Education Tax Credit: Back-to-School Tax Savings & Deductions

School tuition and related fees, especially paying for college and a postgraduate degree, can be expensive. Thankfully, there are some tax policies that provide relief via education tax credits and deductions to combat these ever-increasing costs.

You may be eligible for education deductions (which reduce your taxable income) and credits (which are directly subtracted from your tax bill), to help you save. But before you can claim them on your tax return, you’ll need to determine your eligibility.

Use this guide to learn more about these opportunities to potentially save on your taxes and recoup some of the money you’ve spent on higher education, as well as recent tax policy changes that might impact repayment, so you can make informed decisions.

Key takeaways

• You may be able to write off expenses for books, supplies, equipment, and even student activities.
• Education tax credits include the American Opportunity Tax Credit (AOTC) and the Lifetime Learning Credit (LLC), which both directly reduce your tax bill. The AOTC is refundable, which means you could get some money back.
• You may be able to deduct as much as $2,500 for student loan interest payments if your income is under $85,000 (as a single filer) or $170,000 (if you’re married filing jointly).
• The OBBBA may have a large impact on students who are planning which loans to take out, or those who have started repaying loans, due to changes regarding limits and requirements.

Who’s eligible for education credits and deductions?

You may be able to deduct qualified expenses paid during the year for:

• Yourself
• Your spouse
• A dependent

Federal education tax deductions and credits focus on postsecondary education. If you have a child between kindergarten and high school, you may have to check with your state to find other benefits or financial aid options.

For now, let’s focus on higher education and how paying for undergraduate, graduate, or professional degrees and courses to improve or acquire job skills might impact your taxes.

Education tax credits explained

Any education credit helps reduce the amount owed on your tax return. That means they don’t directly pay your education expenses or student loan interest; instead, they take into account that you’re paying these fees and give you “tax breaks” by reducing your tax liability dollar-for-dollar.

Here’s the background on education credits:

Eligibility Criteria

According to the Internal Revenue Service (IRS), not everyone is eligible to claim an education credit. You must be able to check all of these boxes:

• You, your dependent, or a third party pay qualified expenses.
• The student is enrolled at an eligible educational institution.
• The student is you, your spouse, or a dependent on your tax return.

Qualified Expenses 

A qualified educational expense can be anything from tuition to required activity fees. Depending on the credit you claim, you may be able to include the cost of:

• Books
• Supplies
• Equipment
• Student activity fees

These expenses qualify whether you pay for them with:

• Cash
• Check
• Card
• Loan

Qualified educational institutions

A student needs a Form 1098-T showing they attend a qualifying college. Most accredited institutions count, such as public, nonprofit, and privately-owned for-profit schools. This includes:

• Colleges
• Universities
• Trade schools
• Postsecondary educational programs

Education tax credits

The two education tax credits available are the American Opportunity Tax Credit and the Lifetime Learning Credit.

American Opportunity Tax Credit 

The American Opportunity Tax Credit (AOTC) is available for taxpayers with low to moderate income levels who are paying tuition for undergraduate education. To claim the full credit, your modified adjusted gross income (MAGI) must be $80,000 or less (or $160,000 or less if you’re married filing jointly).

You will receive a reduced amount of the credit if your MAGI is over $80,000 but more than $90,000 individually (over $160,000 but less than $180,000 married filing jointly). You can get a maximum credit of $2,500 for each qualifying student.

To be a qualifying student to claim AOTC, the student must meet the following criteria: 

• Be enrolled at least half-time for a minimum of one academic period beginning in that tax year. An academic period could be a semester, trimester, quarter, or even a summer school session.  
• Pursue a degree or some recognized education credential.
• Be in the first four years of higher education. 
• Not have claimed this credit (or the former Hope credit) for more than four tax years. 
• Cannot have a felony drug conviction at the end of the tax year.

