Higher Education Tax Breaks

Federal legislation provides tax credits, deductions, and other benefits to help families afford the cost of higher education. You can save money now — and after graduation if you have student loans — by taking advantage of these benefits. The following summaries provide a general overview of the tax breaks affecting higher education. Consult a tax advisor for more specific information about how you may benefit from these tax incentives.

Lifetime Learning Credit is a federal income tax credit of up to $2,000, covering 20% of the first $10,000 for qualified tuition and related expenses. You can claim this credit for an unlimited number of years. This non-refundable tax credit can be claimed on federal income tax returns and is available for students enrolled at least half time in degree or certificate programs. The credit is gradually reduced for single taxpayers whose income exceeds $43,000 ($87,000 for those filing jointly) and is not available for those with income over $53,000 ($107,000 if filing jointly).

Hope Credit is a federal income tax credit of up to $1,500, covering 100% of the first $1,000 and 50% of the next $1,000, for qualified tuition and related expenses paid during the first two years of college. This non-refundable tax credit can be claimed on federal income tax returns and is available for each student enrolled at least half-time. The credit is gradually reduced for single taxpayers whose income exceeds $43,000 ($87,000 for taxpayers filing jointly) and is not available for those with income over $53,000 ($107,000 if filing jointly).

Student Loan Interest Deduction allows you to deduct up to $2,500 of the interest paid on federal and private education loans on your federal tax return each year. The loans must have been used for cost of attendance related to half or full-time study in a degree or certificate program. The Student Loan Interest Deduction is gradually reduced for single taxpayers with income between $50,000 and $65,000 and for married taxpayers filing jointly with income between $105,000 and $135,000.

Tuition and Fees Deduction allows you to deduct up to $4,000 of the qualified tuition and related expenses paid during the tax year if your income is not more than $65,000 ($130,000 if you are married filing jointly). If your income is more than $65,000 ($130,000 if you are married filing jointly) but is not more than $80,000 ($160,000 if you are married filing jointly), you can deduct up to a maximum of $2,000. The Tuition and Fees Deduction is not available to taxpayers with income over $80,000 ($160,000).

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