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How the federal Income-Contingent Repayment Plan works

The one income-driven plan that parents can qualify for.

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Anna Serio
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The federal Income-Contingent Repayment (ICR) Plan might come with the highest monthly cost out of all of the income-driven repayment (IDR) options available. But those high monthly repayments might actually help cut down on the total cost of your loans. It’s also the only IDR plan available to parent borrowers.

Income-Contingent Repayment Plan at a glance

Eligible loansHow much you payRepayment termWho it’s best for
  • Direct Subsidized and Unsubsidized Loans
  • Direct Graduate PLUS Loans
  • Direct Consolidation Loans — including Parent PLUS Loans
Whichever is less:
  • 20% of your monthly discretionary income
  • Fixed monthly repayments on a 12-year term
25 yearsParent and student borrowers who want higher monthly income-driven repayments to save on interest.

How does the federal Income-Contingent Repayment Plan work?

The ICR Plan comes with monthly repayments that are either 20% of your discretionary income or what you’d pay on a fixed 12-year plan — whichever is less. The Department of Education (DoE) forgives any remaining balance after 25 years.

This is generally the most expensive income-driven option available to Direct Loan borrowers. But the higher repayments can actually help you save in interest. It’s also the only option available to parent borrowers who want to apply for Public Service Loan Forgiveness (PSLF).

How are repayments on the ICR Plan calculated?

How much you pay on the ICR Plan depends on your monthly income and student loan balance. You might pay 20% of your discretionary income each month, though no more than what you’d pay for fixed repayments on a 12-year term.

The DoE calculates your discretionary income by multiplying the federal poverty guideline for your family size and state by 1.5. It then subtracts that from your annual income to get your discretionary income.

Next, it multiplies your discretionary income by 0.2 and then divides that number by 12 to get your monthly repayment amount.

How to calculate your monthly discretionary income

Example of monthly repayments on the ICR Plan

The easiest way to understand how repayments on the ICR Plan work is by looking at an example. Say you make $50,000 a year and have $100,000 in student loans at 5.3% APR.

Here’s what you might pay each month on the ICR Plan in most states by family size.

Family sizePoverty guidelineDiscretionary incomeMonthly repayment
1$12,490$31,265$521.08
2$16,910$24,635$410.58
3$21,330$18,005$300.08
4$25,750$11,375$189.58

No matter how much your salary increases, the maximum amount you’d pay per month is $940.01 — or how much you’d pay for fixed repayments over a 12-year term.

Am I eligible for the Income-Contingent Repayment Plan?

The only requirement to sign up for the ICR Plan is to have eligible loans, which includes most federal Direct Loans. The one exception is Parent PLUS Loans — you need to consolidate those with a Direct Consolidation Loan to qualify for the ICR Plan.

Can I qualify for forgiveness on the ICR Plan?

You can. The ICR Plan is one of the income-driven repayment plans that is eligible for PSLF. You can also qualify for federal Teacher Loan Forgiveness and other loan repayment assistance programs while paying off your loans with this plan. Even if you do nothing, the DoE forgives any remaining balance after 25 years of repayments.

Just keep in mind that the IRS considers most student loan forgiveness to be taxable income. This means you might end up in a higher tax bracket any year you get full or partial loan forgiveness.

Pros and cons of the federal Income-Contingent Repayment Plan

The ICR Plan isn’t the right choice for everyone. Consider these potential perks and drawbacks before signing up.

Pros

  • Parent PLUS Loans are eligible. In fact, this is the only IDR option available for Parent PLUS Loans, though they must be a part of a Direct Consolidation Loan to qualify.
  • Save on interest. The ICR Plan allows you to make a bigger dent in your loan balance with each repayment, helping you save on interest.
  • Get lower repayments by filing taxes separately. Married? Your spouse’s income won’t affect your repayments unless you file a joint tax return.

Cons

  • Highest monthly cost of the IDR plans. This plan costs almost twice as much per month — though the maximum repayment is lower than some plans like Pay As You Earn (PAYE).
  • No FFEL Loans. FFEL parent borrowers might want to consider an Income-Sensitive Repayment Plan instead.
  • Can’t benefit from joint tax breaks. You’ll have to pick between taking advantage of tax breaks or lower monthly repayments when you choose this plan.

Is the Income-Contingent Repayment Plan right for me?

You might want to consider the Income-Contingent Repayment Plan in the following situations:

  • You’re a parent borrower. The ICR Plan is the only income-driven option available to parents.
  • You have a relatively low debt load. If fixed repayments on a 12-year term are affordable to you, then this plan could help you save on interest while paying off your loans faster.
  • You’re going places with your career. The monthly repayment cap on the ICR Plan is lower than other IDR plans, meaning a pay raise might not affect your repayments as much.

How to apply for the Income-Contingent Repayment Plan

Picking a repayment plan for the first time? Your servicer should send you an email with instructions on how to set up your account and choose a plan. Otherwise, the easiest way is to sign in to your Federal Student Aid (FSA) account and follow the directions to switch your repayment plan.

Signing up online only takes a few minutes if you use the IRS Data Retrieval tool. Otherwise, you might have to enter your tax information manually. It’s also possible to sign up by mail through your servicer.

How to apply for an income-driven repayment plan

Do I need to reapply each year?

Yes. Like other IDR plans, the ICR Plan requires borrowers to update their income and family size each year in order to remain eligible. You can also do this on the FSA website or by mail.

3 alternatives to the ICR Plan

Not sure the Income-Contingent Repayment Plan is right for you? Consider one of these options instead:

  • PAYE Repayment Plan. You only have to pay 10% of your discretionary income for 20 years on this IDR plan. FFEL Loans are eligible, but Parent PLUS Loans aren’t.
  • Graduated Repayment Plan. Worried your income might get too high for income-driven repayments? This 10-year plan starts off low and increases over time, ideally along with your salary.
  • Income-Sensitive Repayment Plan. This is the only available option for parent borrowers with FFEL Loans.

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Bottom line

The ICR Plan could be a good choice for parent borrowers who want to apply for forgiveness. It also has a lower cap on monthly repayments than other IDR plans, making it a more feasible choice if you’re in a lucrative career. But it can be expensive for low-income borrowers with a high amount of debt.

Find out how it stacks up to other options with our guide to student loan repayment plans.

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