Income-Contingent Repayment Plan (ICR) is one of the Loan repayment options available. It is only provided by the United States Department of Education. In this type of loan repayment, the payment amount that is to be paid by the borrower depends on the borrower's flexible annual income. This repayment option is useful for undergraduate students and graduate students who repay the loan based on their annual Income.
ICR was available since 1st October 1993 as a part of the Direct Loan Program or the Income-Driven Loan program. It made repaying education loans easier for borrowers who have jobs with lower income. The monthly repayment amount is calculated and fixed yearly, depending on the fluctuations in annual income and family size of the borrower.
The Department of Education allows Income-contingent repayments to the students, parents as well as to married couples with federal student loans. ICR is not offered by other banks or financial institutions.
If the borrower is having a Federal Direct loan, he/she may select this plan without consolidating their loan. Income-Contingent Repayment plans make the debt more affordable for a borrower who tries to keep up with the payments. Anyone with a federal loan is fit for the program.
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Plans and terms of ICR
It calculates the monthly repayment based on income and family size. It was first in the family relief option that includes repayment (IBR), Repay as you earn (REPAY) and pay as you earn (PAY).
In this plan, the repayment is 20% of your annual discretionary income, the payment paid with a fixed plan over 12 years. If one goes for the 20% option, one can make installments for up to 25 years.
A glimpse of Income-Contingent Repayment
The repayment term of Income-Contingent Repayment is 25 years. The repayment amount is 20% of the discretionary income of the borrower or the fixed payments amount based on a 12-year loan term.
The borrower must have federal direct loans and consolidate PLUS loan. Parents, students, and married couples with lower, average or high payments are eligible.
The borrower's monthly repayment will be the minor of 20% of his changeable income or the amount paid would be a fixed repayment amount covering 12 years, fixed annually based on the income of the borrower. Because repayments are calculated every year depending upon the upgraded earning, the size of the family, and the remaining amount of Direct Loans.
The outstanding repayment amount is forgiven if the repayment amount is not paid in the term of 25 years. The borrower has to pay income tax for the amount that is pardoned.
Loans under Income-Contingent Repayment Program
The borrowers with any Direct loan with an acceptable loan type can choose ICR as a repayment option. The term period is 12 to 25 years. The borrower can pay his debt early there are no prepayment fees because in this repayment plan borrower ends up paying more as compared to the standard 10-year plans.
It is a good option for people searching for the Public Service Loan Forgiveness program. The parents borrowing loans for their child can reach this plan by consolidating Parent PLUS Loans into the Direct Consolidation Loan.
Loans eligible for the ICR Program include
1. Direct Subsidized Loans, federal student loan borrowed by a grad student from the Direct Loan Program
2. Direct Unsubsidized Loan, federal student loans borrowed by graduate, undergraduate, and professionals
3. Direct PLUS Loans for grad students
4. Direct PLUS Consolidated Loans for parents
5. Direct Consolidation Loans not for parent PLUS loan
6. Direct Consolidation Loans for parent PLUS loan
How does Income-Contingent Repayment (ICR) Program Works
The Income-contingent Repayment (ICR) Program reduces the monthly student loan installments in two ways if the loan is approved. It completely depends upon on the income, or the current monthly payment of the federal student loans.
It demands the borrower to pay 20% of the discretionary income and the amount to be paid over 12 years on a fixed repayment plan adjusted according to the discretionary income. The payment would reduce by these two options.
After making on-time payments for 25 years, the ICR allows student loan forgiveness on the remaining amount. If there are any left out payments on the student loans at the end 25 years of the loan term, the left loan amount doesn't need to be paid. The forgiven loan amount is taxable income. The borrower has to pay tax after 25 years of the term for the forgiven amount.
The interest rate of Income-Contingent Repayment is fixed for the existing loan period, it does not provide variable rates.
The weighted average of the interest rates of the loans is calculated because it depends on the average of interest rates and then is brought down to the expected 1/8th of a percentage score. The rate of interest is 3/5 in-school rate is lower. So, it is a perfect fit for the borrowers who want to change to this plan.
