Guide to Income-Contingent Repayment and Whether It’s Right for You

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For many borrowers, student loans can help fund an education that leads to a high salary. But not everyone is looking to make six figures.

If you plan to go into a low-paying but fulfilling career field, or your student loan payments are so high that they’re unaffordable even with a great salary, an income-contingent repayment (ICR) plan could help.

Here’s a look at how an ICR plan could make your student loans more manageable, as well as how to qualify. Specifically, we’ll look at:

Understanding income-driven repayment plans

Federal student loan borrowers have four income-driven repayment options, including 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 to 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 paid over the life of the loan

What is income-contingent repayment?

Though there are several income-driven options available to borrowers struggling to make payments, it’s important to understand what makes income-contingent repayment different from the other options.

No income eligibility requirement

The biggest difference to consider is that ICR and REPAYE have no 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’s easier to qualify (more on this below).

Eligible loans

Income-contingent repayment plans are available for the following loans:

The following loans are also eligible for ICR if the borrower first consolidates them into a Direct Consolidation Loan:

How income-contingent repayment works

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 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 1%.

Are you eligible for Public Service Loan Forgiveness?

Borrowers on 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 PSLF and forgiveness with ICR is that forgiven amounts are not considered taxable income under PSLF. The majority of PSLF applicants are being denied, though, so take that into consideration as you explore your options.

How to 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 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 to estimate your income-contingent repayment

Student Loan Hero has an Income-Contingent Repayment Calculator that can help you estimate your payments under this plan.

The calculator will seek the following personal info:

  • Your adjusted gross income
  • Your family size
  • Your state of residence
  • Your marriage status
  • Your annual income growth

It also wants the following loan info:

  • Your total student loan balance
  • Your current monthly payment
  • Your average weighted interest rate

Now that you know what is needed for the calculator, let’s provide an example.

Say you make $50,000 a year and have a student loan balance of $70,000 with an average interest rate of 6%. You’re a family of four within 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. So you’d pay $22,089 more if you switched to an ICR plan, but you wouldn’t pay as much monthly.

Note that you wouldn’t qualify for any forgiveness under this scenario because 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, you could consider these options.

What to do if you don’t qualify for income-contingent repayment

If you realize that you don’t qualify for an 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 loan and lock in a lower interest rate. However, when you refinance your loans with a private lender, you give up many protections you have with federal student loans, like deferment, forbearance and the ability to switch to an income-driven plan such as ICR.

While some private lenders do offer certain protections, consider all your options as you look for what’s best for you.

Potential drawbacks to income-contingent repayment

ICR won’t be the right plan for everyone. In particular, borrowers who choose ICR to lower their monthly payments might find their payments are more per month than they would have been under the standard repayment plan.

In addition, extending the repayment term beyond the standard 10 years means you’ll probably pay more in total interest over time.

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 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 for eligibility, this repayment plan is available to even 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 welcome to do so.

The good news is you’re being proactive about staying on top of your payments, which is a key step along the journey to becoming debt-free.

Renee Morad contributed to this report.

Interested in refinancing student loans?

Here are the top 8 lenders of 2019!
LenderVariable APREligible Degrees 
Check out the testimonials and our in-depth reviews!
1 Important Disclosures for Earnest.

Earnest Disclosures

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 3.45% APR (with Auto Pay) to 6.99% APR (with Auto Pay). Variable rate loan rates range from 1.99% APR (with Auto Pay) to 6.89% 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 November 21, 2019, 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 11/21/2019. 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 hello@earnest.com, or call 888-601-2801 for more information on our student loan refinance product.

© 2018 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.


2 Important Disclosures for SoFi.

SoFi Disclosures

  1. Student loan Refinance: Fixed rates from 3.46% APR (with AutoPay) to 7.61% APR (without AutoPay). Variable rates currently from 2.31% APR (with AutoPay) to 7.61% (without AutoPay). Interest rates on variable rate loans are capped at either 8.95% or 9.95% depending on term of loan. See APR examples and terms. Lowest variable rate of 2.31% APR assumes current 1 month LIBOR rate of 2.31% plus 0.75% margin minus 0.25% for AutoPay. If approved for a loan, the fixed or variable interest rate offered will depend on your credit history and the term of the loan and will be within the ranges of rates listed above. For the SoFi variable rate loan, the 1-month LIBOR index will adjust monthly and the loan payment will be re-amortized and may change monthly. APRs for variable rate loans may increase after origination if the LIBOR index increases. The SoFi 0.25% AutoPay interest rate reduction requires you to agree to make monthly principal and interest payments by an automatic monthly deduction from a savings or checking account. The benefit will discontinue and be lost for periods in which you do not pay by automatic deduction from a savings or checking account.

