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If you’re struggling to make payments on your federal student loans, the income-contingent repayment (ICR) plan could help make them more affordable. However, you could find a lower monthly payment on a different income-driven repayment plan, unless you’ve got parent loans.
Let’s take a closer look at how the income-contingent repayment plan compares to the other income-driven plans, as well as tips on how to apply. Specifically, we’ll seek to answer the following questions:
- What is income-driven repayment?
- What is the income-contingent repayment plan?
- How does ICR work?
- How do you apply for income-contingent repayment?
- How can you estimate your income-contingent repayment?
- What can you do if you don’t qualify for ICR?
- What are potential drawbacks to income-contingent repayment?
- Why would you choose income-contingent repayment?
All four of these income-driven repayment options share certain characteristics, including:
- A monthly payment determined by your income, family size and debt load
- Loan forgiveness after a certain repayment period (20 or 25 years)
- An annual review of your income, family size and debt load (meaning your monthly payment can change each year)
- Federal income tax may be owed on your forgiven balance at the end of the repayment term
- An often higher total interest amount paid over the life of the loan
The PAYE, REPAYE and IBR plans could give you a lower monthly payment than income-contingent repayment. On these plans, you could get a payment that’s as low as 10% of your discretionary income, whereas ICR typically caps your payment at 20%.
What’s more, they could have shorter repayment periods. These plans have the potential to forgive your student loan balance after 20 years, whereas the ICR plan only forgives your loans after 25 years.
If you’re looking for the lowest monthly payment and shortest repayment term, income-contingent repayment might not be the right plan for you. That said, it’s the only income-driven plan for which parent loans are eligible (though you will have to consolidate them first). So if you’re looking to adjust your payments on a parent loan, ICR is your only option for income-driven repayment.
Let’s take a closer look at what makes income-contingent repayment different from the other income-driven plan options.
No income eligibility requirement
Despite its downsides, the ICR plan, along with the REPAYE plan, may have an advantage in that it doesn’t have any income eligibility requirements.
Because ICR student loans aren’t subject to this partial financial hardship requirement, it could be easier to qualify for.
Most loans are eligible
The income-contingent repayment plan is available for the following loans:
- Direct loans (both subsidized and unsubsidized)
- Direct consolidation loans
- Direct PLUS loans made to graduate students
The following loans are also eligible for ICR if the borrower first consolidates them into a direct consolidation loan:
- Direct PLUS loans made to parents
- Federal Stafford loans (both subsidized and unsubsidized)
- Federal Family Education Loan (FFEL) PLUS loans
- FFEL consolidation loans
- Federal Perkins loans
ICR is the only plan that accepts consolidation loans that contain a parent loan — the other plans do not. As mentioned, it’s your only option for income-driven repayment for PLUS or FFEL loans made to parents.
The repayment period for ICR is 25 years — after that, your remaining loan balance is forgiven (if there’s anything left).
Keep in mind that any forgiven debt under ICR is considered to be taxable income. That means even if you do achieve loan forgiveness, you could be facing a steep tax bill in a quarter of a century.
Your monthly payment amount under the ICR plan is calculated as the lesser of:
- 20% of discretionary income
- What the payment would be on a fixed, 12-year payment plan, adjusted according to income
This does mean that, depending on your income, payments could end up higher than with the standard repayment plan.
The interest rate for the income-contingent repayment plan is fixed for the life of your loan. If you first consolidate your loans, your interest rate through ICR is the weighted average of the interest rates on the loans included, rounded up to the nearest one-eighth of one percent.
Are you eligible for Public Service Loan Forgiveness?
Borrowers on an income-driven repayment plan such as ICR who intend to pursue a career in public service could be eligible for Public Service Loan Forgiveness (PSLF) after 120 consecutive, on-time payments.
One key difference between forgiveness from PSLF and forgiveness after 25 years on ICR is that forgiven amounts are not considered taxable income under PSLF. The majority of PSLF applicants have been denied, though, so take that into consideration as you explore your options.
To apply for ICR, complete the Income-Driven Repayment Plan Request online, which can typically be completed in 10 minutes or less. You could also request a paper application from your loan servicer.
As you fill out the request, you can specifically request ICR or ask that your loan servicer place you on the income-driven plan with the lowest monthly payment.
It’s important to note that if you have more than one servicer, you’ll need to submit separate income-driven requests.
There is no application fee to apply for ICR. Private companies could offer help to borrowers for a fee, but they aren’t affiliated with the U.S. Department of Education.
Student Loan Hero has an income-contingent repayment calculator that can help you estimate your payments under this plan.
Enter the following personal info:
- Your adjusted gross income
- Your family size
- Your state of residence
- Your marital status
- Your annual income growth
Along with the following loan info:
- Your total student loan balance
- Your current monthly payment
- Your average weighted interest rate
Income-Contingent Repayment Calculator
You can try it out using the calculator provided here, but let’s also look at an example.
