2020 Guide to the Income-Contingent Student Loan Repayment Plan (ICR)

What is the Income-Contingent Repayment Plan? (ICR)

The Income-Contingent Repayment Plan (usually abbreviated “ICR”) is one of several Income-Driven Federal Student Loan Repayment Plans.

Of the current Income-Driven Repayment Plans, which include the Pay As You Earn Repayment Plan (PAYE), the Revised Pay As You Earn Repayment Plan (REPAYE), the Income-Based Repayment Plan (IBR) and the Income-Contingent Repayment Plan itself (ICR), which is the oldest, and typically the least useful of the bunch.

However, there are some benefits to choosing ICR over PAYE, REPAYE or IBR, especially for certain borrowers who have certain types of loans, or who are facing really specific financial issues.

This Guide will go through the Income-Contingent Repayment Plan in detail, explaining when you would want to use it, and when you would want to opt for one of the other Income-Driven plans instead.

If you have questions about what to do after reading through this content, feel free to ask them in the Comments section at the bottom of this page.

But Before I Explain the ICR Plan in Detail…

Let me first fill you in on the best secret to getting rid of your student loans: the fastest, cheapest way to wipe out your debt is to pay an expert to review your case and construct a repayment strategy specific to your individual financial circumstances.

Why? Because only an expert can evaluate what blend of Forgiveness Programs, Discharge Programs, Deferments, Forbearances and Repayment Plans is going to work best for any particular borrower.

I’ve been advising people on dealing with their loans for over 10 years now, and I would honestly say that the single best advice I can give you is to spend the couple hundred dollars it costs for an expert review, because it could stand to save you thousands or even tens of thousands of dollars over life of your loans.

But there’s only one company who I trust to help my readers – the Student Loan Relief Helpline. The Helpline is staffed by actual debt experts who can review your case, look at the programs you qualify for, then give you specific instructions on what you should do, whether that means consolidation, refinancing, or pursuing a forgiveness or discharge benefit.

To get your debt back under control, call the Student Loan Relief Helpline now at: 1-888-906-3065.

How Do the Income-Driven Student Loan Repayment Plans Work?

All of the Income-Driven Repayment Plans work the same way – setting the monthly payment amount for your Federal student loans as a percentage of your income, and in the process, typically significantly reducing the amount that you’re forced to pay each month.

This isn’t always the case, however, because obviously if you make a ton of money, then you could end up with a very high monthly payment, and one of the best parts of the income-driven plans is that if you make a really small amount of money, then you could even qualify for a $0 monthly payment!

Here are several other things that all of the income-driven plans share in common:

All IDR-plans set your monthly payments based on three factors: your income, your family size, and the amount of debt you owe
All IDR-plans offer loan forgiveness at some point (20-25 years is the basic starting point, with PSLF you can get that down to just 10 years!)
All IDR-plans require you to pay income taxes on whatever amount of money is forgiven at the end of the plan (unless you use PSLF or some other similar Federal Forgiveness Program)
All IDR-plans require you to complete an annual certification process to report updates to income, family size and total debt
All IDR-plans end up saving you money in the short-run via lower monthly payments, but costing you more over the lifespan of the loan, since you’ll end up owing more in total interest

With that out of the way, how exactly does the Income-Contingent Repayment Plan work?

How Does the Income-Contingent Repayment Plan Work?

Under the Income-Contingent Repayment Plan, your monthly student loan payments will be capped at 20% of your discretionary income, or whatever amount you would be getting charged for a 12-year loan term on the Standard Repayment Plan, whichever is lower.

What is discretionary income? In general, discretionary income is the money left over after you’ve already paid necessities, like rent or a mortgage, utility bills, and food expenses. Basically, the discretionary income is whatever is left over after you’ve paid for you and your family’s necessities.

However, when we talk about calculating discretionary income in terms of determining student loan payments, there’s a more specific formula that gets applied, which is to calculate your discretionary income as your gross income (after taxes have been removed) minus 150% of the Federal poverty guideline for the size of your family.

For 2019, 150% of the poverty guideline for the 48 contiguous States and Washington D.C., based on family sizes, is:

Family Size ("Household Size")	150% of the Poverty Guideline
1	$18,735
2	$25,365
3	$31,995
4	$38,625
5	$45,255
6	$51,885
7	$58,515
8	$65,145

So, to find out what your discretionary income would be, you need to know how much you grossed in income (again, after taxes), then subtract the 150% poverty guideline level for your family size from the table above.

Once you’ve figured that out, you can calculate your maximum monthly payment under the ICR plan by simply multiplying your discretionary income by .2 (which is 20%). This will tell you how much your Student Loan Servicing Company is able to charge you each month under the ICR Plan.

To simplify this process and avoid doing any math of your own, use the Government’s official Student Loan Monthly Payment Calculator, which you can find here.

