Guide to ICR vs IBR Plans

Melissa BrockUpdated August 22, 2023

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Editor’s note: Lantern by SoFi seeks to provide content that is objective, independent and accurate. Writers are separate from our business operation and do not receive direct compensation from advertisers or partners. Read more about our Editorial Guidelines and How We Make Money.

If you have federal student loans to repay (as so many people do), you may wonder about federal income-driven repayment (IDR) plans. Two IDR options include Income-Contingent Repayment (ICR) and Income-Based Repayment (IBR). They have similar names and features, but also of course, significant differences. Picking the right one requires some thought and insight, and that’s what you’ll learn here, including:

What is IBR vs. ICR?
How does each loan repayment plan work?
What is the difference between income based and income contingent repayment plans?
What are the pros and cons of IBR and ICR?
What is the SAVE Plan?

Note: The U.S. Department of Education ended its COVID-19 relief program for federal student loans as required by the Fiscal Responsibility Act of 2023. Student loan interest accrual resumed on Sept. 1, 2023, and required monthly payments resumed in October.

What Is an Income-Based Repayment Plan?

Put simply, the income-based repayment plan, or IBR, is a student loan repayment plan for federal student loans that adjusts the amount you owe each month. The amount you pay per month depends on your income and family size.You can qualify for the IBR if you have:

Direct subsidized and unsubsidized loans
Direct PLUS loans for graduate and professional students
Direct consolidation loans that did not repay any PLUS loans made to parents
Subsidized and unsubsidized Federal Stafford Loans
FFEL PLUS Loans made to graduate or professional students
FFEL Consolidation Loans that did not repay any PLUS loans made to parents
Consolidated Federal Perkins loans.

Recommended: Your Guide to Choosing a Student Loan Repayment Plan

How IBR Works

IBR works by calculating your payment amount to be the lower of either a certain percentage of your discretionary income or the amount you would pay under the 10-year Standard Repayment Plan. Your discretionary income is the difference between your AGI (or adjusted gross income) and 150% of the HHS Poverty Guideline amount based on your family size and state. You'll receive a 10% discretionary income percentage if you borrowed on or after July 1, 2014 and are a new borrower or had no outstanding balances on a federal student loan when you received the new loan. Your discretionary income percentage will be 15% if you borrowed your first loan before July 1, 2014. Under the plan, the maximum number of years of repayment for 25 years. After 25 years, the remaining debt will be forgiven. To get started with the IBR plan, submit the IBR request online or contact your loan servicer directly and ask for an IBR plan request form. You'll have to apply for annual recertification to verify your income and family size.Recommended: Advantages to Student Loan Refinancing

Pros and Cons of Income-Based Repayment Plans

Before you choose to apply for an IBR plan, it's a good idea to look at both the pros and cons of both.First, the pros:

Shorter repayment period: Your repayment period may only be 20 years compared to other types of federal income-based repayment plans, which may require you to make payments for 25 years.
Less discretionary income: You may only need to pay 10% of your discretionary income under IBR, while other income-driven payment plans may require you to pay more.
Payment cap: Under IBR, your payment will never be more than what it would be under the Standard Repayment Plan.

The cons include the following:

Strict eligibility criteria: You must qualify for IBR, which means your loan debt must exceed your annual discretionary income or make up a large part of your annual household income.
Parent PLUS loan borrowers don't qualify: Parents who borrow using a Parent PLUS loan do not qualify for IBR.

What Is an Income-Contingent Repayment Plan?

The income-contingent repayment plan (ICR) is an income-driven repayment option for borrowers to repay:

Direct subsidized loans
Direct unsubsidized loans
Direct PLUS Loans made to graduate or professional students
Direct Consolidation Loans.

The ICR plan bases your monthly payment amount on your adjusted gross income (AGI), family size, loan amount, and interest rate of your loans.Parent borrowers can consolidate Direct PLUS Loans or Federal PLUS Loans into a Direct Consolidation Loan, then repay the new consolidation loan under the ICR plan. They cannot use any other federal income-driven repayment plan.A parent PLUS loan is a loan through the U.S. Department of Education through schools that participate in the Direct Loan program. They are for eligible parents of undergraduate students.

How ICR Works

Here’s how the ICR calculation works: Your monthly payment under the ICR plan is the lesser of two amounts, described below. It's important to note that your monthly payment may be higher than if you paid under the 10-year Standard Repayment Plan.Now, the specifics: Your required monthly payment will be either the lesser of 20% of your discretionary income or the amount you'd pay under a Standard Repayment Plan with a 12-year payment period. Your discretionary income refers to the difference between your AGI and 100% of the poverty guidelines for your family size and state. To access the ICR plan, submit the ICR request online or contact your loan servicer directly and ask for an ICR plan request form.

Pros and Cons of Income-Contingent Repayment Plans

What are the pros and cons of ICR plans? Let's go over the pros first:

For parent borrowers: ICR is the only income-driven repayment plan that parent borrowers can take advantage of. Parents must consolidate parent PLUS loans into a direct consolidation loan to qualify.
Can qualify through Public Service Loan Forgiveness: If you work for a nonprofit organization or government agency, you can get your loans forgiven, which means that you don't have to pay them back. Payments you make through ICR count toward the required 120 payments.