The borrower can receive forgiveness with the Public Service Loan Forgiveness program. The borrower should make at least 120 payments in the Direct Loan program. Then after 10 years of working in public service, the borrower can avail the benefits of the Public Service Loan Forgiveness.
The federal loans including the student loan and all the consolidated loan. Parent plus loans are not eligible until they are consolidated Direct Parents PLUS Loans and Parent PLUS Loans.
The borrower is not trapped situation if the condition changes. It allows the borrower to make prepayments and pay more rapidly. It is compulsory for a borrower to pay the interest. If the interest is not paid, the interest amount is added to the loan amount every year
The payments for Income-Contingent Repayments are higher as compared to the other three debt-relief options.
Eligibility Criteria for Income-Contingent Repayment (ICR)
Everybody cannot enjoy the benefits of the Income-Contingent Repayment facility. There are some conditions based on the financial situation and the type of loan that a borrower has taken. To be eligible, the borrower must fall under certain guidelines. The borrowers who are not availing any IDR Plans and are seeking a low monthly payment on their federal student loans can apply for ICR.
1. The borrowers currently availing IDR Plans and want to make changes in their repayment plan can apply
2. The monthly payment must be less than the monthly expense of the payment that is to be made in a standard 10-year plan.
3. The Adjusted Gross Income (AGI) is calculated and subtract by 150 % of the poverty line.
4. The monthly payment is 15% if the money is borrowed before July 1, 2014.
5. The maximum monthly payment tops will be 10% of the annual income if the credit is borrowed after July 1, 2014.
6. Only those with Direct Consolidation Loans, Stafford/Direct Loans, and Graduate Plus Loans are acceptable. All federal loans do not qualify only the education loan taken by parents, students or married couples are covered
7. The borrower can qualify for Public Service Loan Forgiveness after 120 repayments in a 10-year plan or after.
The application process of Income-Contingent Repayment
The application process is very easy. The borrower can apply for income-driven repayments by mailing an income-driven repayment request to the student loan servicer, and it can be done through online. Filling an application form online allows the borrower to consider loan payments before they apply.
The following are the steps one can follow to fill the online application form.
Search for studentloans.gov. The borrower can Log in using Federal Student Aid ID, or FSA ID. If you don't have an FSA ID you can create one.
1. Click on income-driven repayment plan request. Read the form to know what documents are required.
2. If the borrower qualifies for more than one income-driven repayment plan. The plan of the borrower is automatically assigned to the lowest payment plan, or the borrower can specifically choose ICR plans. Filling an application form online allows the borrower to estimate your loan payments before you apply.
3. Fill the further required information about your income and family. Include spouse’s information, if applying as a married couple, it will affect the payments under ICR.
4. The borrower's spouse will have to co-sign the application before it is completed even if the spouse is not present while filling the form.
5. The spouse is not bound to repay the borrower’s loan even if co-signing the ICR application.
Documents required for applying Income-Contingent Repayment Plan
The Documents that are very important to fill up the Income-Contingent Repayment plan application form are as follows:
Permanent Residential Address
Telephone Number (Home)
Most appropriate Time to Reach the borrower.
The borrowers are given an option and can document their annual income electronically, through a data retrieval tool with the Internal Revenue Service by the federal government. The borrower's tax information would not be displayed in the site but the borrower would be informed. This information is hidden for security purposes.
If the borrower does not want to give Adjusted Gross because of a change in income. The borrower can still apply electronically with the last filed tax return, the borrower will be given instructions to provide the current income to the loan servicer.
The borrower is allowed to self-certify that the borrower has no current income in the application form in case the borrower is not earning.
For married couples, Income-Contingent repayment plans are based on both the individual's (husband and wife) income and loan information. To make it simple both have to cosign the application form.
Income-Contingent Repayment Reviews
Pros of Income-Contingent Repayment
The borrower has to pay only 20% of his discretionary income. The low monthly payment of the borrowers with large debt in federal student Loan and other loan categories are eligible for Income-Contingent Repayment.
ICR has no income eligibility requirement for qualifying.