Say you make $50,000 a year and expect an annual income growth of 3.5%. You have a student loan balance of $70,000 with an average interest rate of 6%. Finally, you’re married with a family of four and live in the continental U.S.
If you apply for ICR, you could cut your monthly payment from $766 to $423 — that being said, you would pay $115,541 over the course of the loan. If you remained on your original plan, you would pay $93,452 total. You’d end up paying $22,089 more if you switched to an ICR plan, though you wouldn’t pay as much monthly.
Note that you wouldn’t qualify for any forgiveness under this scenario, as your loan would be paid off before the 25-year term is complete.
As you determine whether an income-driven plan is best for you, use our calculators to compare your loan costs on different plans.
If you realize that you don’t qualify for the income-contingent repayment plan, you might seek to lower your payments through student loan refinancing.
By doing this, you may be able to refinance one or more loans and lock in a lower interest rate. However, when you refinance your loans with a private lender, you give up many of the protections that you have with federal student loans, such as deferment or forbearance, as well as the ability to switch to an income-driven plan like ICR.
While some private lenders do offer certain protections, consider all your options as you figure out what’s best for you.
ICR won’t be the right plan for everyone. Extending the repayment term beyond the standard 10 years means you’ll probably pay more in total interest over time. As mentioned, you may also be able to get a lower monthly payment on another income-driven plan, unless you have parent loans.
One final consideration is the way married borrowers are treated. If you apply for ICR and are married, your spouse’s income will be considered if you file your taxes together, likely resulting in higher monthly payments.
Student loan borrowers who are struggling with payments under the standard repayment plan might consider signing up for ICR. Since there is no income requirement, this repayment plan is available even to those who earn a relatively high income.
Borrowers pursuing a career in public service could find signing up for ICR will reduce payments enough to make them affordable while still remaining eligible for PSLF after 10 years.
And while the 25-year repayment term may seem daunting to potential ICR borrowers, it’s important to remember that you aren’t locked into that loan term forever. If you decide to change repayment plans for financial circumstances, you are able to do so.
All that said, you should compare all your income-driven plan options before choosing. The other plans could result in a lower monthly payment, as well as a shorter repayment term.
By being proactive about staying on top of your payments, you’ll have a smoother journey to becoming debt-free.
Rebecca Safier and Renee Morad contributed to this report.
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1 Important Disclosures for Splash Financial.
Splash Financial Disclosures
Terms and Conditions apply. Splash reserves the right to modify or discontinue products and benefits at any time without notice. Rates and terms are also subject to change at any time without notice. Offers are subject to credit approval. To qualify, a borrower must be a U.S. citizen or permanent resident in an eligible state and meet applicable underwriting requirements. Not all borrowers receive the lowest rate. Lowest rates are reserved for the highest qualified borrowers. If approved, your actual rate will be within a range of rates and will depend on a variety of factors, including term of loan, a responsible financial history, income and other factors. Refinancing or consolidating private and federal student loans may not be the right decision for everyone. Federal loans carry special benefits not available for loans made through Splash Financial, for example, public service loan forgiveness and economic hardship programs, fee waivers and rebates on the principal, which may not be accessible to you after you refinance. The rates displayed may include a 0.25% autopay discount.
The information you provide to us is an inquiry to determine whether we or our lenders can make a loan offer that meets your needs. If we or any of our lending partners has an available loan offer for you, you will be invited to submit a loan application to the lender for its review. We do not guarantee that you will receive any loan offers or that your loan application will be approved. Offers are subject to credit approval and are available only to U.S. citizens or permanent residents who meet applicable underwriting requirements. Not all borrowers will receive the lowest rates, which are available to the most qualified borrowers. Participating lenders, rates and terms are subject to change at any time without notice.
To check the rates and terms you qualify for, Splash Financial conducts a soft credit pull that will not affect your credit score. However, if you choose a product and continue your application, the lender will request your full credit report from one or more consumer reporting agencies, which is considered a hard credit pull and may affect your credit.
Splash Financial and our lending partners reserve the right to modify or discontinue products and benefits at any time without notice. To qualify, a borrower must be a U.S. citizen and meet our lending partner’s underwriting requirements. Lowest rates are reserved for the highest qualified borrowers. This information is current as of Feburary 1, 2021.
2 Important Disclosures for Earnest.
To qualify, you must be a U.S. citizen or possess a 10-year (non-conditional) Permanent Resident Card, reside in a state Earnest lends in, and satisfy our minimum eligibility criteria. You may find more information on loan eligibility here: https://www.earnest.com/eligibility. Not all applicants will be approved for a loan, and not all applicants will qualify for the lowest rate. Approval and interest rate depend on the review of a complete application.
