What is income contingent reimbursement? | The bank rate

The US Department of Education offers several options for student borrowers who are unable to afford the standard repayment plan. Income-based repayment is a type of repayment plan that lowers your monthly payment based on your income and family size, and is the only income-based repayment plan available to parent PLUS borrowers. .

Income-contingent repayment can make repayment more manageable for many borrowers, but it’s not the right choice for everyone. Here’s what to know about the plan and whether it’s best for your student loans.

What is income-contingent reimbursement?

Income-contingent repayment is one of five income-contingent repayment plans you can apply for to reduce your federal student loan payments. The plan takes into account your income and family size and adjusts your monthly payments accordingly.

With the Income Contingent Repayment Plan, or ICR Plan, the amount you pay will be the lesser of:

  • 20% of your discretionary income.
  • The amount you would pay on a fixed repayment plan for 12 years, adjusted by your income.

The payment period under the ICR scheme is 25 years. If you have any balance left after this time, it will be forgiven.

Who is eligible for the income contingent repayment plan?

You may qualify for the ICR scheme if you have one of the following types of eligible federal student loans.

  • Unsubsidized and subsidized direct loans.
  • Direct Consolidation Loans.
  • Direct PLUS loans (underwritten by graduate or professional students).

You may also be able to participate in an ICR plan if you first consolidate ineligible loans – including parent PLUS loans, FFEL program loans and Perkins loans – into a direct loan. However, if you have private student loans or federal student loans in default, you will not qualify.

It should be noted that income-contingent repayment is the only relief plan available to borrowers with parent PLUS loans (after qualifying student loan consolidation). Other income-oriented repayment plans do not accept direct consolidation loans that repaid parent PLUS loans.

How to calculate monthly repayments based on income

For many borrowers, the monthly payment amount under the ICR plan will be 20% of their discretionary income.

With the ICR Plan, you can use the following formula to calculate your Discretionary Income:

Annual income – 100% of poverty guideline for state and family size = discretionary income

Next, calculate 20% of your Discretionary Income to determine your monthly payment amount.

If your income or family size changes, your payment may also change; you will need to recertify your income each year you are on the plan. And since the repayment term of the ICR plan lasts for 25 years, there is plenty of scope for change. However, the ICR plan monthly payment calculation has a second element: your payment amount cannot exceed the amount you would pay under a fixed repayment plan (based on your income) with a loan term. 12 years old.

Income Contingent Reimbursement vs. Income Contingent Reimbursement

The income-based repayment plan, or IBR plan, is another popular student loan relief option. And while there are a number of similarities between income-contingent repayment plans and income-contingent repayment plans, it’s also important to understand the differences when trying to determine whether either another option suits you.

Reimbursement based on income Income-Based Reimbursement
Monthly payment amount The lesser of: 20% of your discretionary income or what you would pay on a plan with fixed payments for 12 years (adjusted for size of income) 10% or 15% of your discretionary income (depending on when you took out your loans)
Repayment period 25 years 20 or 25 years (depending on when you took out your loans)
Recertify earnings Every year Every year
Eligible loans Direct Unsubsidized Loans, Direct Subsidized Loans, Grad PLUS Loans, Direct Consolidation Loans (including those who have repaid Parent PLUS Loans, FFEL Loans, and Perkins Loans) Unsubsidized direct loans, subsidized direct loans, grad PLUS loans, FFEL student loans, consolidation direct loans that have not repaid the loans made to the parents
Best for Parents Borrowers with FFEL credits

Is the income-contingent repayment plan right for you?

The income-contingent repayment plan is one of the less popular income-contingent repayment options because you’ll be paying more of your discretionary income each month than with most other plans. However, if you are a parent looking for a lower payment, the ICR plan is the only income-based repayment plan that accepts parent PLUS loans (once they have been consolidated).

Your student loan officer can work out the numbers to help you determine which income-based repayment plan is most affordable for you, but it’s also wise to do your own research and calculations. You can use Federal Student Aid’s free Loan Simulator tool to compare several options.

If an income-driven repayment plan doesn’t seem to fit, you can also consider alternatives. Refinancing student loans, for example, might be worth a look. Refinancing your student loan with a private lender would cost you valuable federal student loan benefits, but if you can qualify for a lower interest rate, it could also save you money.

Learn more:

Comments are closed.