The U.S. Department of Education offers several options for student loan borrowers who aren’t able to afford the standard repayment plan. Income-contingent repayment is one type of repayment 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 repayment 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 your 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 any of the following types of 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 change as well; 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, the ICR Plan monthly payment calculation has a second component: 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. And while there are a number of similarities between the income-contingent repayment and income-based repayment plans, it’s important to understand the differences as well when you’re 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 who is 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 figure out which income-driven repayment plan is the most affordable for you, but it’s wise to do your own 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 also 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, but if you can qualify for a lower interest rate, it might also save you money.