Income-Contingent Repayment Plan for Federal Direct Student Loans

Information on Income Contingent Repayment Plan for Student Loans - income-contingent repayment

Overview of The Income-Contingent Repayment Plan

The Income-Contingent Repayment Plan may be an option for borrowers who have low income, but do not qualify for Income-Based or Pay As You Earn Repayment Plans. Navigating any plan that is based on your earnings can be tricky.

We advise discussing these repayment options with your loan servicer. They are ready to answer your questions and help you choose a plan that meets your specific needs.

Eligible Federal Student Loans

  • Direct Subsidized Loans
  • Direct Unsubsidized Loans
  • Direct PLUS Loans for Graduate/Professional Students
  • Direct Consolidation Loans (except Direct PLUS Consolidation)

Loans made under the old Federal Family Education Loan Program (FFEL) are not eligible. Parent PLUS loans are not eligible unless they were consolidated into a Direct Consolidation loan on or after July 1, 2006. FFEL loans were discontinued on July 1, 2010.

Monthly Payments

Your monthly payments will be made for a maximum of 25 years and will be based on your adjusted gross income, family size and your total Direct Loan indebtedness.

The amount will be the lesser of the amount you would pay over the course of 12 years multiplied by an income percentage factor based on your income or 20% of your monthly discretionary income.  

Benefits of Income-Contingent Repayment

There are two potential benefits to the Income-Based Repayment Plan:

  • 10% Capitalization Benefit. If your payment amount doesn’t cover the interest that accrues on your loan, the unpaid interest will be added to your principal once each year until the amount you owe is 10% higher than what you originally started repayment. Once this threshold is reached, interest accrues but isn’t added to principal and therefore doesn’t incur a compounding interest expense. Interest that accruses during any period of deferment and forbearance doesn’t count toward the 10% capitalization threshold.
  • 25 year forgiveness. If you have a balance after making 25 years of payments, that balance will be forgiven. However, you may be required to pay taxes on the amount forgiven.

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