What is income-contingent repayment?

An income-contingent repayment (ICR) plan is a federal loan repayment plan that provides two methods of student loan payments based on your income. Generally, these repayment plans are for students who plan to pursue lower-income jobs — like public service and social work.

Keep reading for more information on how an income-contingent repayment plan works and how to opt-in to one.

Income-Contingent Repayment Plans

There are two options for federal income-contingent repayment plans. Each one is a monthly payment, but for the first one, it’s the lesser of what you pay on a repayment plan with a fixed monthly payment over twelve years, frequently adjusted based on your income.

The second option is that your payment will be 20% of your discretionary income, divided by 12. For both options, interest rates are fixed over the life of the repayment plan.

Discretionary income is the amount you have left over after you pay for necessities like mortgage, rent, food, and utilities.

This type of repayment plan is only available from the U.S. Department of Education for Federal loans. 

Discharge of remaining debt

The maximum payment term for an ICR plan is 25 years. After the 25 year period, any remaining debt is discharged or forgiven. That debt is generally treated as taxable income, so you may have to pay taxes on it when the time comes – you should speak with a tax advisor for more information regarding any tax consequences from ICR.

How to opt-in to an ICR Plan

To opt-in to the ICR plan, you’ll need to contact your student loan servicer and request information about how to do so. The process is different depending on who services your loan. 

If you have any questions about financial aid, reach out to us at support@withfrank.org.