The ICR Plan is designed to keep payments affordable. Generally, borrowers pay the lesser of:
the amount they would pay if they repaid their loan in 12 years, multiplied by an income percentage factor that varies with their annual income, or
20 percent of their discretionary income (AGI minus the poverty level for their family size)
Under the ICR plan, the monthly payment is $0 for borrowers with family incomes that are less than or equal to the U.S. Department of Health and Human Services poverty level for their family size. Borrowers whose calculated monthly payment is greater than $0 but less than $5 are required to make a $5 monthly payment. Other borrowers must pay the calculated monthly payment.
Until the Department receives income information from the IRS or alternative documentation of income, borrowers’ monthly payments are equal to the interest that accrues each month. If they are unable to make the interest -only payments, borrowers may request a forbearance until the first scheduled Income Contingent Repayment (ICR) plan payment is due.
The monthly payment in Example E is calculated as follows:
Step 1:
Multiply the principal balance by the constant multiplier for 8.25 percent interest (0.0109621)
$15,000 x 0.0109621 = $164.4315
Step 2:
Multiply the result by the income percentage factor that corresponds to the borrower’s income.
88.77 (0.8877) x 164.4315 = $146
Step 3:
Determine 20 percent of discretionary income (based on the poverty guidelines for a family of one).
($30,000 – $10,210) x 0.20 / 12 = $329.83
Step 4:
Payment is the amount determined in step 2 because it is less than 20 percent of discretionary income.
NOTE: This example is based on the 2007 income percentage factors and U.S. Department of Health and Human Services (HHS) poverty level guidelines.
Source: U.S. Department of Education