Earnest fixed rate loan rates range from 2.98% APR (with Auto Pay) to 5.49% APR (with Auto Pay). Variable rate loan rates range from 1.99% APR (with Auto Pay) to 5.34% APR (with Auto Pay). For variable rate loans, although the interest rate will vary after you are approved, the interest rate will never exceed 8.95% for loan terms 10 years or less. For loan terms of 10 years to 15 years, the interest rate will never exceed 9.95%. For loan terms over 15 years, the interest rate will never exceed 11.95% (the maximum rates for these loans). Earnest variable interest rate loans are based on a publicly available index, the one month London Interbank Offered Rate (LIBOR). Your rate will be calculated each month by adding a margin between 1.82% and 5.50% to the one month LIBOR. The rate will not increase more than once per month. Earnest rate ranges are current as of October 26, 2020, and are subject to change based on market conditions and borrower eligibility.
Auto Pay discount: If you make monthly principal and interest payments by an automatic, monthly deduction from a savings or checking account, your rate will be reduced by one quarter of one percent (0.25%) for so long as you continue to make automatic, electronic monthly payments. This benefit is suspended during periods of deferment and forbearance.
The information provided on this page is updated as of 10/26/2020. Earnest reserves the right to change, pause, or terminate product offerings at any time without notice. Earnest loans are originated by Earnest Operations LLC. California Finance Lender License 6054788. NMLS # 1204917. Earnest Operations LLC is located at 302 2nd Street, Suite 401N, San Francisco, CA 94107. Terms and Conditions apply. Visit https://www.earnest.com/terms-of-service, email us at [email protected], or call 888-601-2801 for more information on our student loan refinance product.
© 2020 Earnest LLC. All rights reserved. Earnest LLC and its subsidiaries, including Earnest Operations LLC, are not sponsored by or agencies of the United States of America.
3 Important Disclosures for CommonBond.
Offered terms are subject to change and state law restriction. Loans are offered by CommonBond Lending, LLC (NMLS # 1175900), NMLS Consumer Access. If you are approved for a loan, the interest rate offered will depend on your credit profile, your application, the loan term selected and will be within the ranges of rates shown. All Annual Percentage Rates (APRs) displayed assume borrowers enroll in auto pay and account for the 0.25% reduction in interest rate. All variable rates are based on a 1-month LIBOR assumption of 0.15% effective Jan 1, 2021 and may increase after consummation.
4 Important Disclosures for LendKey.
Refinancing via LendKey.com is only available for applicants with qualified private education loans from an eligible institution. Loans that were used for exam preparation classes, including, but not limited to, loans for LSAT, MCAT, GMAT, and GRE preparation, are not eligible for refinancing with a lender via LendKey.com. If you currently have any of these exam preparation loans, you should not include them in an application to refinance your student loans on this website. Applicants must be either U.S. citizens or Permanent Residents in an eligible state to qualify for a loan. Certain membership requirements (including the opening of a share account and any applicable association fees in connection with membership) may apply in the event that an applicant wishes to accept a loan offer from a credit union lender. Lenders participating on LendKey.com reserve the right to modify or discontinue the products, terms, and benefits offered on this website at any time without notice. LendKey Technologies, Inc. is not affiliated with, nor does it endorse, any educational institution.
Subject to floor rate and may require the automatic payments be made from a checking or savings account with the lender. The rate reduction will be removed and the rate will be increased by 0.25% upon any cancellation or failed collection attempt of the automatic payment and will be suspended during any period of deferment or forbearance. As a result, during the forbearance or suspension period, and/or if the automatic payment is canceled, any increase will take the form of higher payments. The lowest advertised variable APR is only available for loan terms of 5 years and is reserved for applicants with FICO scores of at least 810.
As of 02/17/2021 student loan refinancing rates range from 1.91% APR – 5.25% Variable APR with AutoPay and 2.95% APR – 7.63% Fixed APR with AutoPay.
5 Important Disclosures for SoFi.
6 Important Disclosures for PenFed.
Annual Percentage Rate (APR) is the cost of credit calculating the interest rate, loan amount, repayment term and the timing of payments. Fixed Rates range from 2.99%-5.15% APR and Variable Rates range from 2.17%-4.47% APR. Both Fixed and Variable Rates will vary based on application terms, level of degree and presence of a co-signer. These rates are subject to additional terms and conditions and rates are subject to change at any time without notice. For Variable Rate student loans, the rate will never exceed 9.00% for 5 year and 8 year loans and 10.00% for 12 and 15 years loans (the maximum allowable for this loan). Minimum variable rate will be 2.00%. These rates are subject to additional terms and conditions, and rates are subject to change at any time without notice. Such changes will only apply to applications taken after the effective date of change.