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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?
What is income-driven repayment?
Federal student loan borrowers have four income-driven repayment options: Pay As You Earn (PAYE), Revised Pay As You Earn (REPAYE), income-based repayment (IBR) and income-contingent repayment (ICR).
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.
What is the income-contingent repayment plan?
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.
With an IBR or PAYE plan, the amount owed under each income-driven plan has to be less than what you’d owe on a 10-year standard repayment plan. Your income and family size affect the calculation.
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.
How does income-contingent repayment work?
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.
How do you apply for income-contingent repayment?
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.
How can you estimate your income-contingent repayment?
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
First month
Last month
Balance paid
Total forgiveness
Repayment term
| Original | ICR | Savings | |
|---|---|---|---|
| First month | — | — | — |
| Last month | — | — | — |
| Balance paid | — | — | — |
| Total forgiveness | — | — | — |
| Repayment term | — | — | — |
Total
Total
CURRENT
$0
ICR
$0
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.
What can you do if you don’t qualify for ICR?
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.
What are potential drawbacks to income-contingent repayment?
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.
Why would you choose income-contingent repayment?
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.
Interested in refinancing student loans?
Here are the top 9 lenders of 2021!| Lender | Variable APR | Eligible Degrees | |
|---|---|---|---|
 | 1.88% – 6.15%1 | Undergrad & Graduate | |
 | 1.88% – 5.64%2 | Undergrad & Graduate | |
 | 2.50% – 6.85%3 | Undergrad & Graduate | |
 | 1.89% – 5.90%4 | Undergrad & Graduate | |
 | 1.99% – 6.59%5 | Undergrad & Graduate | |
 | 1.88% – 5.64%6 | Undergrad & Graduate | |
 | 1.90% – 5.25%7 | Undergrad & Graduate | |
 | 2.39% – 6.01% | Undergrad & Graduate | |
 | 2.13% – 5.25%8 | Undergrad & Graduate | |
| Check out the testimonials and our in-depth reviews! 1 Important Disclosures for Splash Financial. Splash Financial DisclosuresTerms 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 June 1, 2021. 2 Rate range above includes optional 0.25% Auto Pay discount. Important Disclosures for Earnest. Earnest DisclosuresInterest Rate Disclosure Actual rate and available repayment terms will vary based on your income. Fixed rates range from 2.48% APR to 5.79% APR (excludes 0.25% Auto Pay discount). Variable rates range from 1.88% APR to 5.64% APR (excludes 0.25% Auto Pay discount). For variable rate loans, although the interest rate will vary after you are approved, the interest rate will never exceed 36% (the maximum allowable for these loans). Earnest variable interest rate student loan refinance 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 2.04% and 5.8% to the one month LIBOR. Earnest rate ranges are current as of 6/8/2021, and are subject to change based on market conditions. Auto Pay Discount Disclosure You can take advantage of the Auto Pay interest rate reduction by setting up and maintaining active and automatic ACH withdrawal of your loan payment. The interest rate reduction for Auto Pay will be available only while your loan is enrolled in Auto Pay. Interest rate incentives for utilizing Auto Pay may not be combined with certain private student loan repayment programs that also offer an interest rate reduction. For multi-party loans, only one party may enroll in Auto Pay. Student Loan Refinancing Loan Cost Examples These examples provide estimates based on payments beginning immediately upon loan disbursement. Variable APR: A $10,000 loan with a 20-year term (240 monthly payments of $72) and a 5.89% APR would result in a total estimated payment amount of $17,042.39. For a variable loan, after your starting rate is set, your rate will then vary with the market. Fixed APR: A $10,000 loan with a 20-year term (240 monthly payments of $72) and a 6.04% APR would result in a total estimated payment amount of $17,249.77. Your actual repayment terms may vary.Terms and Conditions apply. Visit https://www.earnest. com/terms-of-service, e-mail us at [email protected], or call 888-601-2801 for more information on our student loan refinance product. Earnest Loans are made by Earnest Operations LLC or One American Bank, Member FDIC. Earnest Operations LLC, NMLS #1204917. 