Advantages of the ICR Repayment Plan

There are several advantages to the ICR Plan, including:

Compared to the standard repayment plans, ICR lets you set your monthly payments based on income, family size and total debt, which is likely to reduce your monthly costs
ICR is the only Income-Driven plan that doesn’t require having a “partial hardship”, meaning a difficulty making your monthly payments under the standard plans
ICR is the ONLY IDR plan that people with Parent PLUS Loans will be able to utilize, since they can’t get on PAYE, REPAYE or IBR
ICR doesn’t inflate your total debt costs as much as PAYE, REPAYE or IBR does, so if you can afford ICR monthly payments, then it’s a better long-term solution than PAYE, REPAYE and IBR

But before you decide to switch to ICR, let’s make sure that you fully understand the downsides of doing so.

Downsides of the ICR Repayment Plan

Though ICR is a great idea for certain borrowers, it’s not right for everyone. Here are some drawbacks to the Income-Contingent Repayment Plan:

ICR isn’t guaranteed to reduce your payments compared to the standard repayment plan – it depends on how much you make, how large your family is, and how much you owe
ICR monthly payments are almost always going to be higher than what you could get from PAYE, REPAYE and IBR, so if you qualify for those plans, they’ll probably be better for you
ICR requires you to count both your own income AND your spouse’s income for the purposes of determining monthly payments, which could be problematic for some people
ICR doesn’t offer loan forgiveness until 25 years, whereas PAYE and REPAYE offer it at just 20

As usual, you’ll need to look at your specific financial situation to determine if ICR is the right plan for you.

Should I Pick the Income-Contingent Plan?

Honestly, I would advise most borrowers to avoid the ICR Plan, for two reasons:

Borrowers who are having trouble making their monthly payments, and who would have lower payments if they were set based on their income, are likely to do better using PAYE, REPAYE or the IBR Plan
Borrowers who aren’t having trouble making their monthly payments should just stick to the NON-IDR Plans, and continue making payments via the Standard Repayment Plan, Graduated Repayment Plan, or even the Extended Repayment Plan, since those plans may have higher monthly payments, but they save money over the lifespan of your loan, meaning that they’ll end up costing you less in total over the course of your repayment process

However, if you fall into either (or both!) of the following categories of people, then you will want to seriously consider the ICR Plan, because it may just be your best option.

You Should Use ICR If You Have Parent PLUS Loans

If you’ve got Parent PLUS Loans, because you borrowed money for your child or children to attend school, then the only way to get enrolled in ANY Income-Driven Repayment Plan will be to turn your Parent PLUS Loan into a Direct Consolidation Loan, then sign up for the ICR Plan

Parent PLUS Loans are NOT eligible for PAYE, REPAYE or the IBR Plan, so if you’re having trouble making monthly payments, and would be able to reduce them because you don’t make much money, then ICR becomes your only option.

Check out my Guide to Parent PLUS Loan Forgiveness for a complete explanation of how this process works.

You Should Use ICR if You CAN’T Afford the Standard Plans, but CAN Afford More Than the Other IDR Plans

The second instance where I’d say ICR is worth considering is if you can’t afford the monthly payments of the standard repayment plans, which are NOT set based on income at all, but you CAN afford to pay more than your monthly payment would be set at under PAYE, REPAYE or the IBR Plan.

Why would you want to pay more per month under ICR if you could pay less under one of the other IDR plans?

Because over the lifespan of your loan, you will end up owing less total money. PAYE, REPAYE and the IBR plan may have really low monthly payments (in some cases you can even qualify for a $0 monthly payment), but when payments are low, that also means that interest is more likely to accumulate, and over time, you could end up paying so little that your loan balance only continues increasing instead of ever going down.

Now – if your plan is to use one of the Federal Forgiveness Programs, then the math on this option could change. You may actually end up wanting to pay as little as possible per month, even if that does mean racking up a huge debt over the lifespan of the loan, as long as you know it’s going to get forgiven eventually.

Keep in mind though that most of the Federal Forgiveness Programs do require you to pay IRS taxes on the amount of debt that you get forgiveness on, so that should be factored into your math as well.

For full details on how that process works, and ideas on how to pick the right strategy, look at my Guide on Student Loan Forgiveness and Taxable Income Laws.

Eligibility Requirements for the Income-Contingent Plan

Before you get too excited about enrolling in the ICR Plan, let me first explain who is allowed to use it, because it’s not universally available to all Federal loan holders.

The Income-Contingent Repayment Plan is only available to people with these types of Federal student loans:

Direct Loans (including all subsidized and unsubsidized Direct Loans)
Direct Consolidation Loans
Direct Parent PLUS Loans (AFTER they’ve been consolidated to a Direct Consolidation Loan)

If you have one of the following types of loans, you’ll need to turn them into a Direct Consolidation Loan before you can enroll in ICR:

FFEL Consolidation Loans
FFEL PLUS Loans
Federal Perkins Loans
Federal Stafford Loans

But before you go about consolidating your loans, let’s make sure that ICR is actually the best option for you, because many people will probably want to use PAYE, REPAYE, or IBR instead of ICR.

Here’s how ICR compares to each of the other types of IDR plans.