Don’t require to have a partial financial hardship to enlist in ICR the borrowers with or without hardship can apply as there is no requirement of financial hardship for the eligibility.
This repayment plan is also available for the borrowers with higher income
The information about the time and date of the previous loan taken are not required.
Provides Public Service Loan Forgiveness after 10 years. After making 120 on-time payments.
The repayment term is 10 years to 25 years.
The borrowers are not trapped in that loan term forever. If the borrowers due to any financial change in condition tend to change repayment plans can do so.
Cons Income-Contingent Repayment
Greater monthly payments and a long way of a minimum of 10 years to loan forgiveness as compared to other IDR plans.
If monthly payments of the borrower do not cover the interest on the loan, All the unpaid interest would be attached to the loan principal on the determined term.
There is are no subsidies in ICR.
The borrower may find that the monthly payments are more than the borrower would have been under the Standard Repayment Plan.
ICR has the highest income capacity of all the income-driven repayment plans.
The borrower probably pays more in total interest in extending the repayment period beyond the standard 10 years.
If the borrower is applying with the spouse, it will be one consolidation and income earned by both will be considered, which will result in higher monthly payments.
“Marriage penalty” which calculates the combined income of the couple due to which the monthly repayment increases.
The maximum repayment time is 25 years and if the repayment is stretched the total cost of the loan increases tremendously.
The application form is required to be filled yearly because calculating payments depends on the annual income and the family size which is flexible.
The Income-Contingent Repayment Plan provides a low monthly payment of 20% of the discretionary income. It is a better option for borrowers with low income. But people with higher income can also apply as there are no eligibility criteria for income.
The plan permits the borrower to change the plan according to the changes in the financial condition. The borrower can request for PSLF after making 120 on-time payments in 10 years, which is a very long period to ask for a loan forgiveness program.
It is not a good option for married couples as their income is combined and the monthly payment is calculated. The monthly payment calculated could be higher because of the marriage penalty.
What are the minimum and maximum term period for ICR payments?
The minimum loan term for ICR is 12 years and the maximum loan term is 25 years. The borrower can make prepayment and can be debt free before the loan term ends. There is no extra fee for the prepayment of the loan.
When can we apply for PSLF in the Income-Contingent Repayment program?
After completing 120 on-time payments in 10 years the borrower can apply loan forgiveness. The left amount after 25 years is forgiven, but according to the recent law passed the borrower has to pay tax for the forgiven amount after completing 25 years of repayment.
On which types of loan ICR plan work?
The loan for which ICR is applied to is Direct Subsidized and Unsubsidized Loans, Direct PLUS Loans made to students and Direct Consolidation Loans. Parent‘s can consolidate their Parent Plus Loans and apply for ICR plans.
What are the requirements to qualifies for income contingent repayment?
Income Contingent Repayment (ICR) makes repaying education loans easier for students, married couples and parents who pursue jobs with low salaries. Higher credit score or higher Income is not required as it customizes monthly payments depending upon the borrower's annual income, size of the family, and the total amount borrowed.
Do I have to include my husband's income for student loan repayment?
Yes, if applying for an ICR plan for student loans, married couples will have to give information related to both the individuals. Their annual income and they have to co-sign the loan repayment contract, even if the spouse is not responsible for loan repayments.
How ICR calculates the repayment amount?
ICR calculates the monthly payment amount based on the borrower discretionary income the borrower has to pay 20% out of it or the other option is the borrower can choose 12 years of fixed payments.
ICR Plans have fixed rates or variable rates?
ICR plans offer fixed payments for 12 years and another repayment option depends on the income of the borrower which varies yearly according to the change in income of the borrower.
Can we make prepayments?
Yes, the borrower bound in case the situation changes the borrower can make repayments and pay off more rapidly.
What if the borrower fails to pay the interest on of the loan?
It is compulsory for the borrower to pay interest on the loan amount, if not paid the interest on the amount will be added to the loan amount every year.
Does financial institutions provide ICR?
No, ICR is not offered by other banks or financial institutions, ICR plans are only provided by the Department of Education which allows the students, parents as well as to married couples with the repayment of federal student loans.