535 Mission St., Suite 1663, San Francisco, CA 94105. California Financing Law License 6054788. Visit earnest.com/licenses for a full list of licensed states. For California residents (Student Loan Refinance Only): Loans will be arranged or made pursuant to a California Financing Law License. One American Bank, 515 S. Minnesota Ave, Sioux Falls, SD 57104. Earnest loans are serviced by Earnest Operations LLC with support from Navient Solutions LLC (NMLS #212430). One American Bank and Earnest LLC and its subsidiaries are not sponsored by or agencies of the United States of America. © 2021 Earnest LLC. All rights reserved. 3 Important Disclosures for CommonBond. CommonBond DisclosuresOffered 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 Laurel Road. Laurel Road DisclosuresAll credit products are subject to credit approval. Laurel Road began originating student loans in 2013 and has since helped thousands of professionals with undergraduate and postgraduate degrees consolidate and refinance more than $4 billion in federal and private school loans. Laurel Road also offers a suite of online graduate school loan products and personal loans that help simplify lending through customized technology and personalized service. In April 2019, Laurel Road was acquired by KeyBank, one of the nation’s largest bank-based financial services companies. Laurel Road is a brand of KeyBank National Association offering online lending products in all 50 U.S. states, Washington, D.C., and Puerto Rico. All loans are provided by KeyBank National Association, a nationally chartered bank. Member FDIC. For more information, visit www.laurelroad.com. As used throughout these Terms & Conditions, the term “Lender” refers to KeyBank National Association and its affiliates, agents, guaranty insurers, investors, assigns, and successors in interest.
Assumptions: Repayment examples above assume a loan amount of $10,000 with repayment beginning immediately following disbursement. Repayment examples do not include the 0.25% AutoPay Discount. Annual Percentage Rate (“APR”): This term represents the actual cost of financing to the borrower over the life of the loan expressed as a yearly rate. Interest Rate: A simple annual rate that is applied to an unpaid balance. Variable Rates: The current index for variable rate loans is derived from the one-month London Interbank Offered Rate (“LIBOR”) and changes in the LIBOR index may cause your monthly payment to increase. Borrowers who take out a term of 5, 7, or 10 years will have a maximum interest rate of 9%, those who take out a 15 or 20-year variable loan will have a maximum interest rate of 10%. KEYBANK NATIONAL ASSOCIATION RESERVES THE RIGHT TO MODIFY OR DISCONTINUE PRODUCTS AND BENEFITS AT ANY TIME WITHOUT NOTICE. This information is current as of April 29, 2021. Information and rates are subject to change without notice. 5 Important Disclosures for SoFi. SoFi DisclosuresFixed rates from 2.49% APR to 6.94% APR (with autopay). Variable rates from 1.99% APR to 6.59% APR (with autopay). All variable rates are based on the 1-month LIBOR and may increase after consummation if LIBOR increases; see more at SoFi.com/legal/#1. If approved for a loan your rate will depend on a variety of factors such as your credit profile, your application and your selected loan terms. Your rate will be within the ranges of rates listed above. Lowest rates reserved for the most creditworthy borrowers. SoFi refinance loans are private loans and do not have the same repayment options that the federal loan program offers, or may become available, such as Income Based Repayment or Income Contingent Repayment or PAYE. SoFi loans are originated by SoFi Lending Corp. or an affiliate (dba SoFi), a lender licensed by the Department of Financial Protection and Innovation under the California Financing Law, license #6054612; NMLS #1121636 (www.nmlsconsumeraccess.org). Additional terms and conditions apply; see SoFi.com/eligibility for details. SOFI RESERVES THE RIGHT TO MODIFY OR DISCONTINUE PRODUCTS AND BENEFITS AT ANY TIME WITHOUT NOTICE. 6 Important Disclosures for Navient. 7 Important Disclosures for LendKey. LendKey DisclosuresRefinancing 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 04/07/2021 student loan refinancing rates range from 1.90% APR – 5.25% Variable APR with AutoPay and 2.49% APR – 7.75% Fixed APR with AutoPay. 8 Important Disclosures for PenFed. PenFed DisclosuresAnnual 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 2.89%-4.78% APR and Variable Rates range from 2.13%-5.25% 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. |
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