Income-Contingent Repayment (ICR): Payments, Forgiveness, and Taxes

The Income-Contingent Repayment plan caps your federal Direct Loan payment at 20 percent of your discretionary income and forgives whatever balance remains after 25 years of qualifying payments.¹ ICR is the oldest income-driven option, authorized under the Higher Education Act of 1965, and it is also the least generous. For most borrowers it should be a last resort. For one group of borrowers, parents who consolidated Parent PLUS loans, it is the only income-driven plan they can use.

ICR is also being wound down. The enrollment windows below are shrinking, so the plan you can pick today may not be available in 2027.

Who Can Still Enroll and by When

Under a 2024 interim final rule, borrowers not already repaying under ICR as of July 1, 2027, are generally barred from enrolling.² The one exception is Parent PLUS borrowers who consolidate into a Direct Consolidation Loan, and that pathway has its own cutoff: the consolidation must be disbursed before July 1, 2026, or access to ICR is lost. Consolidation applications can take several weeks to process, so parents aiming at that deadline should apply well in advance.

By June 30, 2028, ICR is expected to sunset completely. Borrowers still enrolled at that point will be transitioned to the Income-Based Repayment plan. For Parent PLUS consolidation borrowers whose loans were first disbursed before July 1, 2014, the IBR terms will be 15 percent of discretionary income with forgiveness after 25 years. Those whose loans were first disbursed on or after that date move to 10 percent with forgiveness after 20 years.³

This timing matters right now because SAVE, which was meant to replace ICR with more generous terms, has been blocked by a federal court order since March 2026. Borrowers enrolled in or who had applied for SAVE were placed into forbearance and must now select a different plan.⁴ For many of those borrowers, ICR, IBR, and PAYE are the available alternatives.

Which Loans Qualify

Only William D. Ford Federal Direct Loan Program loans qualify for ICR. That covers Direct Subsidized Loans, Direct Unsubsidized Loans, Direct PLUS Loans made to graduate or professional students, and all Direct Consolidation Loans, including those that rolled in Parent PLUS debt. The single exclusion is Direct PLUS Consolidation Loans made before July 1, 2006.⁵

Older Federal Family Education Loans (FFEL) and Perkins Loans cannot enter ICR directly. You would need to consolidate them into a Direct Consolidation Loan first. The same is true for Parent PLUS loans: the PLUS loan must be folded into a Direct Consolidation Loan before any income-driven formula applies. Consolidation is the only route for parent borrowers to reach any income-driven plan, and, as noted above, that consolidation must be disbursed before July 1, 2026.⁵

Borrowers in default are not eligible until the default is resolved through rehabilitation, consolidation, or full repayment.⁶

How Your Monthly Payment Is Calculated

ICR runs two formulas and charges you the lower result.

The first formula takes 20 percent of your discretionary income and divides by 12. Discretionary income under ICR is the gap between your adjusted gross income and 100 percent of the federal poverty guideline for your family size. That 100 percent threshold is lower than the 150 percent used by IBR and PAYE, which means ICR treats more of your income as discretionary and tends to produce higher payments.¹

The second formula calculates what you would pay on a 12-year fixed schedule based on your balance when you entered the plan, then multiplies that amount by an income percentage factor. The Department of Education publishes those factors annually in the Federal Register. For the period from July 1, 2025, through June 30, 2026, a single filer earning $29,831 has a factor of 66.23 percent, while a single filer at $65,823 or more hits 100 percent. At very high incomes the factor can exceed 100 percent, so the second-formula payment can run above the 12-year fixed amount.⁷ If your AGI falls between published rows, your servicer interpolates.

To make the poverty-line piece concrete: for 2026, the federal poverty level for a single person in the 48 contiguous states is $15,960; for a family of four it is $33,000.⁸ A single borrower earning $36,000 has discretionary income of $20,040 under ICR, and the 20 percent formula produces a monthly payment of about $334.

If both formulas produce a payment under $5, the monthly obligation drops to $0. A $0 payment still counts as a qualifying payment toward forgiveness.¹

Marital Status and Family Size

If you are married, your tax filing status decides whose income enters the calculation. Filing jointly combines your spouse’s income with yours and typically raises the payment. Filing separately keeps only your individual income in the formula.⁹ Filing separately has other tax consequences, so it’s worth running through with a tax professional before making the switch.

If both you and your spouse have Direct Loans and both want to use ICR, or if you share a joint consolidation loan, your spouse must sign the IDR application and provide income documentation. Family size for the poverty guideline always includes your spouse and any children who receive more than half their support from you.⁹

Interest Growth and the Capitalization Cap

ICR payments often do not cover all the interest accruing each month, so your balance can grow. ICR handles this with a 10 percent capitalization cap. Unpaid interest gets added to principal each year, but only until the balance reaches 10 percent above what you originally owed when you entered repayment. After that, interest keeps accruing but no longer capitalizes, so it does not compound on itself.¹⁰

With a $40,000 starting balance, principal can grow to $44,000 through capitalization but no further. Interest continues to accumulate beyond that point, so total owed may still rise, but the compounding effect is capped. ICR does not offer any government subsidy on unpaid interest.