3 Important Disclosures for Figure.

Figure Disclosures

Figure’s Student Refinance Loan is a private loan. If you refinance federal loans, you forfeit certain flexible repayment options associated with those loans. If you expect to incur financial hardship that would impact your ability to repay, you should consider federal consolidation alternatives.


4 Important Disclosures for Laurel Road.

Laurel Road Disclosures

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. Mortgage lending is not offered in Puerto Rico. All loans are provided by KeyBank National Association.
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.

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.

FEE INFORMATION

There are no origination fees or prepayment penalties associated with the loan. Lender may assess a late fee if any part of a payment is not received within 15 days of the payment due date. Any late fee assessed shall not exceed 5% of the late payment or $28, whichever is less. A borrower may be charged $20 for any payment (including a check or an electronic payment) that is returned unpaid due to non-sufficient funds (NSF) or a closed account.

LOAN AMOUNT

For bachelor’s degrees and higher, up to 100% of outstanding private and federal student loans (minimum $5,000) are eligible for refinancing. If you are refinancing greater than $300,000 in student loan debt, Lender may refinance the loans into 2 or more new loans.
For eligible Associates degrees in the healthcare field (see Eligibility & Eligible Loans section below), Lender will refinance up to $50,000 in loans for non-ParentPlus refinance loans. Note, parents who are refinancing loans taken out on behalf of a child who has obtained an associates degrees in an eligible healthcare field are not subject to the $50,000 loan maximum, refer to https://www.laurelroad.com/refinance-student-loans/refinance-parent-plus-loans/ for more information about refinancing ParentPlus loans.

ELIGIBILITY & ELIGIBLE LOANS

Borrower, and Co-signer if applicable, must be a U.S. Citizen or Permanent Resident with a valid I-551 card (which must show a minimum of 10 years between “Resident Since” date and “Card Expires” date or has no expiration date); state that they are of at least borrowing age in the state of residence at the time of application; and meet Lender underwriting criteria (including, for example, employment, debt-to-income, disposable income, and credit history requirements).

Graduates may refinance any unsubsidized or subsidized Federal or private student loan that was used exclusively for qualified higher education expenses (as defined in 26 USC Section 221) at an accredited U.S. undergraduate or graduate school. Any federal loans refinanced with Lender are private loans and do not have the same repayment options that federal loan program offers such as Income Based Repayment or Income Contingent Repayment.

All loans must be in grace or repayment status and cannot be in default. Borrower must have graduated or be enrolled in good standing in the final term preceding graduation from an accredited Title IV U.S. school and must be employed, or have an eligible offer of employment. Parents looking to refinance loans taken out on behalf of a child should refer to https://www.laurelroad.com/refinance-student-loans/refinance-parent-plus-loans/ for applicable terms and conditions.

For Associates Degrees: Only associates degrees earned in one of the following are eligible for refinancing: Cardiovascular Technologist (CVT); Dental Hygiene; Diagnostic Medical Sonography; EMT/Paramedics; Nuclear Technician; Nursing; Occupational Therapy Assistant; Pharmacy Technician; Physical Therapy Assistant; Radiation Therapy; Radiologic/MRI Technologist; Respiratory Therapy; or Surgical Technologist. To refinance an Associates degree, a borrower must also either be currently enrolled and in the final term of an associate degree program at a Title IV eligible school with an offer of employment in the same field in which they will receive an eligible associate degree OR have graduated from a school that is Title IV eligible with an eligible associate and have been employed, for a minimum of 12 months, in the same field of study of the associate degree earned.

INTEREST RATES

The interest rate you are offered will depend on your credit profile, income, and total debt payments as well as your choice of fixed or variable and choice of term. For applicants who are currently medical or dental residents, your rate offer may also vary depending on whether you have secured employment for after residency.

DISBURSEMENT OPTIONS

The repayment of any refinanced student loan will commence (1) immediately after disbursement by us, or (2) after any grace or in-school deferment period, existing prior to refinancing and/or consolidation with us, has expired.

POSTPONING OR REDUCING PAYMENTS

After loan disbursement, if a borrower documents a qualifying economic hardship, we may agree in our discretion to allow for full or partial forbearance of payments for one or more 3-month time periods (not to exceed 12 months in the aggregate during the term of your loan), provided that we receive acceptable documentation (including updating documentation) of the nature and expected duration of the borrower’s economic hardship.

