Are There Government Grants to Help Pay Off Debt?

There are no government grants to pay off debt for individuals. The federal government does not hand out money to consumers to clear credit card balances, personal loans, or car notes, and the official federal grants portal says so directly: agencies do not publish personal financial assistance opportunities on Grants.gov, and USAGov states plainly that “the government does not offer free money or grants to people for personal needs.”¹² Federal grant money flows to state and local governments, schools, and nonprofits, not to households. What does exist is a narrower set of programs that help with specific kinds of debt — utility arrears, hospital bills, and federal student loans — plus legal tools like bankruptcy and nonprofit credit counseling for everything else.

Watch Out for “Free Government Money” Offers

Any ad, text, social post, or phone call promising free federal money to wipe out your debt is almost certainly a scam. Under the federal Telemarketing Sales Rule, a debt relief company cannot collect any fee from you until it has actually renegotiated or settled at least one of your debts and you have made at least one payment under that new agreement.³ Companies that break FTC rules face civil penalties of up to $50,120 per violation, adjusted annually for inflation.⁴ If someone demands an upfront fee to get you a government debt grant, walk away.

Federal Help That Does Exist, by Type of Debt

A handful of federal programs do pay bills on your behalf or cancel specific debts. None of them will touch credit card balances or personal loans, but if your problem is a past-due utility bill, a hospital balance, or a federal student loan, one of the following may apply.

Past-Due Utility Bills

The Low Income Home Energy Assistance Program (LIHEAP) sends federal money to states, which then pay your heating or cooling provider directly to cover outstanding balances and prevent shut-offs. The program is authorized under 42 U.S.C. § 8621 and serves low-income households that spend a high share of their income on home energy.⁵ Income eligibility is capped at 150 percent of the federal poverty guidelines, unless 60 percent of the state’s median income is higher, in which case the higher figure applies.⁶ Many states also run emergency crisis payments through LIHEAP when disconnection is imminent. Apply through your state’s health or human services department.

The parallel Low Income Household Water Assistance Program (LIHWAP) helps with past-due drinking water and wastewater bills, prioritizing households already disconnected or facing imminent shut-off.⁷ Funds go straight to the utility.

One boundary worth naming: the pandemic-era federal Emergency Rental Assistance Program ended its period of performance on September 30, 2025. As of 2026, ERA funds are no longer available for rent, rental arrears, or utility costs, and no permanent federal successor has been established.⁸ Renters facing eviction should check with their local housing authority for state and local resources that may still be running.

Hospital Bills

If you owe money to a nonprofit hospital, federal law may already entitle you to free or discounted care, even after treatment. Under Section 501(r)(4) of the Internal Revenue Code, every tax-exempt hospital must maintain a written financial assistance policy covering all emergency and medically necessary care, spelling out who qualifies, how to apply, and whether the hospital offers free care, discounted care, or both. Hospitals must publicize these policies on their website, in the ER and admissions areas, and in translated versions for communities with limited English proficiency. Once you are found eligible, the hospital cannot charge you more than it generally bills insured patients for the same care.⁹

Ask the hospital’s billing department for a financial assistance application. Many patients never do, and a significant reduction or full write-off is on the table.

On credit reports, the three major bureaus voluntarily agreed in 2023 to stop reporting paid medical debts and unpaid medical debts under $500. A broader CFPB rule that would have removed all medical debt from credit reports was vacated by a federal court in July 2025.¹⁰ The voluntary bureau agreement is what remains: small balances stay off, larger unpaid ones can still appear.

Federal Student Loans

Several federal programs can cancel part or all of a federal student loan balance. They are not grants, but the practical result is the same: the remaining balance goes away without you paying it.

Public Service Loan Forgiveness cancels your remaining Direct Loan balance after 120 qualifying monthly payments — about ten years — while you work full-time for a government agency or qualifying nonprofit. You must be on an income-driven repayment plan (or the standard 10-year plan) and still employed by a qualifying employer when you apply and when the balance is discharged.¹¹ PSLF forgiveness is permanently excluded from taxable income.¹²

Teacher Loan Forgiveness cancels up to $17,500 on Direct Loans or Federal Stafford Loans for teachers who work five consecutive years full-time in a low-income school or educational service agency. The $17,500 amount is reserved for highly qualified secondary math and science teachers; other eligible teachers can receive up to $5,000.¹³

Total and Permanent Disability Discharge fully cancels federal student loans for borrowers who cannot work due to a severe disability. You apply with a physician’s certification, VA documentation of a service-connected disability that makes you unemployable, or qualifying Social Security Administration disability documentation.¹⁴

Income-driven repayment plans cap monthly payments based on income and family size, and forgive the remaining balance after 20 or 25 years, depending on the plan. Income-Based Repayment forgives after 20 years for newer borrowers and 25 for others; Income-Contingent Repayment forgives after 25; Pay As You Earn forgives after 20.¹⁵

Forgiven Debt Can Come With a Tax Bill

When any creditor cancels $600 or more of debt, it reports the canceled amount to the IRS on Form 1099-C.¹⁶ The IRS generally treats canceled debt as ordinary income, so a settlement or forgiveness can leave you owing tax on money you never received.¹⁷

Federal law under 26 U.S.C. § 108 carves out several situations where you do not have to count canceled debt as income:¹²

Debt discharged in a Title 11 bankruptcy case is fully excluded from gross income.
If your total debts exceeded the fair market value of your total assets immediately before the cancellation, you can exclude the canceled amount up to the extent you were insolvent. Owe $50,000, hold $40,000 in assets, and up to $10,000 of forgiven debt can be excluded.
Canceled mortgage debt on your primary home is excluded if the cancellation occurred before January 1, 2026, or was part of a written agreement entered into before that date.
Amounts forgiven under qualifying public service student loan programs, including PSLF, are permanently excluded.

