What is Income Contingent Student Loan Repayment?
Income contingent repayment (or ICR) is the oldest of the four income driven student loan repayment options. Originally passed by Congress in 1994, ICR was the government’s first attempt to reduce the burden of student loans by tying monthly payments to borrowers’ adjusted gross income.
While helpful when it was first introduced, ICR has been overshadowed by the other four options rolled out since then. Today, ICR is all but obsolete unless there is a Parent PLUS Loan involved.
How it Works
ICR gives borrowers another option if the monthly payments from the 10 year standard repayment plan are too costly. When borrowers enter ICR, their monthly payment is calculated based on their adjusted gross income and the amount they’d otherwise pay over a 12 year repayment plan.
More specifically, monthly payments under ICR are the lower of:
- 20% of your discretionary income, or
- the amount you’d pay under a standard 12-year repayment plan, multiplied by an income percentage factor
This income percentage factor ranges from 55% to 200% based on adjusted gross income: the lower your AGI, the lower the income factor and the lower the output. It’s updated each July 1st by the Department of Education, and can be found with a quick Google search.
An interesting point to note here is that the income percentage factor ranges all the way up to 200%. It’s possible (whether using 20% of discretionary income or the second calculation) for your monthly payment under ICR to exceed what it would be under a standard 10 year repayment plan. This differs from IBR and PAYE, where your payment is capped when this happens (at what it would have been under the standard 10-year plan).