Income-Contingent Repayment (ICR): How It Works & Who It’s Good For

Income-contingent repayment is one of four income-driven payment plans you can use to repay federal student loans. It doesn’t reduce your monthly payments as much as other income-driven plans, but it could be the only option for some borrowers looking for payment relief. 

Here’s what you need to know about how income-contingent repayment (ICR) works and whether it’s right for you.

What is an ICR plan?

The ICR plan reduces your monthly payment based on your income. It is one of several income-driven repayment plans, which also include the Saving on a Valuable Education (SAVE) plan, the Pay As You Earn (PAYE) plan, and the Income-Based Repayment (IBR) plan.

As of July 1, 2024, the ICR plan is only available to borrowers with Parent PLUS loans they’ve consolidated into a Direct Consolidation Loan. 

How ICR works

With an income-contingent federal repayment plan, your monthly payment is based on your annual income and can change as your wages go up or down.

The ICR plan caps federal student loan payments at the lesser of 20% of your discretionary income or the amount you’d pay on a repayment plan if payments were fixed over 12 years and adjusted to your income. Your repayment term is extended to up to 25 years, after which any remaining balance is forgiven. 

Your discretionary income is calculated as the difference between your annual income and 100% of the poverty guideline amount for your family size and state of residence. Here’s a quick example based on the following information:

• Annual income: $40,000
• Poverty guideline: $31,200
• Monthly payment: $200

In this scenario, your annual discretionary income is $8,800, which translates to around $733 per month. Multiply that by 20%, and your monthly payment would be about $147.

Income-contingent repayment by the numbers

The table below contains more details about ICR.

Payment amount	Lesser of: 20% of discretionary income or the amount you’d pay with fixed payments over 12 years, adjusted based on income
Discretionary income	Difference between your annual income and 100% of the poverty guideline for your household size and state of residence
Repayment term	Up to 25 years
Eligible loans	Parent PLUS Loans consolidated into a Direct Consolidation Loan
Who it’s best for	Parent borrowers who want payments lower than the standard repayment plan

Pros and cons of income-contingent repayment

If you’re considering an ICR plan, it’s important to consider both the potential benefits and drawbacks. Here’s what to keep in mind.

Pros

• Accessible to parents

  If you have Parent PLUS Loans, this is the only income-driven repayment plan available. You must consolidate your loans first.

• Can improve cash flow

  A lower monthly payment can also make it easier to accomplish other financial goals or qualify for other forms of financing.

• Includes forgiveness

  If you still have a balance after 25 years of making payments, the remainder is forgiven.

Cons

• No guarantee of a lower payment

  Depending on your income, your monthly payment on the ICR plan could be higher than a 10-year standard repayment plan.

• Other income-driven plans provide more relief

  If you don’t have Parent PLUS Loans and your priority is minimizing your monthly payment, the other income-driven repayment plans have more generous payment calculations.

• Forgiveness takes longer

  With other income-driven repayment plans, you could qualify for forgiveness in 10 to 20 years, compared to the ICR’s 25-year period.

Income-based repayment vs. income-contingent repayment

The income-based repayment (IBR) plan is another plan you can use to potentially reduce your monthly payments on federal student loans. These are the important differences between an IBR plan and an ICR plan:

Feature	IBR	ICR
Monthly payment	10% of discretionary income for new loan borrowers after July 1, 2014; 15% of discretionary income for loan borrowers with loans disbursed before then*	Lesser of 20% of discretionary income or the amount you’d pay on a repayment plan with fixed payments over 12 years, adjusted by income
Discretionary income	Difference between annual income and 150% of the poverty guideline for your family size and state of residence	Difference between annual income and 100% of the poverty guideline for your family size and state of residence
Repayment term	20 years for new loan borrowers after July 1, 2014; 25 years for loan borrowers with loans disbursed before then	25 years
Eligible loans	Direct Loans, Direct PLUS Loans, Federal Family Education Loans, Direct Consolidation Loans (not including consolidated Parent PLUS Loans), Perkins Loans	Parent PLUS Loans consolidated into a Direct Consolidation Loan

Are ICR student loans eligible for student loan forgiveness?

If you qualify for the Public Service Loan Forgiveness (PSLF) program, you can choose ICR as your repayment plan. With PSLF, you can have loans forgiven after making 120 on-time payments.

You can also have loans forgiven after 25 years of making payments on an ICR plan, irrespective of PSLF requirements.

How to apply for income-contingent repayment

You can apply for the ICR plan online through your Federal Student Aid (FSA) account or by submitting a paper application to your loan servicer. 

Applying online often takes 10 minutes or less. Here are the steps you’ll follow:

1. Log in to your FSA account: Visit the income-driven repayment plan request page and log in to your FSA account.
2. Provide details: You’ll start by confirming your personal and contact information and federal loan details. Then, you’ll provide income documentation or consent to import income details from your most recent federal income tax return.
3. Compare your payments: Once the Department of Education calculates your new payment, you can compare it to your original payment to determine whether it’s the right fit.
4. Sign and submit your application: Before submitting the application, review the information you submitted and read the fine print. Then, e-sign the application and submit it. 

It can take 30 days to process an ICR plan request. You can check the status through your FSA account. 

Our expert’s take on how ICR affects your credit

Crystal Rau

CFP®

ICR plans don’t affect your credit score; you won’t undergo a credit check or open any type of new account. The only real impact is the amount of debt you will continue to carry, which affects your debt-to-income ratio (DTI) for other loans and the length of time the debt continues to stay on your credit report. If you plan on making a large purchase in the next few years, remember that your student loan will count toward your DTI.

Is ICR right for you? 

The ICR plan can provide payment relief and flexibility, but it’s not for everyone. Here are factors to consider to evaluate whether it’s the right choice for you:

• Your income: If you have a high income, your monthly payment on the ICR plan could be higher than your current payment. In this scenario, it likely doesn’t make sense to switch.
• Your budget: If you can afford your current payment, it could make sense to stick with your current plan. However, if you’re struggling to get by or need more breathing room, the ICR plan could help.
  Your eligibility for forgiveness: If you’re eligible for the PSLF program, securing a lower payment with the ICR plan could help you maximize the amount forgiven under PSLF.  

Here’s a quick summary of when it can make sense versus when it might not be the right fit:

When to consider the ICR plan	When to think twice about the ICR plan
✅ You have Parent PLUS Loans	❌ You don’t have Parent PLUS Loans
✅ You’re eligible for a lower monthly payment	❌ Your monthly payment would be higher than your current one
✅ You need some room in your budget	❌ You can afford your student loan payment without sacrificing other needs and goals
✅ You’re eligible for PSLF	❌ You aren’t eligible for PSLF

You aren’t locked into the ICR plan once you’re on it. Your loan servicer will require you to recertify your income every year, and if your income gets high enough that your payments become unaffordable, you can switch back to the 10-year standard plan.