Income-Contingent Repayment (ICR) Plan

By davidgaoUpdated April 17, 2018


Overview

The Income-Contingent Repayment (ICR) Plan is an income-driven repayment plan available to borrowers with loans made under the Direct Loan Program. ICR is the only income-driven repayment plan available to borrowers with Direct PLUS Loans made to parents, although those loans must be consolidated into a Direct Consolidation Loan to be eligible. Under ICR, participants must pay at least the lesser of either 20% of their discretionary income or the monthly payment on a fixed 12-year repayment plan adjusted according to income. Any outstanding balance after 25 years of repayment is forgiven, though the amount forgiven is considered taxable income.

Eligibility

  • All Direct Loan types except Direct PLUS Loans made to parents
  • NOTE: Direct PLUS Loans made to parents consolidated into a Direct Consolidation Loan are eligible
  • To remain eligible, borrowers must re-certify their income and household size every year

Terms

Monthly Payment
The lesser of 20% of Discretionary Income or the payment on a fixed 12-year repayment plan, adjusted based on income

Discretionary income for ICR is defined as:

Adjusted Gross Income (AGI) – Poverty Rate (based on the borrower’s state and household size)

If the borrower is married, his or her spouse’s income and debt will only be considered if he or she files a joint tax return or if the spouse chooses to jointly repay under ICR.

For more details on the adjustment factor, please see the annual update released by the U.S. Department of Education.

Required Payment Minimum
None

Payments can be $0 if AGI is equal to or less than the Poverty Guideline Rate.

Required Payment Cap
None
Maximum Repayment Period
20 Years
Loan Forgiveness
100% of the outstanding balance is forgiven after the maximum repayment period

The amount forgiven is considered taxable income.

Interest Benefit
None.
Interest Capitalization
Interest capitalization (i.e. paying interest on the interest) is limited to 10% of the original balance at the time of entering ICR.
Switching Plans
Borrowers can switch to any other plan for which they are eligible.

Best For

  • Borrowers with a high debt relative to income and who have Direct PLUS loans made to parents

Additional Notes

  • Because the repayment period is significantly longer under ICR than the Standard Plan, some borrowers may end up paying substantially more interest. However, borrowers are always able to pay more than the minimum to achieve student debt freedom faster.
  • If income increases significantly, it may be worthwhile for certain borrowers to consider refinancing their loans to get to a lower interest rate.

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