2.3 Keeping More of Your Money – Tax Breaks for College Students

American Opportunity Tax Credit

The AOTC is a credit that can be used on qualified education expenses during a student’s first 4 years of higher education. The maximum annual amount for the AOTC is $2,500. If the credit brings the tax owed to $0, the student can have 40% of the amount of the remaining credit refunded to them (up to $1,000). 

In addition to the 3 requirements listed above, an eligible student must:

  • Be enrolled at least half time for at least one academic period beginning during the tax year
  • Not have completed the first 4 years of higher education at the beginning of the tax year
  • Have not claimed the AOTC for more than 4 tax years
  • Not have a felony drug conviction at the end of the tax year
  • Receive a 1098-T form from their institution (more on this form below)

Lifetime Learning Credit

The LLC can be used to help pay for undergraduate, graduate, and professional degree courses. This includes courses taken to learn or improve job skills. There is no limit to how many years a student can claim the LLC. The annual maximum amount is $2,000. Unlike the AOTC, the LLC is non-refundable. This means you can use the credit to pay any tax owed, but remaining credit will not be refunded to you.

In addition to the 3 requirements listed above, an eligible student must:

  • Be taking a higher education course or courses to get a degree or other recognized education credential or to learn/improve job skills.
  • Be enrolled for at least one academic period beginning in the tax year.

Student Loan Interest Deduction

This deduction is for students or former students who are paying off student loans. If the student’s modified adjusted gross income is less than $80,000, they can take the Student Loan Interest Deduction. The maximum annual student loan interest deduction is $2,500. The deduction can be used on the interest paid on a student loan for yourself, your spouse, or your dependent. 

Earned Income Tax Credit