We may agree under certain circumstances to allow a borrower to make $100/month payments for a period of time immediately after loan disbursement if the borrower is employed full-time as an intern, resident, or similar postgraduate trainee at the time of loan disbursement. These payments may not be enough to cover all of the interest that accrues on the loan. Unpaid accrued interest will be added to your loan and monthly payments of principal and interest will begin when the post-graduate training program ends.

We may agree under certain circumstances to allow postponement (deferral) of monthly payments of principal and interest for a period of time immediately following loan disbursement (not to exceed 6 months after the borrower’s graduation with an eligible degree), if the borrower is an eligible student in the borrower’s final term at the time of loan disbursement or graduated less than 6 months before loan disbursement, and has accepted an offer of (or has already begun) full-time employment.

If Lender agrees (in its sole discretion) to postpone or reduce any monthly payment(s) for a period of time, interest on the loan will continue to accrue for each day principal is owed. Although the borrower might not be required to make payments during such a period, the borrower may continue to make payments during such a period. Making payments, or paying some of the interest, will reduce the total amount that will be required to be paid over the life of the loan. Interest not paid during any period when Lender has agreed to postpone or reduce any monthly payment will be added to the principal balance through capitalization (compounding) at the end of such a period, one month before the borrower is required to resume making regular monthly payments.

KEYBANK NATIONAL ASSOCIATION RESERVES THE RIGHT TO MODIFY OR DISCONTINUE PRODUCTS AND BENEFITS AT ANY TIME WITHOUT NOTICE.

This information is current as of November 8, 2019 and is subject to change.


5 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.


6 Important Disclosures for CommonBond.

CommonBond Disclosures

Offered terms are subject to change. Loans are offered by CommonBond Lending, LLC (NMLS # 1175900). 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 1.76% effective November 10, 2019.


7 Important Disclosures for LendKey.

LendKey Disclosures

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 12/07/2019 student loan refinancing rates range from 1.90% to 8.59% Variable APR with AutoPay and 3.49% to 7.75% Fixed APR with AutoPay.


8 Important Disclosures for College Ave.

College Ave Disclosures

College Ave Student Loans products are made available through either Firstrust Bank, member FDIC or M.Y. Safra Bank, FSB, member FDIC. All loans are subject to individual approval and adherence to underwriting guidelines. Program restrictions, other terms, and conditions apply.

1College Ave Refi Education loans are not currently available to residents of Maine.

2All rates shown include autopay discount. The 0.25% auto-pay interest rate reduction applies as long as a valid bank account is designated for required monthly payments. Variable rates may increase after consummation.

3$5,000 is the minimum requirement to refinance. The maximum loan amount is $300,000 for those with medical, dental, pharmacy or veterinary doctorate degrees, and $150,000 for all other undergraduate or graduate degrees.

4This informational repayment example uses typical loan terms for a refi borrower with a Full Principal & Interest Repayment and a 10-year repayment term, has a $40,000 loan and a 5.5% Annual Percentage Rate (“APR”): 120 monthly payments of $434.11 while in the repayment period, for a total amount of payments of $52,092.61. Loans will never have a full principal and interest monthly payment of less than $50. Your actual rates and repayment terms may vary.

Information advertised valid as of 12/1/2019. Variable interest rates may increase after consummation.

1.99% – 6.89%1Undergrad
& Graduate

Visit Earnest

2.31% – 7.36%2Undergrad
& Graduate

Visit SoFi

2.21% – 6.21%3Undergrad
& Graduate

Visit Figure

1.99% – 6.65%4Undergrad
& Graduate

Visit Laurel Road

2.43% – 7.60%5Undergrad
& Graduate

Visit Splash

1.85% – 6.13%6Undergrad
& Graduate

Visit CommonBond

1.90% – 8.59%7Undergrad
& Graduate

Visit Lendkey

2.74% – 6.25%8Undergrad
& Graduate

Visit College Ave

Our team at Student Loan Hero works hard to find and recommend products and services that we believe are of high quality. We sometimes earn a sales commission or advertising fee when recommending various products and services to you. Similar to when you are being sold any product or service, be sure to read the fine print to help you understand what you are buying. Be sure to consult with a licensed professional if you have any concerns. Student Loan Hero is not a lender or investment advisor. We are not involved in the loan approval or investment process, nor do we make credit or investment related decisions. The rates and terms listed on our website are estimates and are subject to change at any time.

Published in Student Loan Repayment

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