Income-based loan repayment strategy: An explanation
Heard the scoop? The income-contingent repayment plan is currently a choice for those with eligible federal student loans, but times, they are a-changin' in the student loan field in 2025. With a fresh administration coming in, the House education committee has thrown a spanner in the works by proposing the Repayment Assistance Plan, or RAP, to replace the existing income-driven repayment plans.
Stay tuned for updates on this hem and haw legislation and its potential implications for your student loans.
The Lowdown
There are several income-driven repayment plans out there that can help lower monthly payments for federal student loan borrowers based on their income and family size. The income-contingent repayment plan is one of them, usually requiring monthly payments to be based on 20% of your discretionary income.
Despite online applications for these repayment plans hitting pause in early 2025, they've been back in business since March 26, 2025.
Income-contingent repayment
For now, the U.S. Department of Education is still offering alternatives for student loan borrowers who can't stick with the standard 10-year repayment plan. Income-contingent repayment helps keep payments manageable, but it's not the right fit for everyone. Here's the lowdown on the plan and whether it's your best play for your student loans.
Income-based repayment
What's the skinny on income-contingent repayment?
Income-contingent repayment is just one of several income-driven repayment plans you can apply for to lower your federal student loan payments. The plan adjusts your monthly payments based on your income and family size.
Monthly payment amount
With the income-contingent repayment plan, or ICR plan, the payment amount will be the lesser of:
The lesser of: 20% of your discretionary income, or what you'd pay on a plan with fixed payments for 12 years (adjusted to income size)
- 20% of your discretionary income
- The payment amount you'd pay on a fixed repayment plan for 12 years, adjusted based on income and family size
10% or 15% of your discretionary income (depending on when you took out your loans)
The repayment term for the ICR plan is 25 years. Any debt left at the end of that period will be forgiven.
Who qualifies for the income-contingent repayment plan?
Repayment term
You might qualify for the ICR plan if you have these eligible federal student loans:
25 years
- Direct Unsubsidized and Subsidized Loans
- Direct Consolidation Loans
- Direct PLUS Loans (for graduate students)
20 or 25 years (depending on when you took out your loans)
You might also be able to participate if you consolidate noneligible loans (like parent PLUS loans, FFEL Program Loans, and Perkins Loans) into a Direct Loan first. But if you have private student loans or federal student loans in default status, you're outta luck.
It's worth noting that income-contingent repayment is the only relief carrot on the stick for borrowers with parent PLUS loans (once eligible consolidation takes place). The other income-driven repayment plans don't entertain Direct Consolidation Loans that paid off parent PLUS loans.
Recertify income
How to calculate income-contingent repayment monthly payments
Every year
For many borrowers, the monthly payment amount under the ICR plan will be 20% of their discretionary income.
Every year
To calculate your discretionary income with the ICR plan, use this formula:
Annual income (adjusted gross) - 100% of poverty guideline for state and family size = Discretionary income
Eligible loans
Next, calculate 20% of your discretionary income to determine your monthly payment amount.
Direct Unsubsidized Loans, Direct Subsidized Loans, grad PLUS loans, Direct Consolidation Loans (including those that repaid parent PLUS loans, FFEL loans and Perkins Loans)
If your income or family size changes, your payment may also change. You'll have to recertify your income every year you remain on the plan. Since the repayment term on the ICR plan lasts 25 years, there's plenty of opportunity for change. However, your payment amount cannot exceed the amount you'd pay under a fixed repayment plan (based on your income) with a 12-year loan term.
Direct Unsubsidized Loans, Direct Subsidized Loans, grad PLUS loans, FFEL loans for students, Direct Consolidation Loans that did not repay loans made to parents
Income-contingent repayment vs. income-based repayment
The income-based repayment plan (IBR) is another popular student loan lifesaver. Though there are some similarities between income-contingent repayment and income-based repayment plans, understanding the differences can help you decide whether either option is a good fit.
Best for
| | || --- | --- || Income-contingent repayment | Income-based repayment || Monthly payment amount | The lesser of: 20% of your discretionary income, or what you'd pay on a plan with fixed payments for 12 years (adjusted to income and family size) | 10% or 15% of your discretionary income (depending on when you took out your loans) || Repayment term | 25 years | 20 or 25 years (depending on when you took out your loans) || Recertify income | Every year | Every year || Eligible loans | Direct Unsubsidized Loans, Direct Subsidized Loans, grad PLUS loans, Direct Consolidation Loans (including those that repaid parent PLUS loans, FFEL loans, and Perkins Loans) | Direct Unsubsidized Loans, Direct Subsidized Loans, grad PLUS loans, FFEL loans for students, Direct Consolidation Loans that did not repay loans made to parents || Best for | Parents | Student borrowers with FFEL loans |
Parents
Is the income-contingent repayment plan the one for you?
Student borrowers with FFEL loans
The income-contingent repayment plan is one of the least popular income-driven repayment options since you'll be parting ways with a larger portion of your discretionary income every month compared to most other plans. However, if you're a parent hankering for a lower payment, the ICR plan might be the only income-driven repayment plan you can snag (once parent PLUS loans have been consolidated).
Your student loan servicer can crunch the numbers to help you determine which income-driven repayment plan is the most wallet-friendly, but it pays to do your own research and calculations. You can use the free Loan Simulator tool from Federal Student Aid to compare various options.
There are choices aside from income-driven repayment plans, such as refinancing your student loan with a private lender for a potentially lower interest rate that could save you some cash. But keep in mind that with refinancing, you'll lose access to valuable federal student loan benefits.
Should you jump on the income-contingent repayment plan?
Bottom line: An income-contingent plan demands more of your discretionary income each month compared to an income-based repayment plan. However, it might still be the best plan for your student loans, especially if you want to pay off your loans as fast as possible and can't afford the standard plan, or if you're a parent PLUS loan holder.
FAQs
- No, income-based plans allow you to fork over as little as 10% or 15% of your discretionary income, while an income-contingent plan requires you to cough up at least 20% of your discretionary income. The repayment terms and eligible loans differ between the two plans.
- If you borrowed student loans before July 1, 2014, the repayment term for an IBR is 25 years, and any balance remaining after that will be forgiven. If your student loans were hot off the press after July 1, 2014, the repayment term shrinks to 20 years, and forgiveness kicks in at the end. Keep in mind that you may want to be prepared to pay income taxes on forgiven loan amounts.
- If you don't recertify your income on time each year, you'll technically still be on the same income-driven plan, but your payments will no longer be based on your income and family size until you recertify.
- Yes, if your circumstances have changed, you can apply to the income-contingent repayment plan at any time.
Keep an eye on the Repayment Assistance Plan (RAP), as it may replace existing income-driven repayment plans in 2025. For now, you can consider the income-contingent repayment (ICR) plan, which is one of the available income-driven options for your student loans. With the ICR plan, you may pay 20% of your discretionary income towards your student loans, or a fixed repayment amount adjusted based on your income and family size for 12 years. However, other plans like income-based repayment offer lower monthly payments. You should explore these options carefully and consult with your student loan servicer to determine the best plan for your financial situation.
