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  • What is Income-Contingent Repayment (ICR)?

What is Income-Contingent Repayment (ICR)?

Income-Contingent Repayment, or ICR, is one of the plan options under the federal government’s Income-Driven Repayment (IDR) program that’s designed to help borrowers having difficulty making payments under the Standard Repayment Plan.

Published August 22, 2023 12 min read
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Table of Contents

  • Why should you choose ICR?
  • What is your monthly payment under ICR?
  • Student loan forgiveness under ICR
  • Eligibility
  • Recertification and adjusted payment amounts
  • How does being married impact ICR?
  • Do your research

It can be overwhelming to figure out the best way to pay off your student loans, especially if you’re already juggling a demanding job and other responsibilities. Income-Contingent Repayment, or ICR, is one of the plan options under the federal government’s Income-Driven Repayment (IDR) program that’s designed to help borrowers who are having difficulty making payments under the Standard Repayment Plan.

Like other IDR plans, ICR allows you to repay your student loans based on your income level. However, there are pros and cons to every plan, so it’s crucial to understand the ins and outs of ICR to determine whether it’s right for you. Let’s explore ICR.

New Changes to IDR Plans

Changes to the federal Income-Driven Repayment (IDR) plans are being implemented as of July 2023. ICR is now only accepting new enrollments from borrowers with consolidated Parent PLUS loans. Those looking to enroll in a IDR plan may want to learn more about the newest IDR plan, SAVE, which offers the lowest monthly payments and quickest path to forgiveness. Learn more at studentaid.gov.

Why should you choose ICR?

Income-contingent repayment is the best choice for parent borrowers with Parent PLUS loans, as these are currently excluded from eligibility under other IDR plans. ICR may also be the best IDR plan for candidates who can afford a slightly higher monthly payment that would allow them to potentially pay off their loans quicker and save on long-term interest. Additionally, ICR could be an option for married borrowers who both have student loans and want an option to pay jointly.

What is your monthly payment under ICR?

Each IDR plan calculates monthly payments differently, and to further complicate matters, your monthly payment under ICR may be calculated one of two ways:

  • 20% of your discretionary income OR
  • What you would pay on a Standard Repayment Plan with a 12-year repayment period, adjusted based on your income

Your monthly payment will be whichever of these options is the lower payment amount.

How discretionary income is calculated

Remember that your discretionary income is calculated differently under the different IDR plans. Under ICR, it is the difference between your annual income and 100% of the poverty guideline for your family size and state of residence. These poverty guidelines are maintained by the US Department of Health and Human Services at aspe.hhs.gov/poverty-guidelines. This means that ICR generally involves a higher monthly payment than the other IDR plans, which calculate using higher percentages of the poverty guideline.

Negative amortization under ICR plans

Another difference between ICR and the other IDR plans is how negative amortization is handled. Under all IDR plans, your monthly payment may sometimes be less than the amount of interest that accrues on your loan each month (known as negative amortization). Under other plans, the government will pay all or a portion of your interest that isn’t covered by your monthly payment, so it’s less of a worry.

However, under ICR, any unpaid interest will be added to your principal loan balance (capitalized) annually until your outstanding loan principal is 10% greater than your original. After that point, the interest will continue to accrue but will no longer be capitalized. To avoid this, you would need to pay the full monthly amount of interest—even if it is higher than your minimum monthly payment.

Student loan forgiveness under ICR

Student loan forgiveness is available under all of the government’s IDR plans. For ICR, you must make all your payments on time and remain enrolled in the plan for 25 years to reach eligibility for forgiveness. Because ICR payments are higher and the forgiveness period slightly longer than some other IDR plans, other plans may be a better choice for some borrowers.

However, note that if you’re enrolled in ICR and also eligible for Public Service Loan Forgiveness (PSLF),1 you could drastically shorten your time until forgiveness to just 10 years.

Eligibility

Many direct federal loan borrowers with eligible loans can qualify for ICR. Note that ICR is the only IDR plan available to Parent PLUS loan borrowers (and only if consolidated).

