What is the income-contingent repayment plan?
The U.S. Department of Education offers several options for student loan borrowers who can’t afford the standard 10-year repayment plan. Income-contingent repayment is a plan that lowers your monthly payment based on your income and family size, and it’s the only available income-driven repayment plan for parent PLUS borrowers.
Income-contingent repayment can make monthly payments more manageable for many borrowers, but it’s not the right choice for everyone. Here’s what to know about the plan and whether it’s best for your student loans.
What is income-contingent repayment?
Income-contingent repayment is one of five income-driven repayment plans you can apply for to lower your federal student loan payments. The plan considers your income and family size and adjusts your monthly payments accordingly.
With the income-contingent repayment plan, or ICR Plan, the amount you pay will be the lesser of:
- 20 percent of your discretionary income.
- The amount you would pay on a fixed repayment plan for 12 years, adjusted based on your income.
The payment term under the ICR Plan is 25 years. If you have any remaining balance after that time, it will be forgiven.
Who qualifies for the income-contingent repayment plan?
You can qualify for the ICR Plan if you have the following eligible federal student loans:
- Direct Unsubsidized and Subsidized Loans.
- Direct Consolidation Loans.
- Direct PLUS Loans (taken out by graduate or professional students).
You might also be able to participate in an ICR Plan if you consolidate noneligible loans — including parent PLUS loans, FFEL Program Loans and Perkins Loans — into a Direct Loan first. However, if you have private student loans or federal student loans in default status, you won’t qualify.
It’s worth noting that income-contingent repayment is the only relief plan available to borrowers with parent PLUS loans (after eligible student loan consolidation). The other income-driven repayment plans do not accept Direct Consolidation Loans that repaid parent PLUS loans.
How to calculate income-contingent repayment monthly payments
For many borrowers, the monthly payment amount under the ICR Plan will be 20 percent of their discretionary income.
With the ICR Plan, you can use the following formula to calculate your discretionary income:
Annual income – 100 percent of poverty guideline for state and family size = Discretionary income
Next, calculate 20 percent of your discretionary income to determine what your payment size should be every month.
If your income or family size changes, your payment can also change. You’ll have to recertify your income every year you’re on the plan. And since the repayment term on the ICR Plan lasts for 25 years, there’s a lot of opportunity for change. However, your payment amount cannot exceed the amount you would pay under a fixed repayment plan (based on your income) with a 12-year loan term.
Income-contingent repayment vs. income-based repayment
The income-based repayment plan, or IBR Plan, is another popular student loan relief option. While there are some similarities between income-contingent repayment and income-based repayment plans, it’s important to understand the differences as well when trying to figure out if either option is right for you.
| Income-contingent repayment | Income-based repayment | |
|---|---|---|
| Monthly payment amount | The lesser of: 20% of your discretionary income or what you’d pay on a plan with fixed payments for 12 years (adjusted to income size) | 10% or 15% of your discretionary income (depending on when you took out your loans) |
| Repayment term | 25 years | 20 or 25 years (depending on when you took out your loans) |
| Recertify income | Every year | Every year |
| Eligible loans | Direct Unsubsidized Loans, Direct Subsidized Loans, grad PLUS loans, Direct Consolidation Loans (including those that repaid parent PLUS loans, FFEL loans and Perkins Loans) | Direct Unsubsidized Loans, Direct Subsidized Loans, grad PLUS loans, FFEL loans for students, Direct Consolidation Loans that did not repay loans made to parents |
| Best for | Parents | Borrowers with FFEL loans |
Is the income-contingent repayment plan right for you?
The income-contingent repayment plan is one of the least popular income-driven repayment options since you’ll pay a larger portion of your discretionary income each month than with most other plans. However, if you’re a parent searching for a lower payment, the ICR Plan is the only income-driven repayment plan that accepts parent PLUS loans (once they’ve been consolidated).
Your student loan servicer can crunch the numbers to help you determine which income-driven repayment plan is the most affordable, but it’s wise to do your research and calculations too. You can use the free Loan Simulator tool from Federal Student Aid to compare multiple options.
If an income-driven repayment plan doesn’t seem like a good fit, you could consider alternative solutions. Student loan refinancing, for example, might be worth a look. Refinancing your student loan with a private lender would cost you valuable federal student loan benefits. Still, if you can qualify for a lower interest rate, it might also save you money.
Bottom line
An income-contingent plan requires you to devote more of your discretionary income to your payments than an income-based repayment plan. However, it may still be the best plan to meet your needs. If you want to pay off your loans as fast as possible and can’t afford the standard plan, an income-contingent play might make the most sense. It’s also the only income-driven plan available to people with Parent PLUS loans.
Frequently asked questions
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No. Income-based plans allow you to use as little as 10% of your discretionary income as payment while an income-contingent plan requires you to use at least 20% of your discretionary income as payment. The repayment timetables and eligible loans also differ between the two plans.
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Similar to the income-contingent payment plan, the maximum repayment term for an IBR is 25 years. If you have any remaining balance after that time, it will be forgiven. Depending on when you took out your loans, you may be able to get your balance forgiven after 20 years.
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You can’t be kicked off an income-based or income-contingent plan, but if you don’t recertify your income on time each year there are consequences. You will technically still be on the same income-driven plan, but your payments will go up and your interest will be capitalized until you recertify your income.
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Yes. If you previously didn’t qualify for an income-contingent plan but your circumstances have changed, you can apply at any time.
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