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Michigan Allows Disabled Veterans to Deduct Forgiven Student Loans

Posted on Dec. 9, 2021

Michigan Gov. Gretchen Whitmer (D) has approved legislation allowing veterans with disabilities to deduct forgiven or canceled student loan amounts from income.

Under S.B. 25, signed into law December 8, these veterans can deduct student loans discharged under the U.S. Department of Education's Total and Permanent Disability Discharge Program from their state adjusted gross income. The deduction applies retroactively to tax years 2016 through 2019 and to future tax years beginning on or after January 1, 2025.

“Our nation’s disabled veterans have served our country with honor and dignity, and this bill helps alleviate some of their financial burdens,” Whitmer said in a release. “I am proud to sign Senate Bill 25 to recognize the sacrifices made by our veterans and their families and help make their lives easier.”

S.B. 25, sponsored by Sen. Tom Barrett (R), was passed by the Senate on a 35–0 vote March 23 and by the House 105 to 2 on October 14.

Veterans who are determined to be totally and permanently disabled or rated as “individually unemployable” by the U.S. Department of Veterans Affairs qualify for the discharged student loan deduction, according to the bill. 

A September 27 legislative analysis of the bill notes that “the federal American Rescue Plan Act exempts student loan discharges through the 2025 tax year, so under the provisions of the bill there would be no revenue impact in Michigan until tax year 2026 (FY 2025-26) for student loans discharged after tax year 2019.” The analysis estimates that the deduction would cost the state approximately $1.5 million per year from fiscal 2026 onward, and that the revenue loss from the retroactive years would be about $350,000.

A state and local tax cap workaround bill (H.B. 5376), introduced October 7, also proposed to provide a student loan deduction for veterans with disabilities. H.B. 5376 was approved by the House in October and was referred to the Senate, where the Finance Committee reported it favorably and without amendments and sent it to the Senate floor October 28.

Whitmer’s office did not respond to a request for comment by press time.

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