If you're struggling to make your monthly payments, and don't qualify for income-based repayment (IBR) or Pay As You Earn, income-contingent repayment (ICR) may be an option. This program is for borrowers with Direct loans or Direct Consolidation loans only.
- ICR adjusts your monthly payment based on your family's income and family size, similar to IBR or Pay As You Earn except there's no income eligibility criteria making it easier to qualify for ICR.
- Your monthly payments will generally be a low amount, depending on your income and family size but likely not as low as IBR or Pay As You Earn.
- After 25 years of eligible payments (300 in total), your remaining loan balance will be forgiven, but that amount will be taxable.
Comparing ICR To IBR
If you received your first Direct loan disbursement before July 1, 2014, you may qualify for two different income-driven repayment plans: ICR and Old IBR.
One big difference between them is that ICR does not count loans outside of the Direct loan program when calculating your total debt. Also, while Old IBR will typically get you a lower payment, you cannot use this plan if you have a Consolidation loan that includes Parent PLUS loans. That loan will only qualify for ICR.
Here's a closer look at these two options:
|Monthly payment||About 20% of your disposable income||15% of your disposable income|
|Eligible loan programs||DL||DL and FFELP|
|Forgiveness length||25 years (300 payments)||25 years (300 payments)|
|Must prove partial economic hardship||No||Yes|
|Interest subsidy if payments don’t cover interest (subsidized loans)||No||Yes, first 3 years|
|Interest capitalization||Yes, limited to 10% of the original principal balance when entered ICR||Yes, but only if you no longer have a partial financial hardship|
If You Are Married
ICR normally counts your spouse's income and student loan debt. However, if you file taxes separately, you will have your loans and income considered separately as well. This process will be the same for same-sex couples who are legally married.
The Fine Print
If you are seriously considering ICR, there are some additional details to consider.
- Income-contingent repayment is for Direct loan borrowers only.
- Parent PLUS loans cannot use ICR unless they are consolidated.
- Depending on when you took out your Direct loan, your options under ICR may vary a bit.
Stacking It Up
Lowering your monthly payment using ICR may be a big help now, but it will make your loan more expensive in the long run. Here’s what your initial monthly payments could look like compared to other repayment plans.
And here's what the total amount you'll pay looks like.
To come up with the graphs above, we used the following information:
|Original Amount Owed||$35,000|
|Repayment Period (for this example)||240 Payments (20 years)|
In this example, you actually pay off the loan sooner than the normal 25 years (300 payments). That means that there is no forgiveness in this case. However, if your payments extend past the 25-year mark, the rest of your loan would be forgiven, and that canceled amount would be taxable.
Changing Your Repayment Plan
If you’ve decided that you definitely need to lower your monthly payment, then take the following steps:
- Step 1: Review your repayment options and make sure that ICR is the right option for you.
- Step 2: Fill out the ICR application form and send it to your servicer. Remember, it’s only available for Direct loans.
Not Sure Who Your Servicer Is?
Visit NSLDS and find all of your federal student loans information, including the name of your servicer.