Government Debt Consolidation Loans & Relief Programs?

People trust that the government will treat them fairly and not try to rip them off.

Consumers struggling under a mountain of debt are vulnerable and easy prey for scam artists.

Naturally, it makes sense to see if any government entities provide debt consolidation loans, relief programs or offer forgiveness to distressed borrowers.

You will find that the government regulates these affairs more than it sponsors them – with notable exceptions. However, the oversight can help you find trustworthy private companies.

Government Debt Consolidation Loans

Government debt consolidation loans are rarely legitimate as only one federal agency (the Department of Education) gets involved in lending money to individuals.

You cannot borrow your way out of debt. Therefore, benefits that reduce future spending are your best bet (see relief programs below).

Approved Loans

Government-approved debt consolidation loans do not exist because no federal agency endorses specific programs. However, two regulators and an industry trade group issue rules that legitimate companies will follow.

  • State Departments of Banking and Insurance provide consumer protections via regulation of financial services
  • The federal Consumer Financial Protection Bureau makes sure banks, lenders, and other financial companies treat you fairly
  • Online Lenders Alliance (OLA) members pledge to abide by a list of best practices and a code of conduct

(Sponsored Link)

Remember that borrowing money to consolidate debt can only restructure your obligations. You can lower monthly payments in two ways, but only one saves money in the end.  

  1. Lower interest rates help you retire debt more quickly (less common)
  2. Longer repayment terms help you retire debt more slowly (more frequent)


You might be able to obtain an interest-free government debt consolidation loan provided you fit exceptionally narrow criteria. The Internal Revenue Service (IRS) sponsors Flexible Spending Accounts (FSA), making this happen.

A letter of medical necessity could trigger an interest-free FSA loan to pay for dental care, flooring, HVAC equipment, surgery, and a host of other eligible health-related expenses that insurance does not cover.

Take these steps to set up an interest-free loan through your employer and retire future debts before they hit your family balance sheet.

  1. Elect to make FSA contributions during the annual open enrollment
    1. $2,750 limit per individual
    1. $5,500 limit for a married couple
  2. Incur eligible charges at the beginning of the FSA plan year
  3. Your employer must reimburse qualifying expenses immediately
  4. You have up to 12 months to repay the interest-free loan using pretax dollars, which save money up to three ways
    1. Federal income taxes
    1. State income taxes (where applicable)
    1. FICA taxes

Medical Debt

The government does not sponsor consolidation loans for medical debts. However, several federal agencies administer programs that help families lower health-related expenses.

Education Debt

The Department of Education issues the only government-approved student debt consolidation loans. A Direct Consolidation Loan allows you to combine multiple federal education loans into one contract at no cost to you.

Complete the free Federal Direct Consolidation Loan Application and Promissory Note as your first step. It should take about thirty minutes to complete the form. Be prepared with personal and financial information to speed the process.

Government Debt Relief Programs

Likewise, government debt relief programs are rarely legitimate because no federal agency funds or sponsors efforts to assist consumers with overwhelming obligations.

However, using just a little poetic license unearths a bevy of benefits that reduce future costs. Use the savings to retire existing obligations.

Free Grants

You will be hard-pressed to find free government debt relief grants that are legitimate. If you find an online resource touting federal sponsorship, be very wary.

Federal departments award grants to universities, state agencies, and non-profit organizations, not individuals with personal needs such as debt consolidation.

The government offers free money you never payback in the form of benefit programs that target financial help to specific populations and needs. Use these “grants” to reduce future expenses, releasing money to pay off existing obligations over time.

Credit Card Relief

The government does not sponsor a program for credit card debt forgiveness. Once again, be wary of any online resource touting approval from a federal agency, which could be a sign of fraud.

However, other consumer protections could offer liberation for some people


The government does not recommend programs offering credit card debt relief for seniors. However, several federal laws protect the elderly from the tentacles of collection agencies.

Credit card companies cannot garnish social security retirement benefits or seize pension funds governed by the Employee Retirement Income Security Act (ERISA), which can take several forms.

  • 401K Holdings
  • Deferred Compensation
  • Profit-Sharing
  • Employee Welfare Benefits


Likewise, the government does not recommend credit card relief programs for disabled individuals. Meanwhile, similar federal laws protect people with a disability from the long arms of collection agencies.

Credit card companies cannot garnish social security disability benefits, and many recipients are judgment-proof: they do not have enough resources to cost-justify an expensive lawsuit


The federal government no longer provides direct debt relief programs for people impacted by the COVID-19 pandemic. Several moratoriums and unique benefits expired after vaccines became readily available to the general public.

  • Rental eviction moratoriums ended in August of 2021
  • Mortgage forbearance ceased 9/30/21
  • Student Loan forbearance concludes on 1/31/22

Meanwhile, government financial assistance for coronavirus-induced hardship act as an indirect form of debt relief that could continue indefinitely.  

  • The Federal Emergency Management Agency (FEMA) provides funeral assistance for COVID-19-connected deaths
  • The Federal Communications Commission (FCC) offers emergency broadband benefits for remote learners during pandemic-forced school lockdowns
  • The Treasury Department facilitates the distribution of rental assistance money to help keep tenants in their apartments