Applying and Recertifying Each Year

You apply for ICR through the Income-Driven Repayment Plan Request form (OMB No. 1845-0102), which is available on StudentAid.gov or from your servicer.⁹ The online application is the fastest route because you can authorize the Department of Education to pull your federal tax information directly from the IRS. Granting that consent also switches on automatic recertification in future years, so you don’t have to manually update your income every 12 months.¹¹

The application asks for your adjusted gross income (from your most recent tax return), family size, and marital status. Your servicer may place you in a processing forbearance of up to 60 days while reviewing your documentation, and no payments are due in that window.¹²

If you did not grant consent for automatic tax retrieval, you must recertify income and family size every year. Miss the deadline and the consequences bite. Your payment jumps to what you would owe on a 10-year standard plan based on your ICR balance when you entered the plan, and any unpaid accrued interest capitalizes.¹ The payment stays elevated until your recertification is processed.

Forgiveness After 25 Years

After 300 qualifying monthly payments (25 years), any remaining balance on your ICR loans is forgiven. The Department cancels the outstanding principal and accrued interest.¹

Not every month counts. Credit accrues for months where you made a payment under any IDR plan, had a $0 payment obligation, or paid at least the 10-year standard amount. Some deferments and forbearances count, including economic hardship, unemployment, military service, and cancer treatment deferments. General forbearance does not count, and neither do months in an in-school deferment.¹³

Public Service Loan Forgiveness Shortcut

If you work full time for a qualifying government or nonprofit employer, ICR payments count toward Public Service Loan Forgiveness, which forgives your remaining balance after 120 qualifying monthly payments (10 years). PSLF forgiveness is permanently tax-free under federal law, which makes it dramatically more valuable than the 25-year ICR outcome for borrowers who qualify.¹⁴

Recapturing Months Lost to Non-Qualifying Forbearance

If you spent time in a forbearance that does not count toward forgiveness, most commonly general forbearance or SAVE-related administrative forbearance, you can recapture those months on one condition: the forbearance ended within three years and occurred after July 1, 2024. In that case, making an additional payment equal to your current IDR amount earns credit for the missed month.¹ This matters for borrowers parked in forbearance during the SAVE litigation.

The Tax Bill on Forgiven Balances

Here is where 25-year ICR forgiveness carries a real sting. As of January 1, 2026, the temporary tax exclusion for forgiven student loan balances under the American Rescue Plan Act has expired. Any loan amount discharged through IDR forgiveness is treated as taxable income in the year of cancellation.¹⁵ Your servicer reports the forgiven amount to the IRS on Form 1099-C, and you owe federal income tax on it.

A borrower with $80,000 forgiven would see that amount added to taxable income for the year, which can push them into a higher bracket. Some states also tax forgiven debt. Borrowers approaching the end of the 25-year window should plan for this liability well in advance, whether by saving in a dedicated account or looking into IRS installment options.

PSLF forgiveness, by contrast, remains permanently exempt from federal income tax. That difference alone makes PSLF the far better outcome for any ICR borrower who qualifies.

How ICR Compares to IBR and PAYE

ICR is the least generous income-driven plan by nearly every measure:

ICR charges 20 percent of discretionary income calculated using 100 percent of the poverty line, with forgiveness after 25 years.
IBR for loans first disbursed before July 1, 2014, charges 15 percent of discretionary income using 150 percent of the poverty line, with forgiveness after 25 years.
IBR for loans first disbursed on or after July 1, 2014, charges 10 percent using 150 percent of the poverty line, with forgiveness after 20 years.
PAYE charges 10 percent of discretionary income using 150 percent of the poverty line, with forgiveness after 20 years.

Because ICR uses 100 percent of the poverty line rather than 150 percent, a larger share of income counts as discretionary. Then it takes 20 percent of that larger number, against 10 or 15 percent for the other plans. The result is that ICR almost always produces the highest monthly payment of any income-driven option.³

So who should pick it? Usually only borrowers with no other choice. ICR is the sole income-driven plan available to those who consolidated Parent PLUS loans.⁵ It also has no partial financial hardship requirement, so any borrower with eligible Direct Loans can enroll regardless of income. IBR requires that your calculated payment be less than what you would pay on the standard plan, which shuts out higher earners. ICR has no such gatekeeper, though borrowers who don’t meet a partial financial hardship test are usually better off on a non-IDR plan anyway.

1
eCFR. 34 CFR 685.209 – Income-Driven Repayment Plans
2
Federal Register. Income Contingent Repayment Plan Options
3
Federal Student Aid. Income-Driven Repayment Plans
4
Federal Student Aid. IDR Court Actions
5
eCFR. 34 CFR 685.209 – Income-Driven Repayment Plans – Section: (d) Loans Eligible To Be Repaid Under an IDR Plan
6
Federal Student Aid. Federal Student Aid Eligibility for Borrowers With Defaulted Loans
7
Federal Register. Annual Updates to the Income-Contingent Repayment (ICR) Plan Formula
8
U.S. Department of Health and Human Services. 2026 Poverty Guidelines
9
Federal Student Aid. Income-Driven Repayment (IDR) Plan Request
10
U.S. Department of Education. Issue Paper 3 – Interest Capitalization
11
Federal Student Aid. Income-Driven Repayment (IDR) Plan Request
12
Federal Student Aid. Top FAQs About Income-Driven Repayment Plans
13
eCFR. 34 CFR 685.209 – Income-Driven Repayment Plans – Section: (k) Forgiveness Timeline
14
Office of the Law Revision Counsel. 26 USC 108 – Income From Discharge of Indebtedness
15
Internal Revenue Service. Topic No. 431, Canceled Debt – Is It Taxable or Not?