What Is the Difference Between IBR and ICR Repayment Plans?
Demystify federal student loan repayment. Understand the key differences between IBR and ICR plans to choose your optimal path.
Federal student loan borrowers facing repayment challenges often explore income-driven repayment (IDR) plans. These plans adjust monthly loan payments based on an individual’s income and family size, making repayment more manageable. The Income-Based Repayment (IBR) plan and the Income-Contingent Repayment (ICR) plan are two established IDR options offering pathways to a more affordable repayment schedule.
Income-Based Repayment (IBR) Plan
The Income-Based Repayment (IBR) plan calculates monthly payments based on a borrower’s income and family size. To qualify, a borrower must demonstrate a “partial financial hardship,” meaning their IBR payment would be less than the standard 10-year repayment plan amount. This plan is generally available for Direct Loans and Federal Family Education Loan (FFEL) Program loans. Parent PLUS loans are typically not eligible.
Monthly payments under IBR are 10% or 15% of your discretionary income. Borrowers who received their first federal student loan on or after July 1, 2014, pay 10%. Those who borrowed before this date pay 15%. Your monthly payment will never exceed the standard 10-year repayment plan amount, regardless of income increases.
Discretionary income for IBR is your adjusted gross income (AGI) minus 150% of the poverty guideline for your family size. Unpaid interest can capitalize if a borrower no longer qualifies for “partial financial hardship” or leaves the IBR plan. For subsidized loans, the government pays accrued interest not covered by your payment for up to three consecutive years.
Any remaining loan balance may be forgiven after a specific repayment period. For new borrowers on or after July 1, 2014, forgiveness occurs after 20 years of qualifying payments. Borrowers who took out loans before this date are eligible after 25 years. Forgiven amounts are generally taxable, but a temporary provision currently exempts them from federal income tax through December 31, 2025.
Income-Contingent Repayment (ICR) Plan
The Income-Contingent Repayment (ICR) plan is an income-driven option for federal student loans. Unlike IBR, there is no “partial financial hardship” requirement to qualify. This plan is exclusively available for Direct Loans. Parent PLUS loans can become eligible for ICR if first consolidated into a Direct Consolidation Loan.
Monthly payments for ICR are the lesser of two amounts: 20% of your discretionary income, or what you would pay on a fixed 12-year repayment plan adjusted by income. Discretionary income for ICR is your adjusted gross income (AGI) minus 100% of the poverty guideline for your family size.
Under the ICR plan, any unpaid interest that accrues is capitalized annually. The total capitalized interest cannot exceed 10% of the original principal balance when your loan entered the ICR plan. Unlike IBR, ICR does not offer a government subsidy to cover unpaid accrued interest.
After making qualifying payments for 25 years under the ICR plan, any remaining loan balance is eligible for forgiveness.
Key Differences Between IBR and ICR
The Income-Based Repayment (IBR) and Income-Contingent Repayment (ICR) plans differ in several ways. IBR is available for Direct Loans and FFEL Program loans, while ICR is limited to Direct Loans. Parent PLUS loans can qualify for ICR after consolidation. IBR requires a “partial financial hardship,” a condition not present for ICR enrollment.
Discretionary income calculation varies between plans. IBR defines it as adjusted gross income (AGI) minus 150% of the federal poverty guideline for your family size. ICR defines it as AGI minus 100% of the federal poverty guideline for your family size.
Payment calculation formulas also differ. IBR sets monthly payments at 10% or 15% of your discretionary income, never exceeding the standard 10-year repayment plan amount. ICR calculates payments as the lesser of 20% of your discretionary income or an amount based on a fixed 12-year repayment schedule, adjusted by income.
Forgiveness timelines also differ. IBR offers loan forgiveness after 20 or 25 years, depending on loan disbursement date. ICR consistently provides forgiveness after 25 years of qualifying payments. Interest capitalization rules also vary: IBR capitalizes interest under specific conditions and offers a subsidy for subsidized loans, while ICR capitalizes interest annually and offers no subsidy.