Federal student loan borrowers have a number of income-driven repayment plans at their disposal. The Income-Contingent Repayment (ICR) plan is one potential option that also brings with it the possibility of student loan forgiveness.
Below we answer all of the most common questions about Income-Contingent Repayment so that you can make a more informed decision about whether or not it is right for you.
What is the Income-Contingent Repayment (ICR) Plan?
The Income-Contingent Repayment (ICR) plan is an income-driven repayment plan for federal student loans. Under ICR, your monthly payments are set at either 20 percent of your discretionary income, or at the amount you would pay if you had level payments for a period of 12 years—whichever is lower. After you have made payments for a total of 25 years, any remaining balance on the loans may be forgiven.
What types of loans are eligible for the Income-Contingent Repayment (ICR) Plan?
The following types of student loans are eligible for Income-Contingent Repayment:
- Direct Subsidized Loans
- Direct Unsubsidized Loans
- Direct Graduate PLUS Loans
- Direct Consolidation Loans
Unlike Income-Based Repayment, this payment plan is available for Direct Consolidation Loans made to parents.
How long will repayment last?
Repayment under Income-Contingent Repayment lasts for 25 years, or 300 consecutive monthly payments. This does not include any periods of deferment or forbearance.
After this time, any outstanding balance will be forgiven.
How much will I pay?
Income-Contingent Repayment is more expensive than other income-based plans. Under ICR, you will pay the lesser of:
- 20 percent of your discretionary income
- The amount that you would pay if you were on a repayment plan with a fixed payment for 12 years (adjusted for your income)
Your payment amount is recalculated annually depending on your income and family size. If you are married and file taxes jointly, your spouse’s income will also be included in determining your payment amount. It’s possible that your monthly payments could be higher under this plan than what you would pay under Standard Repayment.
Because of the lower monthly payments and extended repayment term, you will ultimately pay more in interest under Income-Contingent Repayment than you would under either Standard or Graduated Repayment. Due to the forgiveness option, though, you would most likely pay less under this option than under the Extended Repayment plan.
That being said, you can always make additional payments in order to pay off your student loans faster, even under Income-Contingent Repayment. This can help you save money in the form of interest, and free you from your debt faster.
Can my loan be forgiven?
Yes, any balance that remains after 25 years of on-time payments would be forgiven under the Public Student Loan Forgiveness (PSLF) Program.
Pros and Cons of Income-Contingent Repayment
Pros of Income-Contingent Repayment:
- This is the only income-based repayment plan available to Parent PLUS Loan borrowers (who consolidate into a Direct Loan)
- Because payments are linked to your income, if your income decreases for whatever reason, your payments will decrease as well
- Any remaining balance can be forgiven after 25 years
Cons of Income-Contingent Repayment:
- Because of the longer repayment term, you will ultimately pay more in the form of interest than you would under either the Standard or Graduated Repayment plans
- You may owe taxes on any amount that has been forgiven
- Your payments can potentially be higher than they would be under Standard Repayment
How to Apply for Income-Contingent Repayment (ICR)
If you would like to opt into Income-Contingent Repayment, all you need to do is contact your student loan servicer. They will help you understand whether or not your loans are eligible for this repayment plan, and can answer any questions you may have. You can also apply by visiting this website.
Alternatives to the Income-Contingent Repayment (ICR) Plan
Not sure whether or not Income-Contingent Repayment is the right repayment plan for you? You have a number of other options to choose from. Depending on the specific types of loans that you have borrowed and your income, you may be eligible for:
- Standard Repayment
- Graduated Repayment
- Extended Repayment
- Revised Pay as You Earn Repayment Plan (REPAYE)
- Pay as You Earn Repayment Plan (PAYE)
- Income-Based Repayment (IBR)
- Income-Sensitive Repayment