Income-Contingent Repayment: Who It’s Best For

• Income-Contingent Repayment plan caps payments at what you’d pay on a 12-year standard plan, offering relief for borrowers with higher incomes.

• Your discretionary income determines how much you pay each month under ICR. This ensures that payments are aligned with your financial ability.

• Public service employees using ICR can make qualifying payments toward student loan forgiveness with balances forgiven after 10 years of service.

You’ll typically pay more under the Income-Contingent Repayment Plan than you will under other income-driven repayment plans. SAVE, IBR, and PAYE, all protect more of your discretionary income and ask you to pay less of it each month.

Still, the ICR plan may be your best repayment option if:

• You have Parent PLUS loans or a consolidation loan that paid off Parent PLUS loans.

• You have a high income and low loan balance.

• You’re not eligible for Income-Based Repayment or Pay As You Earn because you don’t have a partial financial hardship.

If these situations sound like yours, it’s worth exploring how ICR can work for you. It’s not the most popular plan, but for some borrowers, it’s a helpful way to manage loans and even get forgiveness down the road. Read on to learn everything about this repayment plan.

Related

• Student Loan Repayment Plans

• Student Loan Repayment FAQs

Income-Contingent Repayment (ICR) is an Income-driven repayment plan where your monthly payments are based on your income, family size, and loan amount. This means you’ll have lower payments than a standard plan, and any remaining debt is forgiven after 25 years.

Here’s an easy way to think about it: Income-driven repayment plans, like ICR, are designed to make your student loans more affordable.

They adjust your payments so you’re not buried under debt. ICR is one of these plans, acting as a safety net for student loan borrowers who need a little extra flexibility.

Income-Contingent Repayment is all about making your student loan payments easier to handle. It is based on changes in your annual income, family size, and loan balance to create a payment amount that fits your situation.

Here’s how it breaks down:

Discretionary Income

This is the core of the ICR calculation. It represents the amount of a borrower’s income that’s considered above what they need for essential living expenses.

To determine your discretionary income, the government uses your Adjusted Gross Income (AGI) from your federal tax return and compares it to the poverty guidelines for your family size.

Example: Let’s say you’re a single individual with an AGI of $50,000 per year. The poverty guideline for a single-person household is $14,580. Your discretionary income would be calculated as $50,000 (AGI) – $14,580 (poverty guideline) = $35,420.

Payment Calculation

Your monthly payment amount is determined in one of two ways:

1. 20% of Discretionary Income: In the example above, 20% of your discretionary income would be $7,084 per year, or about $590 per month.

2. 12-Year Standard Repayment Plan Comparison: Your payment is also compared to what you’d pay on a fixed 12-year repayment plan. If that amount is lower than 20% of your discretionary income, you’ll pay the lower amount. This ensures that your ICR payments aren’t higher than what you’d pay on a standard plan, providing a safety net, especially if your income is lower or your loan balance is high.

If you’re curious about how much your payments would be under ICR, try using our ICR calculator. It’s easy to estimate your monthly payments based on your income and loan balance.

Related: Income Limit for Income Driven Repayment Plan

Most federal student loans are eligible for ICR, including Direct Subsidized and Unsubsidized Loans, Direct PLUS Loans for graduate or professional students, and Direct Consolidation Loans.

Note for Parents: FFEL loans like Parent PLUS loans or if you have Perkins Loans are only eligible for ICR if they are first consolidated into a Direct Consolidation Loan. This means that if you have Parent PLUS loans and want to repay them under an Income-driven plan, you’ll need to consolidate them first.

But there’s a strategy called “double consolidation” that may allow parent borrowers to access other income-driven repayment plans like IBR, PAYE, and SAVE. This strategy must be completed before July 1, 2025.

ICR isn’t the best choice for most loan borrowers. But it can be the right payment plan for you, in certain circumstances.

• Parent PLUS Borrowers: If you have Parent PLUS loans and have already consolidated them into a single Direct Consolidation Loan, ICR might be your best option for income-driven repayment. This is because other IDR plans, like PAYE and REPAYE (now SAVE plan), generally aren’t available for Parent PLUS loans unless you utilize the double consolidation loophole before July 1, 2025.

• Near-Term Forgiveness: If you’re close to loan forgiveness under IDR or PSLF, ICR provides a way to keep making qualifying payments if SAVE is disrupted.

