What is the Income-Contingent Repayment (ICR) Plan?

Are you puzzled by the complexities of student loan repayment plans? Knowing the ins and outs can have a huge financial effect. It’s crucial to differentiate between plans like Income-Contingent Repayment (ICR) and others, like Income-Based Repayment (IBR). In this post, we’ll cover everything you need to know about ICR.

Key takeaways

• ICR caps payments at 20% of discretionary income and the payment term is 25 years after which the remaining loan balance is forgiven[1]
• As of July 2024, the ICR plan is not taking new enrollees with very limited exceptions
• Annual income recertification is mandatory with ICR

What is the Income-Contingent Repayment (ICR) plan?

ICR is a federal student loan repayment plan. It caps monthly payments at 20% of your discretionary income and spans 25 years before potentially forgiving any remaining debt.

• Repayment length: 25 years
• Payment amounts: 20% of your discretionary income or what you would pay based on fixed payments over a 12-year loan term, whichever is lower.
• Eligibility: No new enrollees except borrowers with a consolidation loan that was used to repay a Parent PLUS loan and those who submitted an application before July 1, 2024.

How do I apply for ICR?

Unfortunately, most borrowers can no longer apply for the ICR, as the plan isn't currently taking new enrollees (with very limited exceptions). If you’re interested in signing up for a different Income-Driven Repayment (IDR) plan, however, here is a quick guide:

1. Log into studentaid.gov: Use your Federal Student Aid ID.
2. Complete the income-driven repayment plan request: Have your tax return and other income documents ready.
3. Choose the IDR plan that makes sense for you: The SAVE and IBR plans are currently taking new enrollees.
4. Submit your application: Include your income and family details.

TuitionHero Tip

Remember, you must recertify your income details every year.

How are ICR payments calculated?

Payments are the lesser of:

• 20% of your discretionary income, which is the difference between your annual income and 100% of the poverty guideline for your family size and state of residence.
• An amount based on what you'd pay over a 12-year fixed repayment term.

Why choose ICR?

ICR costs more each month compared to other income-driven plans, but might be a better fit if you have consolidated Parent PLUS loans and are looking for slightly lower payments to reduce interest accrual. It's the only plan which serves former Parent Plus loans that have been consolidated.

If you have any Direct loans already, make sure NOT to consolidate them with your Parent Plus loans, as it will make them ineligible for other types of IDR (like the SAVE plan or the IBR plan).

How does ICR compare to other income-driven plans?

• Each income-driven plan caps payments between 10% - 20% of discretionary income.
• Remaining loan balance forgives after 20 or 25 years of payments.
• Other plans like Saving on a Valuable Education (SAVE) offer interest subsidies that ICR doesn't.

Most importantly, ICR is the only option for Parent PLUS loans, though they must first be consolidated into a direct loan. Interested in a different plan? Check if options like SAVE or IBR work better for you.

What happens if my income changes?

Your payments will adjust as your income changes. You must recertify annually or your payments will switch to the standard plan amount.

If you gave consent during the application process for your tax info to be accessed, your recertification will auto-renew, with notices going out before new payment amounts take effect. However, it’s important to double-check that this auto-renewal went through without errors to make sure your payments are accurate.

TuitionHero Tip

Still have questions? Learn more about how to manage student loan debt effectively.

What is the eligibility criteria for the ICR plan?

Eligibility for the ICR plan has specific requirements. You must have federal direct loans. Parent PLUS loans are eligible only if consolidated into a direct loan. Currently, no other loan type is eligible for the ICR plan.

Specific eligibility criteria

• Federal direct loans only: Your loans must be federal direct loans to qualify.
• Consolidation requirement: Parent PLUS loans must be consolidated into a direct loan.
• Annual recertification: You must recertify your income and family size annually.

Are there any other repayment plans to consider?

If ICR doesn't suit you, several other income-driven repayment plans may be a better fit. Each plan has its own criteria and benefits.

Alternatives to ICR

• Saving on A Valuable Education (SAVE): Payments are 5% of discretionary income, and this plan offers subsidies on unpaid interest.
• Pay As You Earn (PAYE): Caps payments at 10% of discretionary income, with forgiveness after 20 years.
• Income-Based Repayment (IBR): Similar to PAYE but open to new enrollees.

