Income-Contingent Repayment
Encyclopedia
There are a number of loan
repayment options available to U.S. federal student loan borrowers, including some that are based on the borrower’s income
. Income-Contingent Repayment (ICR) is available through the U.S. Department of Education for federal student loan
s in the Direct Loan program (DL).
ICR is designed to make repaying education loans easier for those who intend to pursue jobs with lower salaries, such as careers in public service
. It does this by taking the borrower's income, family size, and total amount borrowed into account when figuring monthly payment amount. The borrower’s monthly payment amount is adjusted annually, based on changes in annual income and family size.
ICR’s maximum repayment period is 25 years. After 25 years, any remaining debt
will be forgiven. Under current law, the amount of debt discharged is treated as taxable income
.
In addition to discharging the remaining balance at the end of 25 years, the ICR program also indirectly subsidizes the interest
by including an interest capitalization cap. If the borrower’s payments don't cover the interest, the unpaid interest is capitalized (added to the principal) once a year. However, this capitalization is capped at 10% of the original loan amount. As long as the borrower remains in the ICR program, any excess interest above the 10% threshold will not be capitalized.
Loan
A loan is a type of debt. Like all debt instruments, a loan entails the redistribution of financial assets over time, between the lender and the borrower....
repayment options available to U.S. federal student loan borrowers, including some that are based on the borrower’s income
Income
Income is the consumption and savings opportunity gained by an entity within a specified time frame, which is generally expressed in monetary terms. However, for households and individuals, "income is the sum of all the wages, salaries, profits, interests payments, rents and other forms of earnings...
. Income-Contingent Repayment (ICR) is available through the U.S. Department of Education for federal student loan
Student loan
A student loan is designed to help students pay for university tuition, books, and living expenses. It may differ from other types of loans in that the interest rate may be substantially lower and the repayment schedule may be deferred while the student is still in education...
s in the Direct Loan program (DL).
ICR is designed to make repaying education loans easier for those who intend to pursue jobs with lower salaries, such as careers in public service
Public services
Public services is a term usually used to mean services provided by government to its citizens, either directly or by financing private provision of services. The term is associated with a social consensus that certain services should be available to all, regardless of income...
. It does this by taking the borrower's income, family size, and total amount borrowed into account when figuring monthly payment amount. The borrower’s monthly payment amount is adjusted annually, based on changes in annual income and family size.
ICR’s maximum repayment period is 25 years. After 25 years, any remaining debt
Debt
A debt is an obligation owed by one party to a second party, the creditor; usually this refers to assets granted by the creditor to the debtor, but the term can also be used metaphorically to cover moral obligations and other interactions not based on economic value.A debt is created when a...
will be forgiven. Under current law, the amount of debt discharged is treated as taxable income
Taxable income
Taxable income refers to the base upon which an income tax system imposes tax. Generally, it includes some or all items of income and is reduced by expenses and other deductions. The amounts included as income, expenses, and other deductions vary by country or system. Many systems provide that...
.
In addition to discharging the remaining balance at the end of 25 years, the ICR program also indirectly subsidizes the interest
Interest
Interest is a fee paid by a borrower of assets to the owner as a form of compensation for the use of the assets. It is most commonly the price paid for the use of borrowed money, or money earned by deposited funds....
by including an interest capitalization cap. If the borrower’s payments don't cover the interest, the unpaid interest is capitalized (added to the principal) once a year. However, this capitalization is capped at 10% of the original loan amount. As long as the borrower remains in the ICR program, any excess interest above the 10% threshold will not be capitalized.