There are no government grants to help pay off debt in the general sense people usually mean — credit cards, car loans, or personal loans. Federal grants go to states, local governments, schools, and nonprofits, not to individuals paying down consumer balances. USAGov puts it plainly: “The government does not offer free money or grants to people for personal needs.”1USAGov. Government Grants and Loans What does exist is a patchwork of narrower programs that pay specific bills, cancel certain student loans, or give you a legal way out of debts you cannot repay.
Any ad, text, or caller promising “free government money” to erase your credit card balance is almost certainly a scam. Under the federal Telemarketing Sales Rule, debt relief companies cannot charge you any fee until they have actually renegotiated or settled at least one of your debts and you have made a payment under the new agreement.2eCFR. 16 CFR Part 310 – Telemarketing Sales Rule Upfront-fee pitches are the tell.
Bills the Government Will Actually Help Pay
The closest thing to a “grant” most households will find is federal money that goes directly to a utility or service provider on their behalf. You do not receive cash, but a past-due balance gets covered.
Heating and Cooling Bills
The Low Income Home Energy Assistance Program (LIHEAP) sends federal funds to states, which distribute them to eligible households to cover energy bills and prevent shut-offs. It is authorized under 42 U.S.C. § 8621.3Office of the Law Revision Counsel. 42 USC 8621 – Home Energy Grants Income eligibility is capped at 150 percent of the federal poverty guidelines, or 60 percent of the state median income if that figure is higher.4LIHEAP Clearinghouse. LIHEAP Income Eligibility for States and Territories Funds typically go straight to your energy provider, and local agencies can issue emergency crisis payments when a household faces an immediate threat to health or safety. Contact your state’s health or human services department to find the local LIHEAP office.
Water and Sewer Bills
The Low Income Household Water Assistance Program (LIHWAP) covers past-due water and wastewater charges. It prioritizes households whose water has already been disconnected or is about to be.5Administration for Children and Families. LIHWAP Fact Sheet Benefit amounts vary by state, and the money goes directly to the utility.
A Note on Rent
The federal Emergency Rental Assistance Program ended its period of performance on September 30, 2025, and no permanent successor program has been established.6U.S. Department of the Treasury. Emergency Rental Assistance Program If you are facing eviction, your local housing authority or state agency is the current path to check.
Medical Debt: Ask the Hospital First
Before treating a medical bill as debt you have to negotiate or ignore, check whether the hospital owes you a discount. Under Section 501(r)(4) of the Internal Revenue Code, every tax-exempt hospital must maintain a written financial assistance policy covering emergency and medically necessary care. The policy has to spell out who qualifies, how to apply, and whether the hospital offers free care, discounted care, or both.7Internal Revenue Service. Financial Assistance Policy and Emergency Medical Care Policy – Section 501(r)(4)
Hospitals must publicize these policies on their website, in the emergency room, and in admissions areas, including translated versions where needed. Once a patient qualifies, the hospital cannot charge more than it generally bills insured patients for the same care.7Internal Revenue Service. Financial Assistance Policy and Emergency Medical Care Policy – Section 501(r)(4) The catch is that many patients never ask. If you have an unpaid hospital bill, request a financial assistance application from the billing department. You may qualify for a large reduction or a full write-off, even after the bill has gone to collections.
Student Loan Cancellation That Works Like a Grant
Several federal programs cancel part or all of a student loan balance. Technically these are discharges, not grants, but the effect on your pocket is the same.
Public Service Loan Forgiveness
If you work full-time for a government agency or a qualifying nonprofit, PSLF cancels your remaining Direct Loan balance after 120 qualifying monthly payments — roughly ten years. You have to be on an income-driven plan (or the standard 10-year plan), and you must still be employed by a qualifying employer when you apply and when the balance is discharged.8U.S. Department of Agriculture Food Safety and Inspection Service. Public Service Loan Forgiveness (PSLF) Program Fact Sheet PSLF forgiveness is permanently excluded from taxable income.9Office of the Law Revision Counsel. 26 USC 108 – Income From Discharge of Indebtedness
Teacher Loan Forgiveness
Teachers who work full-time for five consecutive years in a low-income school or educational service agency can have up to $17,500 forgiven on Direct Loans or Federal Stafford Loans. The top amount goes to highly qualified secondary math and science teachers; other eligible teachers can receive up to $5,000.10Federal Student Aid. Teacher Loan Forgiveness
Total and Permanent Disability Discharge
Borrowers unable to work due to a severe disability can apply to have federal student loans discharged in full. The application requires a physician’s certification of total and permanent disability, VA documentation of a service-connected disability that makes the borrower unemployable, or qualifying Social Security disability documentation.11eCFR. 34 CFR 685.213 – Total and Permanent Disability Discharge
Income-Driven Repayment Forgiveness
Income-driven plans cap your monthly payment based on income and family size. After 20 or 25 years of payments, the remaining balance is forgiven. Income-Based Repayment forgives after 20 years for newer borrowers and 25 for others; Income-Contingent Repayment forgives after 25 years; Pay As You Earn forgives after 20.12Federal Student Aid. Top FAQs About Income-Driven Repayment Plans Unlike PSLF, balances forgiven this way may be taxable starting in 2026.
