Section 1005 of the American Rescue Plan Act was a 2021 federal program that directed the USDA to pay off farm loan debt for socially disadvantaged farmers and ranchers. It never fully launched. Federal courts blocked payments on equal protection grounds, and Congress repealed the provision through the Inflation Reduction Act of 2022. If you came here hoping to apply, the program no longer exists. Two replacement programs have already distributed most of their funds, and one narrower relief tool remains open through April 2026.
What Section 1005 Was Supposed to Do
The provision authorized USDA’s Farm Service Agency to pay up to 120 percent of the outstanding balance on qualifying farm loans held by socially disadvantaged farmers and ranchers as of January 1, 2021.1Farm Service Agency. In Historic Move, USDA to Begin Loan Payments to Socially Disadvantaged Borrowers under American Rescue Plan Act Section 1005 Of that amount, 100 percent went to the loan principal and interest and 20 percent went directly to the borrower to help cover taxes and transition costs.
Eligible debt included FSA Direct Loans and FSA Guaranteed Loans, covering farm ownership loans, operating loans, and Farm Storage Facility Loans with outstanding balances on January 1, 2021.2Federal Register. Notice of Funds Availability – American Rescue Plan Act of 2021 Section 1005 Loan Payment (ARPA) Eligibility turned on the borrower belonging to a “socially disadvantaged group” under 7 U.S.C. 2279(a), which USDA applied to Black, American Indian or Alaska Native, Hispanic or Latino, and Asian American or Pacific Islander borrowers.3Office of the Law Revision Counsel. 7 USC 2279 – Farming Opportunities Training and Outreach
Why the Program No Longer Exists
USDA announced in May 2021 that it would begin payments the following month. White farmers holding the same types of FSA loans filed suit, arguing that a race-based debt relief program violated equal protection. Federal district courts in Wisconsin, Texas, and Florida issued preliminary injunctions ordering USDA to stop distributing payments, finding that the plaintiffs were likely to succeed on the merits.1Farm Service Agency. In Historic Move, USDA to Begin Loan Payments to Socially Disadvantaged Borrowers under American Rescue Plan Act Section 1005 At least a dozen lawsuits were filed nationwide, and payments never went out.
Rather than keep defending the program, Congress repealed it. Section 22008 of the Inflation Reduction Act, signed in August 2022, eliminated Section 1005 outright. That ended the pending litigation and closed any path for borrowers who had received offer letters or expected payments. In its place, Congress created two new programs on different legal footings.
The Replacement Programs
Section 22006 Distressed Borrower Relief
Section 22006 of the Inflation Reduction Act appropriated $3.1 billion for USDA to help distressed borrowers of direct or guaranteed FSA farm loans, regardless of race or ethnicity.4Congress.gov. H.R.5376 – Inflation Reduction Act of 2022 USDA identified qualifying borrowers using financial indicators: insufficient cash flow to make the next scheduled payment, extraordinary measures taken to avoid falling behind (such as selling property or cashing out retirement accounts between February 2020 and October 2022), delinquent or restructured loans, and loans flagged for liquidation.5Farmers.gov. Inflation Reduction Act Assistance for Distressed Borrowers
By December 2024, USDA had distributed roughly $2.5 billion to more than 47,800 distressed borrowers under this program. The agency announced a final round of approximately $300 million in automatic assistance at that time and said it did not anticipate additional assistance beyond that round.6U.S. Department of Agriculture. USDA Announces Final $300 Million in Automatic Assistance for Distressed Farm Loan Borrowers Section 22006 is effectively closed to new applicants.
Discrimination Financial Assistance Program
The Inflation Reduction Act also amended Section 1006 of ARPA to create a separate $2.2 billion Discrimination Financial Assistance Program (DFAP). This program was open to farmers, ranchers, and forest landowners of any race who experienced discrimination in USDA farm lending programs before January 1, 2021. Individual awards could reach up to $500,000 based on the consequences of the discrimination.7U.S. Department of Agriculture. Discrimination Financial Assistance Program
USDA opened applications in July 2023 and announced awards to eligible applicants on July 31, 2024. The application window has closed and USDA has not announced another one. If you believe you experienced lending discrimination and missed the DFAP window, contact your local FSA office to ask about any remaining options.
What’s Still Available Now
With Section 22006 funds largely exhausted and DFAP awards issued, the main open relief tool for struggling FSA borrowers is the Distressed Borrower Set-Aside Program (DBSA). DBSA lets eligible direct loan borrowers delay up to one full annual payment per loan, moving that payment to the end of the loan term. The deferred principal accrues interest at 0.125 percent rather than the original loan rate.
To qualify, you need a direct farm loan that closed before September 25, 2024, with at least two years remaining on the term, and you have to show financial distress. The cause of that distress does not have to be a natural disaster. Apply by submitting a written request signed by everyone liable on the debt, along with three years of production, income, and expense records, to your local USDA Service Center. The deadline is April 30, 2026.
DBSA is short-term relief for borrowers who expect to resume full payments the following year. It is not debt forgiveness. If you need deeper restructuring, ask your local FSA office about primary loan servicing options, which can include extended repayment terms or reduced interest rates.
Tax Treatment of Any Relief You Received
The original Section 1005 included subsection (d), which excluded the debt relief payments from federal gross income, and the extra 20 percent cash payment was meant to cover any state tax that might still apply. That protection went away with the repeal.
The replacement programs do not carry the same blanket tax exclusion. USDA reported Section 22006 payments to the IRS, and the tax consequences turn on the type of assistance and your individual situation. If you received distressed borrower payments, work with a tax professional familiar with agricultural lending to figure out what is reportable for federal and state purposes.