This bill provides a refundable individual income tax credit to Minnesota residents for indebtedness incurred on qualifying student loans.

Section 1, subdivision 1.  [Definitions]  Defines the following terms:

“Allowance for tuition and fees” refers to the definition provided in Minnesota Statutes, section 136A.121, subdivision 6, and means the lesser of the average tuition and fees charged by the institution, or a tuition and fee maximum if one is established in law.  If no tuition and fee maximum is established in law, the allowance for tuition and fees is equal to the lesser of:  (1) the average tuition and fees charged by the institution, and (2) for two-year programs, an amount equal to the highest tuition and fees charged at a public two-year institution, or for four-year programs, an amount equal to the highest tuition and fees charged at a public university.  Only fees that are mandatory and charged to full-time resident students attending the institution may be considered “fees.”

“Eligible individual” means a Minnesota resident who has graduated from a postsecondary educational institution located in Minnesota or from a public postsecondary educational institution located in a state with tuition reciprocity in effect at the time the individual graduated.  Currently, Minnesota has tuition reciprocity agreements with the states of Wisconsin, North Dakota, South Dakota, and with one institution in Iowa.

“Postsecondary educational institution” is a public postsecondary institution or a private, nonprofit, degree-granting institution.

“Qualified education loan” refers to the definition in the Internal Revenue Code, and means any indebtedness incurred by the taxpayer solely to pay qualified higher education expenses:

• incurred on behalf of the taxpayer, the taxpayer’s spouse, or any dependent of the taxpayer as of the time the indebtedness was incurred;
•  paid or incurred within a reasonable period of time before or after the indebtedness is incurred; and
• attributable to education furnished during a period during which the recipient was an eligible student.

In addition, this bill requires that the indebtedness was incurred through a federal subsidized Perkins or Stafford loan used to pay tuition and fees for academic year 2012-2013 and after.

Subdivision 2.  [Maximum qualifying amount] States that maximum qualifying amount for purposes of calculating the credit is the allowance for tuition and fees for the final year of attendance, at either a two or four-year postsecondary educational institution.

Subdivisions 3 and 4.  [Credit allowed; refundable] Authorizes a refundable income tax credit of the amount paid during the taxable year for principal and interest on qualified education loans, the maximum qualifying amount, or $500, whichever is least.

Subdivision 5.  [Appropriation]  Appropriates from the general fund an amount sufficient to pay the refunds authorized under subdivision 4.

NBP:dv