When You Need to Clear General Debt: Bankruptcy
For credit card balances, medical bills already in collections, and personal loans, bankruptcy is the only legal mechanism that can actually eliminate the debt. It is not a grant, but it is the only option that forces creditors to stop collecting through an automatic stay.
Chapter 7
Chapter 7 is a liquidation. A court-appointed trustee sells nonexempt property to pay creditors, and the court discharges most remaining unsecured debts, typically within 60 to 90 days after the creditors’ meeting.13United States Courts. Chapter 7 – Bankruptcy Basics 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.14Office of the Law Revision Counsel. 11 USC 727 – Discharge Chapter 7 wipes out most credit card debt, medical bills, and personal loans. It generally cannot eliminate student loans, child support, alimony, or recent tax debts.
Chapter 13
Chapter 13 lets you keep your property while repaying debts under a court-approved plan of three to five years. It is available to individuals with regular income and is particularly useful for catching up on a past-due mortgage without losing the home.13United States Courts. Chapter 7 – Bankruptcy Basics Any qualifying unsecured debt left at the end of the plan is discharged. Bankruptcy stays on a credit report for seven years (Chapter 13) or ten (Chapter 7).
Nonprofit Credit Counseling
If your debt is heavy but not unmanageable, a nonprofit credit counseling agency can help you build a budget and, if it fits, put you on a debt management plan. Under the plan, the agency negotiates lower interest rates with your creditors and consolidates your monthly payments into one payment to the agency, which then pays each creditor.
Debt management plans generally run three to five years. Nonprofit agency fees are modest, often $25 to $50 a month. Look for an agency accredited by the Council on Accreditation and affiliated with the National Foundation for Credit Counseling, which requires member agencies to maintain independent accreditation and follow quality standards.15NFCC – National Foundation for Credit Counseling. Accreditation Standards You still repay the principal, but reduced interest can meaningfully lower the total.
The Tax Bill That Can Follow Forgiven Debt
If a creditor cancels $600 or more of what you owe, the creditor reports the canceled amount to the IRS on Form 1099-C.16Internal Revenue Service. About Form 1099-C, Cancellation of Debt The IRS generally treats that canceled amount as ordinary income, so you can owe tax on money you never received.17Internal Revenue Service. Topic No. 431, Canceled Debt – Is It Taxable or Not? This applies to settled credit card balances, forgiven personal loans, and most other consumer debts.
Federal law provides several ways to reduce or eliminate the tax:
- Bankruptcy: Debt discharged in a Title 11 case is fully excluded from gross income.
- Insolvency: If your total debts exceeded the fair market value of your assets immediately before the cancellation, you can exclude canceled debt up to the amount you were insolvent. Owing $50,000 with $40,000 in assets means up to $10,000 of forgiven debt can be excluded.
- Qualified principal residence debt: Canceled mortgage debt on a primary home is excluded if the cancellation occurred before January 1, 2026, or was part of a written agreement entered into before that date.
- Public service student loan forgiveness: Amounts forgiven under qualifying programs tied to working in certain professions for a broad class of employers, including PSLF, are permanently excluded from income.
These exclusions come from 26 U.S.C. § 108, which generally requires you to reduce certain tax attributes (such as loss carryovers or the basis of your assets) by the excluded amount.9Office of the Law Revision Counsel. 26 USC 108 – Income From Discharge of Indebtedness Claim an exclusion on IRS Form 982, attached to your return.18IRS.gov. Instructions for Form 982
One timing note for student loan borrowers: the American Rescue Plan Act made all forms of student loan forgiveness tax-free through the end of 2025. That provision expired on January 1, 2026.17Internal Revenue Service. Topic No. 431, Canceled Debt – Is It Taxable or Not? Borrowers who receive forgiveness through an income-driven plan in 2026 or later could face federal tax on the forgiven amount. PSLF forgiveness stays tax-free under a separate provision. If you expect income-driven forgiveness soon, check whether the insolvency exclusion applies to your situation.
Local Help When Nothing Federal Fits
When a federal program does not match your situation, local nonprofits and religious organizations sometimes provide small emergency grants for a specific bill. These will not clear a large balance, but they can stop an immediate crisis like a shut-off or an eviction.
- United Way and Salvation Army: Both run locally funded programs providing one-time payments for overdue rent or utilities during a temporary setback.
- St. Vincent de Paul: Local conferences, usually based in Catholic parishes, provide direct financial assistance for rent, utilities, and other urgent needs after an interview to assess urgency.19The Society of St. Vincent de Paul. Rent and Utility Bill Assistance
Community help is usually a one-time payment of a few hundred dollars and requires documentation such as a disconnection notice or past-due bill. Availability varies by location and time of year. Dial 211, the United Way helpline, to find programs in your area.