The Income-Contingent Repayment Plan vs. Other Income-Driven Plans

As I’ve already outlined above, there are several potential advantages to ICR vs the other IDR plans, including:

ICR doesn’t require a “partial hardship”, so you don’t have to be having any financial trouble at all to be eligible to use it
ICR is the only IDR plan available to people with Parent PLUS Loans
ICR won’t lead to as much total debt over the lifespan of your loan as the other IDR plans do

But it’s not all sunshine and rainbows, because IDR also has some potential downsides compared to the other IDR plans, including:

ICR will almost certainly have higher monthly payments than the other IDR plans, since they cap payments at 10% and 15% of discretionary income, whereas ICR caps it at 20%

In the end, you’ll need to evaluate your specific financial situation to determine which plan will work best for you. Factors to take into account will be things like your total debt, your income, the size of your family, the amount of money you can afford to pay monthly, your plan to take advantage of a Federal Forgiveness Program (or not to use one!) and whether you’re prioritizing smaller monthly payments or a smaller cost over the lifespan of your loan.

The Income-Contingent Repayment Plan vs. The Income-Based Repayment Plan (IBR)

For most borrowers, the IBR plan is going to be a better bet than ICR, for all the reasons I’ve already outlined above.

However, here are five specific ways that the IBR plan works better than ICR:

Monthly payments are almost always going to be higher on the ICR plan (20% of discretionary income), whereas the IBR plan sets payments at just 15% of discretionary income
IBR payments are based on only income and family size, but ICR also uses how much you owe to determine how much you’ll pay (which is usually a bad thing!)
People with FFEL and Federal Direct Loans can use IBR, but ICR is only eligible for Federal Direct Loans
Under ICR, if you ever pay less than the amount of money accruing as interest, it’s added to your final bill, but under the IBR plan, the Government will cover unpaid interest on a subsidized loan for up to three consecutive years from the date you start on the IBR plan
On the IBR plan, unpaid interest is only capitalized after you no longer face a “partial financial hardship”, or if you leave the plan for some other repayment option, but ICR interest gets capitalized every single year, meaning you’ll end up paying interest on the unpaid interest that has already accumulated (which can get VERY costly over time!)

As I’ve been saying throughout the post, ICR is a great plan for those who can afford more than the other IDR plans, but who can’t afford the standard repayment plans.

Or for those who have a Parent PLUS Loan. Pretty much anyone else would do better to enroll in one of the other IDR plans.

The Income-Contingent Repayment Plan vs. the Pay As You Earn Repayment Plan (PAYE)

PAYE is one of the newest Repayment Plans, and was introduced in the wake of President Obama’s Student Loan Forgiveness Program.

The best thing about PAYE is that it offers the lowest monthly payments, capping your monthly payments at just 10% of discretionary income (HALF the amount allowed compared to ICR).

Another benefit of PAYE is that it offers complete forgiveness at the 20 year mark, so a full 5 years earlier than ICR.

Why would anyone choose ICR over PAYE? Because PAYE is only available to people who borrowed money during a specific time period – people who had no loans before October 1st, 2008, and who had a new loan after October 1st, 2011.

Also, if you can afford MORE than the monthly payments that you’re supposed to make under PAYE, and you do plan on paying off the full amount of your loan, then it’s better to do it under ICR since the monthly payments are higher, but you end up paying less in interest over the lifespan of the loan.

The Income-Contingent Repayment Plan vs. the Revised Pay As You Earn Repayment Plan (REPAYE)

REPAYE (Revised Pay As You Earn) is the newest IDR plan, and was introduced to make the PAYE plan benefits available to everybody, regardless of when they got their loans.

REPAYE is available to anyone with a Direct Loan Consolidation (that doesn’t include a Parent PLUS Loan), or anyone with a Stafford or Graduate PLUS Loan.

Monthly payments under REPAYE are set at 10% of discretionary income, just like PAYE, so again, half the cost under the ICR plan, which sets them at 20%.

Under REPAYE, forgiveness is offered at 20 years (same as PAYE), so again, 5 years earlier than you’d get it with ICR.

Again, you’d probably be better off using REPAYE than ICR, unless you’re one of the people who can afford to spend more than REPAYE monthly payments, and who wants to save money over the long-run.

How Do I Switch Repayment Plans?

That’s the easy part!

Once you’ve determined that you want to switch to a different Federal Student Loan Repayment Plan, all you have to do is contact your student loan servicing company and inform them of your desire to change.

Your servicer will then let you know exactly what you need to do (if anything) to get on the other plan, and in some cases, they handle the entire process for you.

That’s it!

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Disclaimer:Information obtained from Forget Student Loan Debt is for educational purposes only. You should consult a licensed financial professional before making any financial decisions. This site receives some compensation through affiliate relationships. This site is not endorsed or affiliated with the U.S. Department of Education.

By: Tim Marshall

Tim's experience struggling with crushing student loan debt led him to create the website Forget Student Loan Debt in 2011, where he offers advice, tips and tricks for paying off student loans as quickly and affordably as possible.