Consider these repayment plans if you're looking for potentially lower monthly payments or loan forgiveness after a set period of time.

How can you switch your repayment plan to ICR?

Switching to ICR is straightforward but requires following specific steps. Remember, this is only possible if you have a consolidation loan that repaid a Parent PLUS loan. You can do this online at studentaid.gov.

Steps to switch repayment plans

• Log in to studentaid.gov: Use your Federal Student Aid ID or create one if you don't have it.
• Submit the income-driven repayment request: Complete the necessary forms online, including income and family size information.
• Choose ICR: Select ICR if it suits your financial situation best, or let the system automatically choose the lowest payment plan for you.

Switching plans is a helpful way to adjust your payments based on your current financial status.

Below is a summary table based on data related to ICR, including comparisons with other plans and eligibility criteria.

For the most part, ICR is inferior to other IDR plans, but is the only option for folks who have consolidated Parent Plus loans.

Dos and don'ts of the ICR plan

Navigating student loan repayment options can be challenging. This section explores the Income-Contingent Repayment (ICR) plan, highlighting its key features, comparisons with other income-driven repayment plans, and important considerations for borrowers. Whether you're looking into ICR for its unique applicability to Parent PLUS loans or exploring other options, understanding these nuances will help you make informed decisions.

Advantages and disadvantages of the ICR plan

ICR has specific pros and cons that you should understand before choosing it. The main advantage is its unique applicability to Parent PLUS loans, but higher monthly payments can be a downside.

Advantages of the ICR plan

• Only option for Parent PLUS loans: After consolidation, it's the only income-driven repayment option.
• Balance after 25 years forgiven: Any remaining balance will be forgiven after 25 years of payments.
• Potential for lower monthly payments : While payments are higher than other IDR plans, they’re lower than what you’d pay under a standard repayment plan.

Disadvantages of the ICR plan

• Higher interest costs: Because the repayment period is longer, you may end up paying more in interest.
• Taxable forgiven amount: Any forgiven balance may be taxable as income, depending on which state you live in.
• Long repayment period: 25 years can be a long time to stay in repayment.

Why trust TuitionHero

At TuitionHero, we provide resources to help you understand complex loan repayment plans like ICR. We connect students and parents with lenders for student loans, refinancing, and scholarships. Need help with FAFSA or finding the right student credit card? Visit us to learn more details about managing your student loans.

Frequently asked questions (FAQ)

Can I switch from another income-driven plan to ICR?

Yes, you can switch from another income-driven plan to ICR at any time, provided you have an eligible loan. This flexibility allows you to adjust your repayment strategy based on changes in your financial situation or goals.

Is ICR available for private student loans?

No, ICR is only available for federal direct loans. If you have private student loans, consider looking into other refinancing options or using strategies for managing student loan debt.

How does marital status affect my ICR payments?

If you're married, your spouse's income and loan debt will factor into your ICR payments. Make sure you include their financial information when completing the income-driven repayment request to get an accurate payment amount.

Does ICR affect my credit score?

Being on the ICR plan itself doesn’t directly impact your credit score. However, timely payments can improve your credit history, while missed payments can hurt it. Learn how to compare and evaluate credit card offers to manage credit effectively.

Are there fees to enroll in the ICR plan?

There are no fees to enroll in the ICR plan through the federal government. Be wary of any third-party companies that charge a fee for enrolling you.

Final thoughts

Navigating student loan repayment options like Income-Contingent Repayment can significantly affect your financial well-being. Whether you're consolidating Parent PLUS loans or considering another income-driven plan, understanding the nuances of ICR is crucial.

For a tailored approach, including private loans and refinancing, visit us at TuitionHero. We're here to help you make sense of it all and guide you through every step of your educational journey.

Source

• Income-Contingent Repayment: Is It Best for You? - NerdWallet
• Annual Updates to the Income-Contingent Repayment (ICR) Plan Formula for 2022-William D. Ford Federal Direct Loan Program