The cost of education - tax breaks for students

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For most, a post-secondary education seems like the necessary step after graduating high school. However, obtaining this education requires a huge investment—as the average cost of college tuition for the academic year 2014-2015 in the United States was $31,231 at private colleges, $9,139 for state residents at public colleges, and $22,958 for out-of-state residents attending public universities.

The cost of education

To complete a full four-year undergraduate program, many students are now looking at spending over $100,000 in tuition over the duration of their course. This amount may seem daunting however the IRS does provide some tax relief programs to help out.

The IRS offers different tax credits and deductions for students or tax payers for whom the student is listed as their dependent. A tax credit is often seen as more valuable than a deduction because it lowers your tax liability by a dollar amount meanwhile a deduction only reduces the amount of your taxable income. The two tax credits the IRS offers are the American Opportunity Credit and the Lifetime Learning Credit.

American Opportunity Credit

The American Opportunity Credit (AOC) provides a tax credit for eligible students in an undergraduate program from the years 2009-2017 for up to four years.  To be eligible, a student must be enrolled in a degree or certificate program at least part-time during the current tax year. The student cannot have already completed a four year undergraduate program and a single filer’s modified adjusted gross income (MAGI) must be under $90,000 and under $180,000 if joint filing.

If these conditions are met individuals are eligible for a tax credit of up to $2,500 of the first $4,000 of qualifying educational expenses per child. This includes 100% of the first 2,000 and 25% of the next $2,000. Qualifying expenses include: tuition, fees, books, and any necessary required supplies and materials. Additionally, the taxpayer can claim up to $1,000 in tax refunds if they do not owe any taxes.

Lifetime Learning Credit

The additional tax credit available for qualifying students is the Lifetime Learning Credit (LLC). This differs from the American Opportunity Credit in that it is not limited to just four undergraduate years. Instead, this credit can be taken over an unlimited amount of years. There are no minimum enrollment requirements to receive the credit, and an individual is eligible even if only enrolled in one class. The credit is available for graduate, postgraduate, and continuing education classes.

With LLC you can take up to 20% off qualifying expenses up to a maximum of $2,000 on the first $10,000 of expenses. However, qualifying expenses are limited to tuition and fees—books, supplies, and other materials are not eligible. LLC can be claimed if you MAGI is under $64,000 if single and $128,000 if filing jointly.

A taxpayer cannot claim both of these credits for the same student. However, if claiming for more than one student, you can apply for a different credit for each of them. Additionally, if you claim the American Opportunity Credit one year, you can claim the Lifetime Learning Credit the next year, and vice versa.

Additional student tax deductions you can claim

In addition to the AOC and LLC tax credits, the IRS also offers some further student tax deductions. If filing for a previous tax year up to 2013, you can deduct up to $4,000 off taxable income per year. This includes qualifying tuition, fees, and required expenses. There is no limit in the amount of years to take this deduction, but it expired in 2013 and only applies to student fees/tuition incurred up to this time.

You can also deduct up to $2,500 of interest paid on student loans. These can be loans taken yourself, by your spouse, or a dependent. The limit on MAGI for a single filer is up to $75,000 and joint filing $155,000. The loan could have been used to pay tuition, fees, books, and housing expenses.


While not solving the crippling costs of post secondary education, the various tax credits and deductions available do help to ease the pain so make sure to take advantage of these great, money-saving opportunities!

If you have any questions about student tax credits and to check your eligibility to claim contact us today