Income-Contingent Repayment (ICR) is a federal program that can help lower payments for borrowers that may not qualify for Pay As You Earn or Income-Based Repayment (IBR). Borrowers do not need to show a partial financial hardship to qualify for ICR.
Loans Eligible for Income-Contingent Repayment
- Direct Subsidized Stafford Loans
- Direct Unsubsidized Stafford Loans
- Direct PLUS Loans for Graduate or Professional Students
- Direct Consolidation Loans (if the loan did not repay any Parent PLUS loans)
Loans Ineligible for Income-Contingent Repayment
- FFEL Loans
- Parent PLUS loans, unless included in a Direct Consolidation Loan on or after July 1, 2006
- Private loans
How ICR Payments are Calculated
Payments on the Income-Contingent Repayment Plan are based on the borrower’s total Direct Loan balance, the borrower’s Adjusted Gross Income (AGI), and family size. Payments will be the lesser of:
- 20 percent of the borrower’s monthly discretionary income
- What the borrower would pay if the loan were repaid in 12 years multiplied by an income percentage factor that varies with income
Interest Capitalization Benefit
Beyond offering a more affordable loan payment, the Income-Contingent Repayment Plan offers a number of other benefits. Under ICR, borrowers receive a Ten Percent Capitalization Benefit. This assists borrowers by keeping the loan’s total interest costs in check. If the borrower’s monthly ICR payment is less than the total amount of monthly interest that accrues on the loan, the unpaid interest will capitalize once per year until the loan balance is ten percent greater than the starting balance when the loan entered repayment. Once the loan balance has increased by 10 percent, interest will continue to accrue but will not be capitalized (be added to the principal balance). This can help limit the total cost of the loan.
The Ten Percent Capitalization Benefit does not apply to interest that accrues during periods of deferment or forbearance.
The Income-Contingent Repayment Plan has a term of 25 years. If a borrower has a loan balance remaining after making 25 years of qualifying payments, that balance will be forgiven.
Borrowers who do receive loan forgiveness after 25 years on ICR may be required to pay income taxes on any forgiven balance. See the IRS website for more information about this topic.