Income-Contingent Repayment of Student Loans

The Income-Contingent Repayment Plan is one of the income-driven relief options available to student loan borrowers struggling to keep up with payments. There are no income hardship requirements, which means anyone with a federal student loan can qualify for the program.

The ICR plan calculates your monthly loan payment based on income and size of your family. It was the first in the family of relief options that includes Income Based Repayment (IBR), Pay As You Earn (PAYE) and Saving on a Valuable Education (SAVE).

Income Contingent Repayment is the bridge that connects borrowers who can’t quite afford the Standard Repayment Plan, but earn too much to qualify for the other programs.

How Does Income-Contingent Repayment Work?

An ICR plan bases payments on a maximum 20% of your discretionary income or what you would pay on a repayment plan with a fixed payment over 12 years, rather than the standard 10, adjusted according to your income. The other income-driven plans base payments on 10%-15% of discretionary income and use a different formula to come up with it.

The ICR plan extends the standard repayment of 10 years to 25 years if it’s based on 20% of discretionary income. Any balance you have remaining after 25 years, if you’ve made on-time payments, is forgiven.

The drawback is that extending the payout time will cost you more in interest on the loan. For example, a borrower with two children and $50,000 adjusted gross income (AGI) will pay $90,216 on a $40,000 loan over 25 years. With the standard 10-year repayment plan, they’d pay $55,238. That extra 15 years adds $34,978 to the cost of the loan.

You will also pay income tax on the forgiven amount, unless you paid it off between Dec. 31, 2020, and Jan. 1, 2026.

You must recertify the plan every year, and changes income and family size will mean a recalculated payment by your servicer. You must recertify even if neither of those change. If you don’t, you stay in the plan, but payment will no longer be based on your income and the pay period will be reduced to 10 years based on the amount you owed when you initially entered the ICR. You can return to making payments based on income once you fill out the recertification information.

The plan started in 1993 as a way to target borrowers interested in working in the public sector, which traditionally pay significantly lower salaries than the private sector. Legislators who sponsored the plan said it would “allow students to take lower-paying community and public service jobs without the fear of being overburdened with loan debt.”

Today, the plan can help graduates in any line of work. Only borrowers with federal loans qualify. Private loans don’t qualify for the program.

Loans That Qualify for Income-Contingent Repayment

Nearly every federal student loan is eligible to be repaid under the ICR program, and the ones that aren’t can become eligible if the borrower consolidates them under the Direct Consolidation Loans program.

That means Direct Subsidized and Unsubsidized loans; Direct PLUS loans; and Direct Consolidation Loans are eligible for ICR. Loans that can qualify if they are consolidated include Direct PLUS loans made to parents as well as loans from discontinued programs, including subsidized and unsubsidized Stafford Loans; FFEL PLUS Loans; FFEL PLUS loans for parents; Federal Perkins Loans and FFEL consolidation loans. Many of these don’t qualify for the other income-driven plans.

ICR Pros & Cons

The income-contingent repayment plan may make it easier for you to repay your federal student loans, but there are some disadvantages that may make it not the right fit for your financial situation.

Pros of ICR Plans

• Payment is based on your income and family size and adjusted as income and family size changes.
• It allows federal student loans that other IDR plans don’t.
• Payments are smaller than other plans, since they’re extended for 25 years.
• If your economic situation improves, you can pay the loan off early or change to a program that better suits your situation.
• Keeps you eligible for the Public Service Loan Forgiveness Program.

Cons of ICR Plans

• Spouse’s income is included in payment calculation if you file income taxes jointly.
• Length of loan means you’re paying substantially more in the long run.
• Income and family size must be recertified every year, and payment recalculated.
• Payment may be more than Standard Repayment Plan amount.

How Are the Payments Calculated?

The ICR formula compares two payment ceilings and picks the lower of the two as your monthly payment.

The first ceiling is 20% of your monthly discretionary income, which, defined, is your AGI minus 100% of the federal poverty guideline for your family size and state. In 2025, the federal poverty guideline was $15,650 for a one-person household. It increases with household size, and is higher in Alaska and Hawaii.

The second ceiling is more complicated. It is the amount you would pay if you repaid your loan in 12 years multiplied by an income percentage factor (IPF). The IPF corresponds to your income and marital status.

How Long Is the Repayment Period?

The repayment period can be a maximum of 25 years, though there is no penalty for early repayment. If you get a deferment, or forbearance, that does not count toward the 25 years.

If you work in a public service job, as defined by the federal student loan program, and make 120 consecutive on-time repayments, you may qualify for the Public Service Loan Forgiveness program, which discharges remaining debt after 10 years. Balances forgiven under the PSLF also aren’t subject to income tax, unlike other loan forgiveness balances.

If you have a balance after 25 years, and it’s forgiven under the ICR plan, you’ll be taxed on the unpaid balance.

How Does ICR Compare to Income-Based Repayment?

Their names may be similar, but there are major differences in the two programs.

ICR does not require a borrower to prove hardship like Income-Based Repayment does. ICR also has a longer payment term, but payments are based on a higher amount of income. More loans are eligible under ICR than IBR.

This chart compares the two plans:

Who Is an ICR Payment Plan Best For?

Student loan borrowers who are having trouble making their monthly payments under the standard plan, but have a moderate to high income and can’t prove hardship may want to consider an ICR plan.

These factors make an ICR plan worth considering:

• You can’t make monthly payments on a Standardized Repayment Plan, but don’t qualify for IBR, PAYE or SAVE.
• Your student loan debt includes loans that your parents borrowed, but you are repaying, or other federal student loans that don’t qualify for other IDR plans.
• You expect your income to increase substantially in the next decade or so.

If you do choose an ICR plan, keep an eye on your finances and what adjustments you can make to either afford payments under a shorter plan, or pay off your balance well before the 25-year end of the term.