Hi there - thank you so much for providing this forum. I am working on my direct loan consolidation application and according to the calculator provided on studentloans.gov, my estimated ICR payments will be significantly lower than my IBR payments. Initially my payments will be zero, based on the income from last year when I was in school, but when I plug in what I will make next year (my job starts this fall), my estimated payments are aprox $300 to $400 for the ICR, versus aprox $500 to $700 for IBR. I’m reluctant to apply for the ICR repayment plan because I see that IBR is supposed to be superior for many reasons, but the ICR is clearly the less expensive option. I am wondering if this is because my new salary will be higher than the debt I owe? Perhaps it isn’t a bad enough ratio to make IBR work in my benefit? I am married filing single (though right now plugging in ‘filing jointly’ does not make a difference), I have a family of three, and I will be applying for the Public Service Loan Forgiveness plan.

I saw that someone posted a similar question to this a couple years ago but it seemed like the response was inconclusive, so I’m wondering if there’s more information now to clarify. Essentially, I’m wondering if I have one of those rare cases where ICR is better than IBR, or if there are hidden issues (i.e., accumulation of interest) that still makes IBR the better option.

Thanks!

Generally IBR results in lower payments, but not always.  ICR can result in lower payments than IBR for borrowers with higher income and lower debt balances. 

To determine the ICR payment amount, they apply two different formulas, compare the resulting figures, and establishe the lower calculated figure as the monthly payment amount.  The first formula is 20% of monthly “discretionary income” defined as AGI minus the federal poverty rate for the borrower’s family size (note that IBR is 15% of 150% of poverty, so always results in a lower payment under this formula). The second formula is the amount of the 12-year standard repayment plan monthly payment, multiplied by an income percentage factor (IPF) that is published annually and corresponds with family size (the formula behind IPF actually has a godforsaken square root in it!).

Note that married borrowers MUST have payments based on joint marital income under ICR.  Check out the comparison charts on page 9 of this form: http://ifap.ed.gov/dpcletters/attachments/GEN1408Attachment.pdf to see when ICR beats IBR.  And note that ICR is ONLY for Direct Loans, so folks with older FFEL loans would need to consolidate.