The Income Contingent Repayment Plan (ICR) is designed to help students destined for low salaries (because of careers in nonprofit organizations or public service) pay off their student loans. The ICR plan tailors your monthly payment based on your income, family size and amount borrowed, but here are some additional points you might want to take note of when trying to understand the ICR.
Instructions
1. Take note that the max repayment period is 25 years. After that, any remaining debt is discharged--meaning it is forgiven, but you will have to pay income taxes on it.
2. Figure out what you'll be paying. Monthly payments are calculated each year. You will pay whichever is less, either a) The cost of a 12-year loan multiplied by an income percentage factor that depends on your annual income, or b) 20% of your monthly discretionary income (adjusted gross income minus the poverty level for a family your size divided by twelve).
3. Be aware of what happens to your interest. Up to 10% of unpaid interest is capitalized (added on to the principle of your loan.) After that, interest still accumulates but is not capitalized.
4. Don't worry. The plan is not binding. You may pay it off before 25 years is up if you want to.
5. Consider your financial status after marriage. Married couples can consolidate their debts for repayment. However, your spouse's income will be included with yours, so your loan terms might change.
6. Remember, only student loans guaranteed by the federal government may be included in your Income Contingent Repayment Plan. Parent loans (like the PLUS loan) and private loans are not eligible.
7. To participate, don't forget to authorize the IRS to inform the Department of Education of your income.
Tags: Contingent Repayment, Contingent Repayment Plan, Income Contingent, Income Contingent Repayment, Repayment Plan