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Income-Contingent Repayment, or ICR, is a repayment plan that bases the loan payments on a percentage of the borrower’s discretionary income, as opposed to the amount owed. ICR first became available in 1993, although it wasn’t used by borrowers until 1994.
ICR is one of four income-driven repayment plans. The others are Income-Based Repayment (IBR), Pay-As-You-Earn Repayment (PAYE) and Revised Pay-As-You-Earn Repayment (REPAYE)….Story continues…
Source: Forbes
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While ICR doesn’t typically lower monthly payments as much as IBR does, it could be an ideal choice if you want to save on interest. For example, you might prefer making higher monthly payments in order to pay your loans off in less than 25 years. The more you pay now, the less interest you’ll pay in the long run. ICR caps monthly payments at 20% of your discretionary income and lasts 25 years before you can get your remaining debt forgiven.
Still, this plan may be your best income-driven choice in the following instances: You have parent PLUS loans or a consolidation loan that includes parent PLUS loans. ICR is generally the most expensive IDR plan, but it is the only plan available for borrowers with Parent PLUS loans or Direct Consolidation Loans that repaid Parent PLUS loans.
ICR is not generally recommended for anyone except for Parent PLUS borrowers. In a nutshell, an ICL can be characterized as follows. University students obtain a loan from the government to pay their fees (this could also cover maintenance costs). Repayments start upon graduation and depend on ex-post labor income and are paid at zero or low interest rates.
Switching to an income-driven repayment plan won’t directly affect your credit score. But, a lowered monthly payment will lower your debt-to-income ratio. That can be good for your credit. On the other hand, you will get an extended loan term, so you’ll have the debt for longer. If your income goes up or your family size goes down, your monthly payment amount could increase.
You might be required to pay state, not federal, income tax on any forgiven amount if you still have a balance at the end of your repayment period. ICR May Provide Lower Payments Than SAVE In Limited Circumstances. Similarly to PAYE, the Income Contingent Repayment plan (another IDR option) may provide more affordable student loan payments than SAVE in certain situations. ICR is typically the most expensive IDR option.
The borrower must have made 120 payments as part of the Direct Loan program in order to obtain this benefit. Only student loans may be included in the income contingent repayment plan. Parent loans, such as the Parent PLUS loan, are not eligible. Only loans that are guaranteed by the Federal government may be included. Under ICR, your remaining balance will be forgiven after 25 years. You may be eligible for loan forgiveness after 10 years if you are seeking Public Service Loan Forgiveness (PSLF).
Under the ICR Plan, your payment is always based on income and family size, regardless of any changes in income. This means that if your income increases over time, in some cases your payment may be higher than the amount required to be paid under the 10-year Standard Repayment Plan. The double consolidation loophole is a way of making your Parent PLUS Loans eligible for the generous repayment terms of the SAVE program.
You can do this by changing the source of your loan through multiple consolidations, changing it from an ineligible Parent PLUS Loan to an eligible Direct Consolidation Loan. Generally, if you’re repaying your loans under an income-driven repayment plan, but decide for any reason that you want to change to a different repayment plan (either to another income-driven repayment plan or to a traditional repayment plan), you may change to any other repayment plan for which you are eligible.
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. The overriding advantage of ICR is that payments are adjusted as changes occur in your income and the size of your family, and the repayment period can stretch to 25 years.
However, if your economic situation improves, you can pay the loan off early or change programs to one that better suits your situation. How to calculate income-contingent repayment monthly payments. For many borrowers, the monthly payment amount under the ICR Plan will be 20 percent of their discretionary income. Next, calculate 20 percent of your discretionary income to determine what your payment size should be every month.
Note that under the ICR plan, your payment is always based on your income and family size. This means that if your income increases over your 25 years of repayments, in some cases your monthly payment may grow higher than the amount you would have to pay under the 10-year Standard Repayment Plan.
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