languages, science, and English as a second language)

A portion of your loan, including both principal and interest, will be canceled for each full academic year you complete, up to 100% of your Perkins Loan balance:

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  • 15% during your first and second years of teaching
  • 20% during your third and fourth years of teaching
  • 30% during your fifth year of teaching

You may also be eligible for Perkins Loan cancellation if you work full-time as a:

  • Nurse
  • Firefighter
  • Medical technician
  • Faculty member at a tribal college
  • Early intervention services provider
  • Public defender
  • Head Start program staff member
  • Employee of a low-income child and family services agency (public or non-profit)
  • AmeriCorps or Peace Corps volunteer
  • Member of the military serving in an area of hostile fire or imminent danger

Steps To Take When Struggling With Debt

If you have credit card, student loan, or mortgage debt that you cannot pay and are not eligible for one of the government debt relief programs described above, all is not lost. You can take steps on your own and with the help of qualified credit counselors to reduce your debt and eventually pay it off completely.

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First, make a comprehensive budget by writing down all your monthly income sources and amounts. Then, note both your fixed expenses, like mortgage and car payments, and variable expenses, like utilities and groceries. Try to reduce your spending in areas such as entertainment and dining out so that you can put more money toward paying off your debt.

You should contact your creditors as soon as you begin struggling to make payments. You may be able to negotiate a lower interest rate or an otherwise modified payment plan that gives you some financial breathing room.

If you don’t have enough money to pay all your bills, focus on paying secured debts such as home and car loans. These loans are secured by items that can be repossessed by the bank if you do not pay. Unsecured debts are those such as credit cards and medical bills that are not associated with collateral.

Seek advice from a non-profit credit counseling service. These organizations specialize in working with your creditors to negotiate a settlement of your debt for less than the full balance. They can also help you make a budget that works for your financial situation. Some companies offer a debt management plan in which they collect a monthly payment which is distributed to your creditors, often in combination with lower interest rates and a fixed amount due.

With debt settlement programs, you deposit a fixed monthly payment in a savings account that is eventually used to pay your creditors a negotiated lump sum to settle your debt. For some individuals, bankruptcy may also be an option for severe debt.

Solvable helps you connect with an organization that can help you get out of debt. Whether you’re struggling with tax, credit card, or student loan debt, we match you with vetted companies that provide solutions.

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Andrea Miller
Expert Contributor
Last Updated: