Income Contingent Repayment for Federal Student Loans

In this article, you will learn about the Income Contingent Repayment (ICR) Plan. Federal student loan borrowers have four income-driven repayment options. The ICR Plan is one such option if you are struggling with your student loans. 

There is no application fee to complete an Income-Driven Repayment Plan request. You may be contacted by private debt relief companies that offer to help you apply for income-driven repayment for a fee. 

Your Guide To The Income-contingent Repayment Plan (ICR)

The Income-Contingent Repayment (ICR) Plan is a repayment plan for student loans. An ICR Plan is for two types of borrowers. First, those who are seeking a lower monthly payment and not currently using another income-driven repayment option. Second, those borrowers who need to recertify or make changes to their repayment plan and are currently using another income-driven repayment option. You can change your student loan repayment plan at any time. 

The following are some key details about ICR:

• The repayment period for ICR is 25 years.

• There is no income eligibility requirement.

• The interest rate for an ICR Plan is fixed for the life of your loan.

• Monthly payments are the lesser of (1) what you would pay on a repayment plan with a fixed monthly payment over 12 years, adjusted based on your income, or (2) 20% of your discretionary income, divided by 12.

• Income-contingent repayment is available only from the U.S. Department of Education.

• ICR is the only available income-driven repayment option for parent PLUS loan borrowers.

• Income-contingent repayment is available for Federal Direct Loans (both subsidized and unsubsidized), Direct Consolidation Loans, and Direct PLUS Loans made to graduate students.

• Direct PLUS Loans made to parents, Federal Stafford loans (both subsidized and unsubsidized), Federal Family Education Loan (FFEL) PLUS loans, FFEL Consolidation Loans, and Federal Perkins Loans are also eligible for ICR if the borrower first consolidates them into a Direct Consolidation Loan.

• Income-contingent repayment is not available from banks or other private institutions making government-guaranteed loans through the FFEL Program.

How Long It Will Take You To Pay Off Your Federal Student Loans

The repayment period for an ICR Plan is 25 years. In the long term, borrowers pay more than the 10-year standard repayment plan. The trade-off is that borrowers have a lower monthly payment and fixed interest rate. Once this time passes, your remaining loan balance is forgiven. Keep in mind this may be counted as income and have tax consequences.

Loans Eligible For ICR

Income-contingent repayment is available only from the U.S. Department of Education for federal student loans. Income-contingent repayment is not available from banks or other private institutions making government-guaranteed loans through the Federal Family Education Loan Program.

The ICR Plan is available for both subsidized and unsubsidized direct loans, Direct Consolidation Loans, and Direct PLUS Loans made to graduate students. 

Direct PLUS Loans made to parents, Federal Stafford Loans (both subsidized and unsubsidized), FFEL PLUS Loans, FFEL Consolidation Loans, and Federal Perkins Loans are also eligible for ICR if the borrower first consolidates them into a Direct Consolidation Loan.

Am I eligible for the ICR Plan?

ICR is a good option for borrowers who are eligible for the Public Student Loan Forgiveness (PSLF) Program. An ICR Plan maximizes the benefits of PSLF. Only loans you received under the Direct Loan Program are eligible for PSLF. Loans you received under the Federal Family Education Loan Program, the Federal Perkins Loan Program, or any other student loan program are not eligible for PSLF.

The U.S. Department of Education offers four types of loans, for which it serves as the lender. 

• Direct Subsidized Loans: For eligible undergraduate students. Generally, no interest is charged on subsidized loans while a student is in school at least half time, during the six-month grace period following graduation, and during deferment periods.

• Direct Unsubsidized Loans: For eligible undergraduate, graduate, and professional degree students. Interest is charged on unsubsidized loans during all periods. 

• Direct PLUS Loans: For eligible parents of dependent students. Graduate and professional degree students also may receive Direct PLUS Loans. A Direct PLUS Loan is a parent PLUS loan when made to a parent borrower. Interest is charged during all payment periods.

