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Alabama – Education Scholarship Program


Alabama – Education Scholarship Program

Alabama’s Education Scholarship Program was enacted and launched in 2013. The program, a tax-credit scholarship, allows taxpayers who donate to nonprofit scholarship granting organizations to receive tax credits for their contributions. Learn more about the program on this page, including eligibility, funding, regulations, legal history, and more.

Program Fast Facts

  • 3,701 participating students (Fall 2015)

  • 57 percent of families with children income-eligible statewide

  • 7 scholarship organizations awarding scholarships (Fall 2015)

  • 147 schools participating (Fall 2015)

  • Average scholarship value: $6,094 (Projected 2015–16)

  • Value as a percentage of public school per-student spending: 52 percent

Program Details

Alabama’s Education Scholarship Program Participation

Students Participating
Calendar Year/School Year

Click the + symbols to learn more about this program’s details.

Alabama offers tax credits to donors supporting Scholarship Granting Organizations (SGOs), nonprofits that provide private school scholarships to students in need.

Student Funding

Scholarship amounts are determined by SGOs. Scholarships are capped at the lesser of the private school tuition and fees or $6,000 in grades K–5, $8,000 in grades 5–8, and $10,000 in grades 9–12.

Individuals and corporations can claim a 100 percent tax credit for contributions to approved SGOs. Individuals and corporations (including S corporations and LLCs) can claim tax credits up to 50 percent of their tax liability; however, individual tax credits cannot exceed $50,000 per taxpayer or married couple filing jointly. Taxpayers may carry forward a tax credit under this program for three years. The total amount of tax credits awarded statewide is limited to $30 million.

Student Eligibility

Children are eligible to receive scholarships if their family qualifies for the federal free and reduced-price lunch (FRL) program ($44,863 for a family of four in 2015-16). Also, qualifying students must (1) be younger than 19 years of age, (2) be public or private school students zoned to attend a public school designated as failing, or (3) have been a non-graduate scholarship recipient in the previous school year under this program from a family with an income less than 275 percent of the federal poverty level ($66,688 for a family of four in 2015-16). Alabama defines a public school as failing if it meets one or more of the following requirements: The school is designated as a failing school by the state Superintendent of Education or the school does not exclusively serve a special population of students and is listed in the lowest 6 percent of public K–12 schools on the state standardized assessment in reading and math. If an SGO has scholarship funds unaccounted for on July 31 of each year, scholarships may be made available to eligible students in public school, regardless of whether or not their assigned public school is considered failing.

Friedman Feedback

Alabama’s tax-credit scholarship program was amended in 2015 to prohibit SGOs from accepting donations for a particular group of schools—for example, schools of a particular faith or particular learning style. This is an overtly restrictive setback for the program and should be repealed. The program has a low cap ($30 million) relative to similar tax-credit scholarship programs in other states. Allowing automatic increases in the cap each year would be an improvement. Also, although it is positive that the program opens opportunities for students in “non-failing” public schools, the bifurcated process for distributing scholarships is difficult to navigate for schools, SGOs, and parents. The state should consider dropping the “failing” school provision altogether to bring clarity to the application process. The state should also heed advice from its private school leaders and ease newly imposed regulatory burdens, while allowing private schools the freedom they need to serve children at the highest level.

Rules and Regulations

  • Income Limit: 100 percent x FRL
  • Prior Year Public School Requirement: Conditional (SGOs are required to give at least 75 percent of scholarships to first-time recipients of scholarships who were not continuously enrolled in a private school during the previous year.)
  • Geographic Limit: Statewide
  • Enrollment Cap: None
  • Scholarship Cap: $6,000 (K–5), $8,000 (6–8), $10,000 (9–12)
  • Testing Mandates: State or National
  • Credit Value: $50,000 (individual) / 100 percent (business)
  • Total Credit Cap: Yes
  • Budget Cap: $30 million


SGO Requirements:

  • Use at least 95 percent of contributions for scholarships
  • Conduct criminal background checks on all employees and board members
  • Make scholarships portable to any qualifying school
  • Spend a portion of expenditures on scholarships for low-income students (family income does not exceed 200 percent of the federal poverty level, $48,500 for a family of four in 2015–16) equal to the percentage of low-income students in the county where the SGO expends the majority of its scholarships
  • Ensure at least 75 percent of first-time scholarship recipients were not enrolled in a private school during the previous year
  • Submit annually to the state:
    • Data on accepted contributions
    • Data on scholarships awarded and funded, including the amount awarded to students who qualify for the federal free and reduced-price lunch program, and the percentage of first-time scholarship recipients who were enrolled in a public school the previous year
    • Financial audit performed by a certified public accountant

Governing Statutes

Ala. Code §§ 40-2A-7(a)(5) and 16-6D

Legal History

On March 2, 2015, the Alabama Supreme Court ruled, in an 8-1 decision, that the Alabama Accountability Act enacted in 2013, which includes Alabama’s refundable tax credit and tax credit scholarship program, is constitutional. The high court overturned a May 2014 lower court ruling by the Montgomery County Circuit court which initially struck down the Alabama Accountability Act. Boyd v. Magee. Also, in April 2014, a U.S. District Judge dismissed a separate lawsuit brought by the Southern Poverty Law Center that challenged the Alabama Accountability Act on grounds the school choice program violated equal protection. C.M., et al., v. Robert J. Bentley, M.D.; et al.

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