Income Contingent Repayment (ICR) is the only income-driven repayment plan available for Parent PLUS loans. It bases your monthly payment on your income and family size, not just the amount you owe. This plan can lower your payments, but it comes with trade-offs like a longer repayment term and possible tax on forgiven amounts.
How Does Income Contingent Repayment Work for Parent PLUS Loans?
To use ICR for a Parent PLUS loan, you must first consolidate the loan into a Direct Consolidation Loan. This is a requirement set by the U.S. Department of Education. After consolidation, the loan becomes eligible for the ICR plan.
Your monthly payment under ICR is calculated in one of two ways, whichever is lower. The first is 20% of your discretionary income. The second is a fixed payment based on a 12-year repayment schedule, adjusted for your income. Discretionary income is your adjusted gross income minus a poverty guideline amount for your family size.
Payments are recalculated each year based on your updated income and family size. You must provide this information annually to your loan servicer. If your income changes, your payment can go up or down.
Eligibility and Requirements for Parent PLUS Borrowers
Only the parent borrower can apply for ICR on a Parent PLUS loan. The student cannot take over this loan through ICR. You must have a Direct PLUS Loan that was disbursed after July 1, 2006, to consolidate it.
- You must consolidate your Parent PLUS loan into a Direct Consolidation Loan.
- You must complete an application for income-driven repayment.
- You must provide documentation of your income, such as tax returns or pay stubs.
- You must recertify your income and family size every year.
If you have other federal student loans, they can be included in the same consolidation loan. However, Parent PLUS loans consolidated with your own loans may change your repayment options. You cannot use other income-driven plans like PAYE or REPAYE for Parent PLUS loans.
Pros and Cons of ICR for Parent PLUS Loans
ICR can be helpful if your income is low or your loan balance is high. It offers a safety net that prevents default. But there are significant downsides to consider.
| Pros | Cons |
|---|---|
| Lower monthly payments based on income | Payments may not cover interest, causing the balance to grow |
| Loan forgiveness after 25 years of qualifying payments | Forgiven amount may be taxed as income |
| Available to all Parent PLUS borrowers after consolidation | Longer repayment term means more interest paid over time |
| Payments can be as low as $0 if income is very low | Must recertify income annually, which can be a hassle |
How to Apply for Income Contingent Repayment
To apply, you must first consolidate your Parent PLUS loan. You can do this online through the Federal Student Aid website. After consolidation, you can select the ICR plan during the application process.
You will need your income information and your family size. The application will ask for your adjusted gross income from your most recent tax return. If you have no income, you can still apply and may have a $0 payment.
Once approved, your loan servicer will set up your monthly payment. Make sure to keep your contact information updated. Missing recertification deadlines can increase your payment.
Is ICR the Right Choice for You?
ICR is not the best option for every parent. If you have a high income, you might pay more than you would on the standard 10-year plan. If you are close to retirement, the 25-year forgiveness may not be worth the extra interest.
Consider your long-term financial goals. If you need lower payments now but can afford higher payments later, ICR offers flexibility. But if you can afford the standard plan, you may save money in the long run.
Talk to your loan servicer about your specific situation. They can provide a payment estimate. Also, use the loan simulator on the Federal Student Aid website to compare plans.
Alternatives to ICR for Parent PLUS Loans
ICR is the only income-driven plan for Parent PLUS loans, but there are other options. You can choose the standard repayment plan, which has a 10-year term. You can also choose extended or graduated repayment plans.
Another option is to have the student refinance the loan privately, but that loses federal protections. You can also consider paying off the loan early if you have the funds. Each option has its own pros and cons.
If you are struggling to pay, you can request a deferment or forbearance, but interest will still accrue. These are temporary solutions, not long-term strategies.
Practical Summary
Income Contingent Repayment for Parent PLUS loans is a viable safety net, but it requires consolidation and has a 25-year forgiveness timeline. It can lower your monthly payment, but you may pay more interest over time. Before choosing ICR, compare it with other plans and consider your retirement and tax situation. Always consult your loan servicer or a financial aid advisor to make the best decision for your family.
Frequently Asked Questions
Can I use income contingent repayment for parent PLUS loans?
Yes, but only after you consolidate the Parent PLUS loan into a Direct Consolidation Loan, then you can select the ICR plan.
How much will my monthly payment be under ICR for a parent PLUS loan?
Your payment is either 20% of your discretionary income or a fixed payment based on a 12-year schedule, whichever is lower.
Is parent PLUS loan forgiveness possible under ICR?
Yes, any remaining balance is forgiven after 25 years of qualifying payments, but the forgiven amount may be taxed as income.
Can I switch from ICR to another repayment plan for my parent PLUS loan?
Yes, you can switch to any other repayment plan you qualify for, but you may need to recertify or reapply.
Does ICR for parent PLUS loans affect my credit score?
Making on-time payments under ICR can help your credit, but missing payments can hurt it just like any other loan.