• Direct Consolidation Loans: For eligible student and parent borrowers. A consolidation loan combines the borrower’s eligible loans into a single loan. Parent borrowers can become eligible for ICR by consolidating their Parent PLUS Loans into a Direct Consolidated Loan. If any chosen plan doesn’t meet your needs as a borrower, you can change your federal student loan repayment plan at any time during the repayment period. 

When should I consider an ICR Plan? 

If you’re having trouble making your monthly student loan payment because it is too high, an ICR Plan can lower your monthly payments. The purpose of an income-driven repayment plan is to set your monthly student loan payment at an amount that is affordable based on your income and family size. 

It’s good to be aware of all federal student loan repayment options and occasionally evaluate whether any of them can lower your monthly payment. 

Similarly, borrowers in the 10-year Standard Repayment Plan who have extra money can consider if paying more than their monthly payment to get out of student loan debt sooner makes sense. Keep in mind that paying extra in an ICR program doesn’t make sense and will not save you money.

Income-contingent Repayment Plan And Student Loan Forgiveness

As mentioned above, ICR is a good option for borrowers seeking Public Service Loan Forgiveness. The PSLF Program forgives the remaining balance on your Direct Loans if you meet the program’s requirements. You must make 120 monthly payments under a repayment plan while working full time for an employer. The plan and employer must qualify under the program.

The Teacher Loan Forgiveness Program is available for those who teach full time for five complete and consecutive academic years in a low-income elementary school, secondary school, or educational service agency. If you qualify, you may have up to $17,500 of your Direct Loan or FFEL Program loans forgiven.

Discharge of your Perkins Loan may occur under certain circumstances. You qualify for cancellation of up to 100% of a Federal Perkins Loan if you have served full time in a public or nonprofit elementary or secondary school system as a teacher or special education teacher in certain defined facilities.

Not everyone qualifies for these programs. If you do not qualify, ICR may be a good option for you if you’re seeking a loan forgiveness program. 

ICR is an Income-Driven Repayment Plan.

The Department of Education provides income-driven repayment (IDR) options for federal student loan borrowers. Defaulted loans are not eligible for repayment under any of the income-driven repayment plans. 

All four of these income-driven repayment options share certain characteristics, including:

• A monthly payment determined by your income, family size, and debt load

• Loan forgiveness after a certain repayment period (20 or 25 years)

• An annual review of your income, family size, and debt service (your monthly payment can change each year as these numbers fluctuate)

• Federal income tax consequences for loan forgiveness at the end of the repayment term

• Often, a higher total interest amount paid over the life of the loan

The Pay As You Earn (PAYE), Revised Pay As You Earn (REPAYE), and Income-Based Repayment (IBR) plans may provide you with a lower monthly payment than an income-contingent repayment plan. Under these plans, you could have a payment that’s as low as 10% of your discretionary income. ICR typically caps your payment at 20%. Also, these options may have shorter repayment periods. These plans tend to forgive your student loan balance after 20 years, whereas the ICR Plan forgives your loans after 25 years.

The Four Income-Driven Repayment Plans

There are four income-driven repayment options, including income-contingent repayment. All income-driven plans share some similarities: Each plan caps payments between 10% and 20% of your discretionary income. Under each repayment plan, your remaining loan balance will be forgiven after you make payments for 20 or 25 years. 

Income-contingent repayment plans are different from the other income-driven plan options. Here is some useful information about the three options that are available in addition to ICR.

• Revised Pay As You Earn (REPAYE)

Like an ICR Plan, a REPAYE Plan payment is based on your income and family size. If your income increases over time, your payment may change and be higher than the amount you would have to pay under the 10-year Standard Repayment Plan.

The REPAYE option is good for single borrowers, those without graduate school debt, and those with higher earning potential.

• Pay As You Earn (PAYE) 

To qualify, the payment you would be required to make under the PAYE plan (based on your income and family size) must be less than what you would pay under the Standard Repayment Plan with a 10-year repayment period.

Under either the PAYE or REPAYE plans, your monthly payment amount will be based on your income and family size when you first begin making payments, and at any time when your income is low enough that your calculated monthly payment amount would be less than the amount you would have to pay under the 10-year Standard Repayment Plan.

