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Income-Contingent Repayment, also known as ICR, is one of the four income-driven repayment (IDR) plans offered by the U.S. Department of Education to help borrowers pay down their federal student loan debt. ICR uses a formula that reduces a borrower’s monthly student loan repayment obligation to an amount intended to be more affordable.An ICR plan in some cases can reduce a borrower’s monthly student loan repayment costs to $0 per month in years when the borrower had an annual adjusted gross income that fell below the U.S. Department of Health and Human Services’ poverty guidelines.ICR plans have a 25-year repayment period, although some borrowers may fully pay off their federal student loan debt before the end of their repayment period. Any borrowers with an outstanding balance at the end of the ICR repayment period will have their remaining loan balance forgiven.Most instances of federal student loan interest capitalization are now eliminated under a new rule that went into effect in July 2023. Interest capitalization is when a lender adds outstanding unpaid interest to your principal loan balance and then charges additional interest on the larger principal balance — something that used to occur with ICR plan enrollees in some cases.Below are more details about ICR and how it contrasts with other income-driven repayment plans.What Is ICR?
As mentioned above, ICR is Income-Contingent Repayment — one of the four income-driven repayment plans offered by the U.S. Department of Education to help borrowers pay down their federal student loan debt. Any borrower with eligible federal student loans can make payments under an ICR plan, which may reduce the borrower’s monthly repayment obligation below the federal government’s Standard Repayment Plan.Unlike the 25-year repayment period for an ICR plan, the Standard Repayment Plan typically runs for 10 years. Borrowers with an ICR plan in some years could have a $0 monthly payment if their annual adjusted gross income falls below the poverty line, whereas borrowers with a Standard Repayment Plan would make fixed payments of at least $50 each month.Borrowers with outstanding federal student loan debt may apply for an ICR plan if they have one of the following federal student loan products:- Direct Subsidized Loans
- Direct Unsubsidized Loans
- Direct PLUS Loans made to graduate or professional students
- Direct Consolidation Loans, including those that repaid PLUS loans made to parents and those that did not.
How Does Income Contingent Repayment Work?
Income-Contingent Repayment works by applying a mathematical formula that could potentially reduce a borrower’s monthly federal student loan repayment below the amount they would pay under the Standard Repayment Plan. Borrowers under the Standard Repayment Plan typically pay a fixed monthly payment over a 10-year period, where the fixed payment goes toward the principal and interest on the loan.Direct Loan borrowers who make repayments under an ICR plan would either pay monthly payments equal to 20% of their discretionary income divided by 12, or pay monthly payments based upon what they would pay on a 12-year repayment plan with fixed monthly payments determined by standard amortization multiplied by an income percentage factor, whichever is lesser.Discretionary income is your adjusted gross income minus the annual poverty guideline for your family size and state of residence as determined by the U.S. Department of Health and Human Services.ICR vs Other Income-Driven Plans
As mentioned earlier, ICR is just one of four income-driven repayment plans offered by the U.S. Department of Education to help borrowers pay down their federal student loan debt. Here is a description of the other three income-driven repayment plans:1. Saving on a Valuable Education (SAVE) Plan
The Saving on a Valuable Education (SAVE) Plan, which replaces the Revised Pay As You Earn (REPAYE) Plan, is one of the four IDR plans offered by the U.S. Department of Education. Some SAVE Plan enrollees may have monthly payments as low as $0 depending on income and family size. Forgiveness may come after 20 or 25 years under any of the IDR plans, but forgiveness may come earlier for eligible SAVE Plan enrollees who had original principal balances of $12,000 or less.2. Pay As You Earn Repayment Plan (PAYE Plan)
Borrowers who have received a disbursement of a Direct Loan on or after Oct. 1, 2011, and who have a high level of federal student loan debt relative to their annual discretionary income may qualify for a 20-year PAYE repayment plan, which is generally based on 10% of a borrower’s discretionary income divided by 12, but never more than the 10-year Standard Repayment Plan amount.3. Income-Based Repayment Plan (IBR Plan)
Borrowers with a high level of federal student loan debt relative to their annual discretionary income may qualify for an IBR repayment plan, which is generally equal to 15% or 10% of a borrower’s discretionary income and may feature 20-year or 25-year repayment periods. Borrowers who qualify for an IBR plan would have monthly payments never exceeding the 10-year Standard Repayment Plan amount.Pros and Cons of ICR Plans
Here are some pros and cons associated with ICR income-driven repayment plans:| Pros | Cons |
| Payments are based on the borrower’s income | Must recertify your income and family size annually to remain eligible |
| Any outstanding loan balance at the end of the 25-year repayment period would be forgiven | You may pay more interest over the life of the loan compared with the 10-year Standard Repayment Plan |
How to Apply for an ICR Repayment Plan
Eligible borrowers who wish to apply for an ICR income-driven repayment plan may create an account on the Federal Student Aid website and apply for one online. Federal student loan borrowers can create their own accounts to complete any federal student aid tasks on the FSA website.Federal Student Aid — an office of the U.S. Department of Education — says the entire income-driven repayment plan application must be completed in a single session and suggests the process usually takes 10 minutes or less.After a three-year payment pause, the Covid-19 forbearance on federal student loan repayments ended as required by the Fiscal Responsibility Act of 2023. As a result, interest accrual on federal student loans resumed on Sept. 1, and required payments resumed in October 2023.Under new regulations that took effect in July 2023, interest capitalization will no longer occur when a federal student loan borrower first enters repayment or leaves a forbearance.The Takeaway
With millions of Americans collectively holding more than $1.6 trillion in federal student loan debt, an ICR Plan can help borrowers better manage their federal student debt burden. An ICR plan can be costly in the long run because of interest charges, but such an income-driven repayment plan can provide some borrowers with immediate relief.If you’re interested in student loan refinancing for a lower interest rate or lower monthly payment, Lantern by SoFi can help. Just fill out a simple form and compare your student loan refinance options. You may pay more interest over the life of the loan if you refinance with an extended term. Refinancing federal student loans will remove your access to Public Service Loan Forgiveness, Teacher Loan Forgiveness, and federal IDR plans.Lantern can help you find student loan refinance offers. Photo credit: iStock/GaudiLab
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About the Author
Sulaiman Abdur-Rahman
Sulaiman Abdur-Rahman writes about personal loans, auto loans, student loans, and other personal finance topics for Lantern. He’s the recipient of more than 10 journalism awards and served as a New Jersey Society of Professional Journalists board member. An alumnus of the Philadelphia-based Temple University, Abdur-Rahman is a strong advocate of the First Amendment and freedom of speech.