Types of eligible loans

Many federal loans are eligible for ICR, as well as Parent PLUS loans once consolidated. Eligible loan types include:

  • Direct Subsidized Loans
  • Direct Unsubsidized Loans
  • Direct PLUS Loans made to graduate or professional students
  • Direct Consolidation Loans that did not repay any PLUS loans made to parents
  • Direct Consolidation Loans that repaid PLUS loans made to parents

Some loan types are only eligible for ICR if consolidated. This means that if you consolidate that loan into a Direct Consolidation Loan, you can the enroll in ICR. These eligible if consolidated loan types include:

  • Direct PLUS Loans made to parents
  • Subsidized Federal Stafford Loans (from the FFEL Program)
  • Unsubsidized Federal Stafford Loans (from the FFEL Program)
  • FFEL PLUS Loans made to graduate or professional students
  • FFEL PLUS Loans made to parents
  • FFEL Consolidation Loans that did not repay any PLUS loans made to parents
  • FFEL Consolidation Loans that repaid PLUS loans made to parents
  • Federal Perkins Loans

Recertification and adjusted payment amounts

It’s important to remember that under ICR — and all IDR plans — you need to recertify your plan each year, whether or not anything has changed with your income. This must be done annually with your loan servicer to remain enrolled and eligible for eventual forgiveness.

To recertify, you essentially reapply using the original application materials. Within the form, there will be an entry for the reason you’re submitting, where you should specify that you are documenting your income for the annual recertification.

Note that under the ICR plan, your payment is always based on your income and family size. This means that if your income increases over your 25 years of repayments, in some cases your monthly payment may grow higher than the amount you would have to pay under the 10-year Standard Repayment Plan.

Reporting changes

If your family size, location, or income changes mid-year, you can also recertify before the annual date by submitting updated information and asking your servicer to recalculate your payment. This can benefit you by reducing your payment appropriately— for example, if your family size increases without an additional wage earner, you lose your job, or you move out of the 48 contiguous states.

Outside of the annual recertification, this midyear reporting is not required—if you do not wish to recalculate your payment, you can wait until the next annual recertification, which must be completed each year regardless of any changes.

Failure to recertify

If you fail to submit your annual recertification under ICR, your payment will revert to the Standard Repayment Plan amount (which may be higher than your previous monthly dues) and your loan servicer will revert your family size to 1, possibly further increasing your payment.

You can return to making payments based on income if you provide your servicer with updated income information, and if your new income still qualifies you to make income-based payments.

How does being married impact ICR?

Like other IDR plans, your monthly payment may change when you get married, often depending on how you file your taxes and whether or not you and your spouse both have student loan debt:

How you file

If you and your spouse file separately, your servicer will only use your individual income to determine your monthly payment amount under an ICR plan. If you file jointly, your joint income will be used. This can increase your payment, especially if your spouse does not have any loans, as the ratio between debt and income will be much greater than when a single income is used.

If you both have student loan debt

If your spouse also has eligible federal student loans, you can repay jointly under ICR. If you choose this option, your loan servicer will calculate separate ICR payments for each of you that are proportionate to your share of the combined debt.

Note: You may have to submit additional documentation or authorizations if you live in community property states or if your spouse is not enrolled in IDR.

Do your research

IDR was conceived to make managing and repaying student loan debt easier, and each plan developed with new borrower circumstances in mind. It can take some attention to detail to ensure you’re choosing the right plan for your student loan situation. Always consult the federal student aid website for updates, read up on our other guides in this series on IBR, PAYE, and SAVE (formerly REPAYE). You can also set up a consultation with one of our student loan specialists, who can help you navigate all the ins and outs and choose the best IDR plan for you.

 

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    Information and interactive calculators are made available to you as self-help tools for your independent use and are not intended to provide investment advice, legal, financial, or tax advice. We cannot and do not guarantee their applicability or accuracy in regard to your individual circumstances. All examples are hypothetical and are for illustrative purposes. We encourage you to seek personalized advice from qualified professionals regarding all personal finance issues. Calculators do not include the fees and restrictions that certain products may have. This calculator does not indicate whether you would qualify for a Laurel Road loan. Please visit the applicable banking product pages on laurelroad.com for specific terms and conditions.

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    1. To qualify for Public Service Loan Forgiveness (PSLF), you must be employed by a U.S. federal, state, local, or tribal government or not-for-profit organization (federal service includes U.S. military service); work full-time for that agency or organization; have Direct Loans (or consolidate other federal student loans into a Direct Loan); repay your loans under an income-driven repayment plan; and make 120 qualifying payments. For full program requirements visit: Federal Student Aid.