The downsides of ICR plans include:

Higher payments: You usually have to make higher payments under ICR plans because ICR caps payments at 20% of your discretionary income and lasts 25 years. Your payment also may be higher than under the Standard Repayment Plan.
No loan forgiveness till after 25 years of payments: Some student loan forgiveness programs allow you to qualify after just 20 years of payments, but with ICR, you don’t qualify for loan forgiveness until after 25 years.

IBR vs ICR Plans, Compared

Let's compare ICR vs. IBR, side by side.

Similarities

The biggest similarity between IBR vs. ICR is that they provide you with an affordable monthly payment amount when repaying your federal student loans. In both cases, you may qualify for forgiveness after 25 years. Your payments can also count toward the 120 payments required for Public Service Loan Forgiveness, which is a program that allows you to get your loans forgiven after 120 qualifying payments, or 10 years' worth of payments.

Differences

The best way to compare the differences between income contingent repayment vs. income based repayment is to put them both side-by-side. It's important to look carefully at the differences between income based and income contingent before you make a final decision.

Factors	IBR Plan	ICR Plan
Borrowers	Direct Loan and FFELborrowers	Direct Loan borrowers
Loan types eligible	All Direct Loan and FFEL Program loans except Parent PLUS and consolidation loans of repaid Parent PLUS Loans	All Direct Unsubsidized and Subsidized loans, Direct Consolidation loans (which can include Parent PLUS consolidated loans), Direct PLUS loans taken out by graduate or professional students
Income requirements	Low income compared to eligible federal student loan debt	No income requirements
Recertification	Yearly	Yearly
Monthly payment	10% of your discretionary income with loans on or after July 1, 2014 or 15% of your discretionary income if not a new borrower	The lesser of 20% of your discretionary income or what you would pay based on adjusted income on a fixed payment over the course of 12 years
Payment caps	Never more than whatyou would have paid under the Standard Repayment Plan with a 10-year repayment period based on what you owed when you entered the IBR Plan	No payment caps
Married borrowers	Based on the combined income and loan debt of you and your spouse if you file a joint federal income tax return; your income is considered if you file a separate return	Based on the combined income and loan debt of you and your spouse if you file a joint federal income tax return; your income is considered if you file a separate return
Repayment and loan forgiveness period	If you're a new borrower on or after July 1, 2014, the outstanding balance is forgiven after 20 years of qualifying repayment or if you're not a new borrower, after 25 years of qualifying repayment	After 25 years of repayment
Interest benefit	The government pays the difference for the first three years if your monthly payment doesn't cover the full amount of interest that accrues on your subsidized loans	No interest benefit

Recommended: How Long Does It Take to Pay off Student Loans?

Who IBR Plans Are Good For

IBR plans are best for those who have the "right" loans to qualify:

Direct subsidized and unsubsidized loans
Direct graduate PLUS loans
FFEL consolidation loans
Direct consolidation loans

If you're a new borrower on or after July 1, 2014, it may be more beneficial to pursue IBR because the outstanding balance is forgiven after 20 years. If you're not a new borrower (on or before this date), you'll pay for 25 years.If you don’t expect your income to increase much over time, have grad school debt, you and your spouse both earn money, or you want to benefit from the government interest benefit, IBR may be the best option for you.Recommended: Private vs. Federal Student Loans: The Complete Guide

Who ICR Plans Are Good For

Most notably, the income-contingent repayment plan (ICR) is an income-driven repayment option that can be good for parent PLUS loan borrowers who have taken the steps to consolidate student loans.Recommended: Consolidating Student Loans with a Spouse

What is the SAVE Plan?

President Joe Biden has announced the creation of the Saving on a Valuable Education (SAVE) Plan in June 2023. The SAVE Plan, like other income-driven repayment (IDR) plans, calculates your monthly payment amount based on your income and family size.According to the White House, the SAVE Plan provides the lowest monthly payments of any IDR plan available to nearly all student borrowers. Starting in the summer of 2023, borrowers on the SAVE Plan will have their payments on federal undergraduate loans cut in half (reduced from 10% to 5% of income above 225% of the poverty line).

The Takeaway

Repayment plans for student loans can seem complex. It can be a wise move to do your research and carefully weigh your options. One key step may be comparing income based vs. income contingent requirements and seeing what you qualify for and what is the best match. You may also want to consider another possibility: whether student loan refinancing is best for you. This means that you gather all or some of your student loans and repay them under a private lender, which may save you money.With Lantern, you can quickly and conveniently check student loan refinancing rates from various lenders and see just what kind of offers can be available. It’s an easy way to size up some options. Ready to explore student loan refinancing? Lantern can help.

Frequently Asked Questions

Is an ICR or IBR plan better?

What is an income-contingent repayment plan exactly?

How is income used in income-based repayment plans?

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About the Author

Melissa Brock

Melissa Brock is a higher education and personal finance expert with more than a decade of experience writing online content. She spent 12 years in college admission prior to switching to full-time freelance writing and editing. Her work has appeared on Yahoo Finance, Entrepreneur, Investopedia, The Balance, FinanceBuzz, The Journal of College Admission, MarketBeat, College Finance, Rocket Mortgage, LeverageRx, Benzinga, Morty, Ally, and more.

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