Understanding Income-Contingent Repayment: A Guide for Borrowers

If you're struggling to repay your federal student loans on the 10-year Standard Repayment Plan, you might consider an income-driven repayment plan, such as Income-Contingent Repayment (ICR). With ICR, your payments are adjusted based on your income and the size of your family, which can help make monthly payments more affordable.

While ICR isn't the most generous of the income-driven repayment plan options the U.S. Department of Education offers, it's the only plan available to parent borrowers. If that's your situation, or you are simply interested in lowering your payments, then ICR may be worth considering.

What is Income-Contingent Repayment (ICR)?

Income-Contingent Repayment is one of four income-driven repayment plans the Department of Education offers for federal student loans. These plans base your monthly payment on a percentage of your discretionary income, as well as your family size.

With ICR, your monthly payments are the lesser of:

• 20% of your discretionary income, or
• The amount your payments would be on a fixed 12-year repayment plan, adjusted based on your income.

The repayment period under ICR is 25 years, after which any loan balance that remains is forgiven.

One major benefit of ICR is its potential to lower your monthly payments, especially right out of school, when your income may not be that high. However, in some cases, your payment may be higher than you would've paid under the 10-year Standard Repayment Plan since your payment isn't capped.

For Direct Consolidation Loans or Federal Family Education Loan (FFEL) Consolidation Loans that repaid parent PLUS loans, this is the only income-driven repayment plan they're eligible for, offering a path toward loan forgiveness and possibly lower monthly payments.

How does ICR work?

You'll need to select ICR as your payment plan when it comes time to start repaying your student loans, or apply for the plan through the Federal Student Aid website. When you apply for an income-driven repayment plan like ICR, you'll be asked to report your family size, which will impact the amount of your monthly payments under the plan. If you have a larger family, which may include a spouse, children, or other individuals who live with you and receive more than half of their support from you, you may see your monthly payments further reduced under ICR.

You'll make payments under the Income-Contingent Repayment plan over the course of 25 years. After that point, if any loan balance remains, it will be forgiven. You'll need to recertify your income and family size each year if you didn't consent for the Department of Education to access your tax information. If your financial situation changes before the recertification date (if you lost your job, for example), you can contact your loan servicer to request an immediate recalculation of your payment amount.

Eligibility requirements for ICR

To be eligible for this repayment option, you must have federal Direct Loans. Private student loans aren't eligible for ICR, nor are federal student loans in default.

Eligible loan types for repayment under ICR include:

• Direct Subsidized Loans
• Direct Unsubsidized Loans
• Direct PLUS Loans made to graduate or professional students
• Direct Consolidation Loans, including those that repaid parent PLUS loans

In addition, FFEL PLUS loans made to parents and FFEL Consolidation Loans that repaid PLUS loans made to parents are both eligible if consolidated with a Direct Consolidation Loan. You can then repay your consolidation loan under the Income-Contingent Repayment plan.

Current student loan refinance rates

How to apply

You can apply for Income-Contingent Repayment either by submitting a paper form or applying online at StudentAid.gov. If you opt to apply online, you'll need to log in using your Federal Student Aid (FSA) ID. The online application should take about 10 minutes.

You can expect the following steps when applying for an income-driven repayment plan online, such as Income-Contingent Repayment:

1. Check your contact information: Ensure all of the details that Federal Student Aid has on file are correct, and make any changes if necessary.
2. Review your loan information: Take a look to see if the on-file details on your loans are accurate, and determine which of your loans are eligible for ICR.
3. Confirm and update your personal information: You'll need to do this for yourself and your spouse, if applicable.
4. Provide your federal financial information: You can do this by entering your own information or by giving consent for your information to be imported directly into your application. You may need to upload documentation verifying your income, such as recent tax returns. Your tax return will also help determine your family size based on your filing status and any exemptions you've claimed.
5. Select an income-driven repayment plan: You'll have the opportunity to explore other income-driven repayment plan options as you fill out the application.
6. Submit the application: After you've finished filling out your application, take a look over everything to make sure it's all correct. Then, agree to the terms and conditions, sign your application, and submit it.

ICR vs. other income-driven repayment plans

ICR is one of four income-driven repayment plans available to federal student loan borrowers. Access to such plans is one of myriad federal student loan benefits, as it can help keep your payments at a reasonable level.

Here's a look at how ICR compares with other options, which include Income-Based Repayment (IBR), Pay As You Earn (PAYE), and Saving on a Valuable Education (SAVE).

When determining whether an income-driven repayment plan makes sense and, if so, which one might be the right fit, there are a number of personal factors to consider.

For one, the total out-of-pocket cost is crucial to compare. “When you consider these programs … you need to understand the difference in total costs out of pocket, and that's based on cumulative payments and based on tax cost at the end,” says Jan Miller, a student loan consultant. This refers to the fact that any remaining loan balance at the end of your repayment term is forgiven, which is typically subject to income taxes.

Per Miller, other factors to weigh include “income growth,” since due to annual recertification, payments over the entirety of the plan are “not just about how much income [you] make now.”

Further, where the income adjustment is set, the length of the repayment term, and which loans are eligible varies from one plan to the next — all of which should factor into your decision when deciding which plan is right for you.

“ICR is unique because it's available to borrowers with parent PLUS loans if they consolidate them into a Direct Consolidation Loan,” says Dennis Shirshikov, an adjunct professor of economics at the City University of New York. “This nuance is crucial; borrowers with parent PLUS loans often overlook ICR simply because they're unaware of this eligibility pathway.”