• High Income, Low Balance: ICR’s payment cap based on a 12-year standard plan benefits borrowers with high incomes and low balances who don’t qualify for other plans due to partial financial hardship requirements.

• Forgiveness Pathway: For borrowers ineligible for other IDR plans, ICR’s 25-year repayment period still offers a route to forgiveness.

Ultimately, the best way to determine if ICR is the right choice for you is to carefully consider your individual circumstances, explore all available repayment options, and potentially consult with a student loan expert like us.

Related: Pros and Cons of Income-Driven Repayment Plans

ICR offers two main paths to loan forgiveness:

• IDR Forgiveness: After 25 years of qualifying payments on an ICR plan, any remaining balance on your federal student loans will be forgiven.

• Public Service Loan Forgiveness: If you work for a qualifying public service employer, you may be eligible for PSLF, which forgives your remaining loan balance after 10 years of qualifying payments while enrolled in an IDR plan like ICR. Learn How to Apply for PSLF

Note: The Department of Education recently made a one-time account adjustment that could change how close you are to IDR forgiveness. This adjustment looks at your past payments and may bring many borrowers closer to having their loans forgiven than they expected.

Related: IBR Loan Forgiveness

Considering Switching to ICR?

With the future of the SAVE plan uncertain, many borrowers are considering switching to ICR to ensure they continue on the path to forgiveness. But make sure you weigh the potential benefits and drawbacks:

• Benefits: ICR is not subject to the same legal challenges as SAVE, and the account adjustment may bring you closer to forgiveness.

• Drawbacks: ICR often has higher monthly payments than other IDR plans.

To make an informed decision, use the loan simulator tool on StudentAid.gov to estimate your monthly payments and forgiveness timeline under ICR. You can also consult with a student loan expert to discuss your options and create a personalized repayment strategy.

Applying for ICR is straightforward and can be done online or by mail. Below is a step-by-step guide to help you through the process.

• Step 1: Gather Your Information: Before starting, make sure you have your Federal Student Aid ID (FSA ID), your most recent federal tax return (for your AGI and family size), and details about your federal student loans.

• Step 2: Enroll Online: The easiest way to apply is online at StudentAid.gov. Log in with your FSA ID, go to the “Income-Driven Repayment Plan Request” section, and complete the application form. Select ICR as your repayment plan. You can also link your income tax return electronically for faster processing.

• Step 3: Apply by Mail (Optional): If you prefer mail, download the “Income-Driven Repayment Plan Request” form from StudentAid.gov. Fill out the form, sign it, and send it to your lender. Their mailing address is on your loan statements or your StudentAid.gov account.

• Step 4: Annual Recertification: Each year, recertify your income and family size to ensure accurate payments. This process is similar to the initial application and can also be completed online or by mail.

Related: Income-Driven Repayment Plan Request Mailing Addresses

Processing Delays

Loan servicers are currently experiencing some delays in processing applications. Here’s what to expect:

• Processing as usual: Applications for IBR, ICR, and PAYE received before July 1, 2024, as well as ICR applications from parent borrowers, are being processed normally.

• On hold: Applications for SAVE (formerly REPAYE) and those where borrowers selected “lowest monthly payment” are currently on hold.

• Possible forbearance: If processing takes longer, your loan servicer may place your loans in a processing forbearance for up to 60 days. Interest will accrue, but this time will count toward Public Service Loan Forgiveness and IDR forgiveness.

The Biden administration has brought back Income-Contingent Repayment to help borrowers as the SAVE plan faces legal challenges.

The Eighth Circuit Court of Appeals ruled against the Saving on a Valuable Education (SAVE), pausing its rollout.

To give borrowers more options, the U.S. Department of Education reopened applications for ICR and PAYE starting December 15, 2024. These plans offer flexible payments and a path to forgiveness, acting as a safety net while the future of the SAVE plan remains uncertain.

Now that the Income-Contingent Repayment plan is open for applications this December, it might be the right fit for you.

If you’re not sure which repayment plan works best for you, don’t worry—we can help. Many people feel confused by all the options since some plans seem so similar.

Our student loan lawyers can help you find a repayment plan that works for your situation. Book a consultation when you’re ready, and let’s make paying back your loans simpler and less stressful.

Related reading:

• Standard Repayment Plan

• Graduated Repayment Plan

• Extended Repayment Plan

• Income-Based Repayment Plan

• Income-Sensitive Repayment Plan