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Geeky Insight:

ICR: Everything You Need to Know About the Income-Contingent Repayment Program

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Written By: DollarGeek

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Having trouble paying your monthly student loan payments? Well, the federal government might be able to help you out. Income-driven repayment (IDR) plans are a federal program meant to help make your student loan payments more affordable.

One of the four income-driven repayment plans is Income-Contingent repayment (ICR). ICR could be a good option for you, especially if you have Parent PLUS loans.

What is ICR?

As mentioned above, Income-Contingent Repayment (ICR) is one of the four income-driven repayment plans offered by the government. Though it doesn’t always result in the lowest monthly payment for borrowers, it is the best choice if you’re looking for a way to pay the least amount over the long term when refinancing your student loans.

When your income is limited, usually in the period right after graduating college, it might make sense to select the repayment option with the lowest monthly amount due. However, paying lower amounts means you’ll pay more in interest as you stretch your student loan payments over a more extended period. ICR shortens the repayment period, which might increase your monthly payment but also means that you’ll save money by paying less interest over the life of the loan.

Additionally, your income doesn’t affect your eligibility for the Income-Contingent Repayment plan, making this a smart choice if your earnings prevent you from qualifying for the other IDR plans, like Income-Based Repayment, PAYE, and REPAYE.

Eligible loans for ICR

Only federal student loans are eligible for Income-Contingent Repayment options, but there are some restrictions. For instance, if you’re a borrower with a Federal Family Education Loan (FFEL) loan or a Perkins Loan, ICR isn’t available to you.

If you refinance a Perkins Loan as part of the Direct Consolidation Loan, it would then be eligible for ICR. In the same way, Parent PLUS loans are also eligible if refinanced as a Direct Consolidation Loan.

What sets ICR apart from the other repayment options is that there isn’t a cap on the monthly payment you might have to pay. Plus, you’re still eligible for ICR even if your monthly payment exceeds the standard repayment plan option.

How does ICR calculate your monthly student loan payment?

Just like every IDR repayment plan, the monthly payment under ICR is determined by specific characteristics, including:

  • Family size
  • Debt load
  • How much discretionary income you have
  • An annual review of your income, family size, and debt load

To avoid the confusion around what kind of payments you can expect under this plan, check out DollarGeek’s Income-Contingent Student Loan Calculator to see what your monthly payment might be.

Since your monthly payment is determined by your income and family size, if you’re married, your spouse’s income is considered, as well.

Once you’ve started paying according to the ICR schedule, you’re not locked into that repayment plan forever. You can switch to a different plan at any time, and that includes reverting to the standard repayment plan option. And there is an appeal process to ask for an adjustment to the loan payment if your income or family size changes during the year, too.

Keep in mind that, with ICR, there isn’t a cap to protect you from potentially high monthly student-loan payments. If you find yourself considering ICR as an option for repaying your student loan payments, you’ll want to make a payment comparison to understand the complete picture.

Pros of ICR

ICR is a strong choice to consider if you’re struggling to make your student loan payments under the standard repayment plan. Even if you don’t qualify for the other Income-Drive Repayment options, you might be eligible for ICR because there is no partial hardship requirement to sign up.

For those working in public service, signing up for ICR doesn’t disqualify borrowers from Public Service Loan Forgiveness. They work together quite well and your loans will remain eligible for loan forgiveness after the ten-year period with ICR.

Another positive factor of ICR is that Interest rates are fixed for the life of the loan, which means your payment won’t jump due to changes in interest charges.

Cons of ICR

If making your student loan payment is already challenging, ICR may not help you since it doesn’t always result in lower monthly payments. Moving to this plan may increase your payments over what they were under the standard repayment plan.

The total amount you’ll pay over the life of the loan is also likely to increase because the interest will accrue for a longer amount of time. Though that might not be a substantial issue if you’re participating in Public Service Loan Forgiveness since the interest you pay is limited to the ten-year repayment period, and any remaining debt is discharged.

DollarGeek’s Final Thoughts

Though stretching your loan payment out over a 25-year repayment period may seem intimidating to some borrowers under the ICR plan, it might make sense for you. Make sure to check out DollarGeek’s Income-Contingent repayment (ICR) calculator. See some numbers and see how you can save money on your student loans with this government program. With the four different Income-Driven Repayment plans available, you’re sure to find one that suits your situation. Whichever you choose, it’s important to carefully review each option before deciding which one is right for you.

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