Tax Benefits for Higher Education
Government tax credit programs are designed to make college education more feasible and affordable for students and their families. Because every student's situation may vary, the Office of Financial Assistance has highlighted just a few of the various tax programs that support educational costs.
Education Loan Interest Deduction
Taxpayers may deduct the interest paid on qualified education loans. Loans that qualify for the deduction include Federal Stafford, PLUS, Perkins and Federal Direct Consolidation loans.
- Qualifying loans must have been used to pay for education expenses such as tuition, fees, books, room, and board.
- To claim the interest deduction, the taxpayer must be the individual responsible for repaying the loan. Dependents may not claim the interest deduction. For example:
- a student can claim the interest deduction on their income tax return only if he/she is not claimed as a dependent on a parent's tax return
- a parent cannot claim the interest deduction for a loan borrowed by their dependent student if the student has sole responsibility of the loan payments
- The maximum interest deduction is $2,500.
- The maximum deduction is available to taxpayers whose adjusted gross income is under $50,000 if filing a single return, or $100,000 if filing a joint return.
- Married taxpayers must file a joint return in order to claim the deduction.
- The student must attend, or have attended, school at least half time.
- Interest is deductible for all years during the loan repayment period.
Lifetime Learning Education Tax Credit
The Lifetime Learning Credit authorizes a tax credit for expenses incurred for any postsecondary (undergraduate, graduate, and vocational) education.
- An individual may claim an income tax credit for 20% of qualified tuition and fees for themselves, a spouse, and/or dependents.
- Books, room, and board are not eligible expenses for the credit.
- Prior to calculating the credit, the taxpayer must deduct any scholarships or other tax-free financial assistance, such as grants, from their total tuition and fees.
- The maximum yearly credit is $2,000.
- The credit should be taken in the year that the educational expenses are incurred. Educational expenses that were paid by means of loan funds are eligible, even if the loan is still outstanding.
- This credit covers a broad range of education including:
- full time, half time, or below half time study
- undergraduate or graduate courses
- training programs to acquire or improve career skills
- There is no limit on the number of years that this credit may be claimed.
Tuition and Fees Deduction
The tuition and fees deduction allows qualified higher education expenses to be deductible as an income adjustment. You do not need to itemize deductions to clam this deduction.
- The deduction can only be claimed for tuition and fees. Books, room, and board are not eligible expenses.
- Prior to calculating the deduction, the taxpayer must subtract any scholarships or other tax-free financial assistance, such as grants, from their total tuition and fees.
- The maximum amount a taxpayer may deduct is $4,000.
- The maximum deduction is available to taxpayers whose adjusted gross income is under $65,000 if filing a single return, or $130,000 if filing a joint return.
- A reduced deduction of $2,000 is allowed to taxpayers whose adjusted gross income is between $65,000 and $80,000 if filing a single return, or $130,000 and $160,000 if filing a joint return.
- A dependent may not claim the deduction for him/herself.
For additional information, you may access the IRS website at www.irs.gov. The IRS also publishes several free student guides that provide details on scholarships, fellowships, and other tax benefits.
|Individual Tax Help
|Free Forms and Publications
|Tele Tax Recorded Tax Information
Tax Benefits for Higher Education Information is located in Publication 970 and can be ordered by calling (800) 283-3676.