What is income contingent reimbursement?

Income-contingent repayment, or ICR, is a repayment plan that bases loan repayments on a percentage of the borrower’s discretionary income, as opposed to the amount owed. The ICR first became available in 1993, although it was not used by borrowers until 1994.

ICR is one of four income-driven repayment plans. The others are income-based reimbursement (IBR), pay-as-you-go reimbursement (PAYE) and revised pay-as-you-go reimbursement (REPAYE). ICR typically has the highest monthly student loan payment of the four income-driven repayment plans.

Eligible loans

The ICR is only available for loans from the federal William D. Ford Direct Lending Program (direct loans).

The ICR is not available for loans under the Federal Family Education Loan (FFEL) or Federal Perkins Loan programs, although FFEL and Federal Perkins Loans can be made eligible by including them in a federal direct consolidation loan.

Federal Parent PLUS loans are not directly eligible for any of the income-based repayment plans. However, if a Federal Parent PLUS Loan entered into repayment on or after July 1, 2006 and is included in a Federal Direct Consolidation Loan, the consolidation loan is eligible for ICR but not any of the other Income.

Loan payments

Monthly student loan payments in the ICR are based on the lowest payment calculated using two formulas.

  • The primary formula, dominant for most borrowers, is based on 20% of discretionary income. Discretionary income is defined as the amount by which adjusted gross income (AGI) exceeds 100% of the poverty line. This is a higher percentage of discretionary income and a broader definition of discretionary income than other income-driven repayment plans.
  • The secondary formula is based on the monthly payment under a 12-year level repayment plan multiplied by an income percentage factor (IPF). The IPF is based on the AGI and tax status of the borrower. The LPI ranges from just over 50% for low income borrowers to 200% for high income borrowers. The IPF is 100% when the AGI is slightly above $60,000. The IPF is adjusted annually for inflation.

The ICR has no cap on monthly student loan payments, so payments will increase as income increases. (The secondary formula doesn’t really work as a cap on monthly student loan payments, because the payment increases as income increases.)

ICR also does not have a marriage penalty. If a married borrower files federal income tax returns as a married filing separately, the loan payment under ICR is based solely on the borrower’s income. Otherwise, loan repayment will be based on joint income.

The minimum payout under the ICR is zero if the calculated payout is zero, otherwise it is $5.

Treatment of interest

Student loans can be negatively amortized under the ICR. This means that the repayment of the loan is less than the new interest that accrues. Any accrued but unpaid interest is capitalized annually, increasing the loan balance. Interest capitalization stops when total capitalized interest reaches 10% of the original loan principal balance.

The federal government pays no interest under the ICR, not even on the subsidized loans.

Repayment period and loan forgiveness

The maximum repayment period under the ICR is 25 years (300 payments). The same is true for borrowers who have undergraduate and graduate loans. Any remaining debt is canceled after 300 payments made under the ICR, including a calculated zero monthly payment.

If the borrower is eligible for utility loan forgiveness, the remaining debt is canceled after 10 years of payments (120 payments).

Refund examples

Assuming an AGI of $30,000, the initial monthly student loan payment in the ICR will be approximately $285 for a family of one and approximately $58 for a family of four.

This rises to around $619 and $392 for an AGI of $50,000 and around $952 and $725 for an AGI of $70,000.

These example payments assume a poverty line in 2022 of $12,880 for a family of one and $26,500 for a family of four.

Comments are closed.