This option is good for married borrowers with two incomes, those with grad school debt, and those with lower earning potential.

• Income-Based Repayment (IBR) 

To qualify for an Income-Based Repayment, you would be required to make a payment that must be less than what you would pay under the Standard Repayment Plan with a 10-year repayment period.

Under these repayment plans, the monthly payment amount is based on income and family size at the time that you first begin making payments, and at any time when your income is sufficiently low that your calculated monthly payment amount would be less than the amount you would normally have to pay under the 10-year Standard Repayment Plan.

This option is good for borrowers who don't qualify for PAYE or have FFELP loans.

What will my monthly payment be under the ICR Plan?

Under all of the income-driven repayment plans, your required monthly payment amount may fluctuate if your income or family size changes from year to year. Borrowers must recertify their income and family size annually. This means that you must provide updated income and family size information to your loan servicer. 

You’re required to do this even if there has been no change in your income or family size. This allows your servicer to recalculate your payment. If your income or family size changes significantly before your annual certification date, you can submit updated information and request that your servicer recalculate your payment amount at this time. 

An ICR Plan payment is based on your income and family size. This means that if your income increases over time, your payment may change and be higher than the amount you would have to pay under the 10-year Standard Repayment Plan.

If you're married, your spouse's income or loan debt will be considered only if you file a joint tax return or you choose to repay your Direct Loans jointly with your spouse. Any outstanding balance will be forgiven if you haven't repaid your loan in full after 25 years.

What is “discretionary income” and how is it calculated?

Generally, your payment amount under an income-driven repayment plan is a percentage of your discretionary income. This percentage is different depending on the plan that you choose. Discretionary income may be also defined differently depending on the plan you choose. 

For Income-Based Repayment Pay As You Earn (REPAYE) and loan rehabilitation, discretionary income is the difference between your annual income and 150% of the poverty guideline for your family size and state of residence.

For Income-Contingent Repayment (ICR), discretionary income is the difference between your annual income and 100% of the poverty guideline for your family size and state of residence.

Remember, income and family size must be recertified each year. Under all of the income-driven repayment plans, if you don’t recertify your family size each year, you’ll be subject to the same repayment plan. Also, your servicer will assume that you have a family size of one. If your family size is larger than one, this could result in an increased monthly payment amount or (for the PAYE and IBR plans) loss of eligibility to make payments based on income.

For married borrowers, the REPAYE Plan will calculate payments based on both you and your spouse's combined adjusted gross income and loan debt, even if you file your taxes separately. This usually results in a higher monthly payment. Married borrowers will have both of their incomes considered under the formula for ICR Plans as well. This is unlike IDR plans that don’t consider the spouse’s income or loan debt if the borrower and spouse file separate tax returns. 

How do I apply for the Income-Contingent Repayment Plan?

To apply for an ICR Plan, you must submit an Income-Driven Repayment Plan Request. You can apply online or request a form from your loan servicer. You can select the income-driven repayment plan of your choice. Income and family size must be documented for the application and recertified each year. 

You can also request that your loan servicer tell you which income-driven plans you qualify for or that they give you the income-driven plan with the lowest monthly payment. If you have more than one servicer for the loans that you want to repay with an income-driven plan, you must submit a separate request to each servicer. 

To find out who your federal loan servicer is, call the Federal Student Aid Information Center (FSAIC) at 1-800-433-3243. You can also check the most recent communication from the party sending you bills for your loan payments. The FSAIC can also help borrowers apply for other IDR plans or other repayment plan options for repaying their federal student loans. 

Let’s Summarize...

An Income-Contingent Repayment Plan is a repayment option for student loans. An ICR Plan benefits those seeking a lower monthly payment and not currently using another income-driven repayment option. An ICR Plan also benefits borrowers who need to recertify or make changes to their repayment plan and are currently using another income-driven repayment option. 

If you’re a student loan borrower, it’s important to occasionally explore your options and take advantage of what’s available to you to reduce your loan debt. This will help you keep your student loan payments manageable and can go a long way in helping you make payments on time and avoid delinquency or default.