Exclusions usually require you to reduce certain tax attributes such as loss carryovers or the basis of your assets, and you claim them on IRS Form 982 attached to your return.¹⁸

One expiration worth knowing about: the American Rescue Plan Act’s temporary rule making all student loan forgiveness tax-free ran through the end of 2025 and expired on January 1, 2026.¹⁷ Borrowers who receive forgiveness through an income-driven repayment plan in 2026 or later could face a federal tax bill on the forgiven amount. PSLF remains permanently tax-free under a separate provision. If you expect income-driven forgiveness soon, check whether the insolvency exclusion applies to you.

When You Need Real Relief, Not a Grant

For consumer debt that no federal program will touch — credit cards, medical bills you cannot negotiate down, personal loans, car loans — two legal paths actually reduce what you owe.

Bankruptcy

Bankruptcy is a court-ordered release from most debts, and it is the only option that forces creditors to stop collection activity through an automatic stay. Chapter 7 is a liquidation: a court-appointed trustee sells your nonexempt property, pays creditors from the proceeds, and the court discharges most remaining unsecured debts, usually within 60 to 90 days after the creditors’ meeting.¹⁹ You must pass a means test comparing your income to your state’s median and complete credit counseling from an approved agency within 180 days before filing.²⁰ Chapter 7 clears most credit card debt, medical bills, and personal loans, but generally not student loans, child support, alimony, or recent tax debts.

Chapter 13 lets you keep your property while repaying debts under a court-approved plan lasting three to five years. It is especially useful for catching up on a past-due mortgage while keeping the home; qualifying unsecured debt still owed at the end of the plan is discharged.¹⁹ Bankruptcy stays on your credit report for seven years (Chapter 13) or ten years (Chapter 7).

Nonprofit Credit Counseling and Debt Management Plans

If your debt is heavy but not unmanageable, a nonprofit credit counseling agency can review your budget for free or low cost and, in many cases, set up a debt management plan. Under a DMP, the agency negotiates lower interest rates with your creditors and consolidates your payments into one monthly payment to the agency, which distributes funds to each creditor. Plans typically run three to five years, with fees often in the $25 to $50 per month range through a nonprofit agency. Look for one accredited by the Council on Accreditation and affiliated with the National Foundation for Credit Counseling, which requires member agencies to maintain independent accreditation and meet quality standards.²¹ A DMP is not forgiveness — you still repay the principal — but reduced interest can cut what you pay over time.

Local Help for a Specific Overdue Bill

When no federal program fits, local nonprofits and religious organizations sometimes offer small emergency grants for a specific bill. These will not eliminate a large balance, but they can stop an eviction or a shut-off.

United Way and the Salvation Army run locally funded programs providing one-time payments toward overdue rent or utilities during a temporary setback. St. Vincent de Paul operates through local conferences, usually based in Catholic parishes, providing direct assistance for rent, utilities, and other urgent needs after an interview to assess the situation.²² Payments are typically a few hundred dollars, one-time, and require documentation such as a disconnection notice or past-due bill. Availability varies by location and by time of year, since these groups rely on private donations. Call 211, the United Way helpline, to find programs near you.

1
Grants.gov. Home
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USAGov. Government Grants and Loans
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eCFR. 16 CFR Part 310 – Telemarketing Sales Rule
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Federal Trade Commission. Notices of Penalty Offenses
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Office of the Law Revision Counsel. 42 USC 8621 – Home Energy Grants
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LIHEAP Clearinghouse. LIHEAP Income Eligibility for States and Territories
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Administration for Children and Families. LIHWAP Fact Sheet
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U.S. Department of the Treasury. Emergency Rental Assistance Program
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Internal Revenue Service. Financial Assistance Policy and Emergency Medical Care Policy – Section 501(r)(4)
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Consumer Financial Protection Bureau. Prohibition on Creditors and Consumer Reporting Agencies Concerning Medical Information (Regulation V)
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U.S. Department of Agriculture Food Safety and Inspection Service. Public Service Loan Forgiveness (PSLF) Program Fact Sheet
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Office of the Law Revision Counsel. 26 USC 108 – Income From Discharge of Indebtedness
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Federal Student Aid. Teacher Loan Forgiveness
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eCFR. 34 CFR 685.213 – Total and Permanent Disability Discharge
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Federal Student Aid. Top FAQs About Income-Driven Repayment Plans
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Internal Revenue Service. About Form 1099-C, Cancellation of Debt
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Internal Revenue Service. Topic No. 431, Canceled Debt – Is It Taxable or Not?
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IRS.gov. Instructions for Form 982
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United States Courts. Chapter 7 – Bankruptcy Basics
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Office of the Law Revision Counsel. 11 USC 727 – Discharge
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NFCC – National Foundation for Credit Counseling. Accreditation Standards
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The Society of St. Vincent de Paul. Rent and Utility Bill Assistance