The credit is calculated based on a maximum of the first $4,000 worth of qualified education expenses per eligible student. The credit is worth 100% of the first $2,000 you spend on qualified education expenses you paid for each eligible student. For the next $2,000 you spend on qualified education expenses, 25% is covered by the AOTC credit for a maximum total credit of $2,500.

This applies to each eligible student — so if you’re a parent with multiple kids in college, you can claim the credit for each one.

Better yet, part of this tax credit’s refundable, meaning it can actually pay you by increasing your tax refund. If the credit brings your taxes owed down to zero, you can get 40% of any remaining amount of the credit added to your refund up to $1,000.

Tip: Remember that you may be able to claim this credit for up to four tax years for each different student as long as it’s for different eligible education expenses. That’s one more reason it’s helpful to keep track of your paperwork, especially Forms 1098-E and 1098-T.

Lifetime Learning Tax Credit

Unlike the American Opportunity Tax Credit, you can claim the Lifetime Learning Credit for as many years as you pay qualifying expenses for undergraduate, graduate, professional degree courses, and courses to improve or acquire job skills. There’s no limit on the number of years you can claim this credit on your tax return, and it is worth up to $2,000 per tax return. This credit, however, is not refundable.

Tip: While you can claim both of these tax credits on the same tax return, it can not be for the same student or the same qualified expenses. TurboTax will help you determine which education credits you qualify for depending on your tax situation.

Education tax deductions and expenses

Although education tax credits are a golden opportunity to get a break from those college fees, you have other options, too — especially when it comes to loans and interest. Here are a few tax breaks you might qualify for:

Student loan interest deduction

The federal government allows you to deduct up to $2,500 of the interest you repaid on your student loans. Better yet, you can do that each year. The deduction begins to phase-out if your modified adjusted gross income (MAGI) is $85,000 for single filers and $170,000 if married filing jointly. No deduction is allowed for MAGI of $100,000 and greater for single filers and $200,000 if married filing jointly

You will not be able to qualify for a student loan interest deduction if you are married and filing separately or claimed as a dependent on someone else’s return.

Tip: Student loan interest is generally reported by the lender on Form 1098-E. Keep good records of all your expenses and spending over the tax year. This makes it easier to get the deductions and credits you deserve.

Tuition reimbursement

If you’re a student with a job, you might have a leg up. Ask your employer if you are eligible for tuition reimbursement from your company. Tuition reimbursements up to $5,250 are not taxable and can be excluded from gross income. Amounts greater than $5,250 will be reported with your wages on your W-2.

If you already finished your degree, your employer may offer a similar benefit to you in the form of payments toward your student loan. Qualifying payments made directly to the lender can be excluded from income up to the same $5,250 amount.

Recent policy changes that might impact your education expenses

Recently, the One Big Beautiful Bill Act (OBBBA) was passed into law, impacting a variety of tax and student loan policies that could impact how you borrow and repay loans.

When considering your student loan options, these limits could impact your choices:

• Combined undergraduate and graduate loans are limited to a total of $257,500 per person.
• Graduate loans are limited to $20,500 annually and $100,000 for your lifetime.
• Loans for professional graduate degrees are limited to $50,000 annually and $200,000 for your lifetime.
• Parent PLUS loans are limited to $20,000 annually and $65,000 for your lifetime.

If you’re nearing the end of your education and starting to think about repayment, you’ll want to keep these updates in mind:

• Starting in 2026, any forgiven student loan debt will be considered taxable income. 
• You’ll have between 10 and 25 years to repay your student loans. How long you have is based on how much student loan debt you’ve accumulated.

There’s also a new repayment plan that’s been established by the OBBBA, known as the Repayment Assistance Plan (RAP), which will be based on your AGI.

Take advantage of your education

Pursuing postsecondary education is a big step — and often a pricey one. Fortunately, you can reduce qualified tuition and related expenses with a few well-chosen deductions and credits if you know how to take advantage of these tax breaks.