Tax Breaks for College Expenses
You may qualify for a tax credit or deduction to ease the pain of paying for college—or paying back your student loan.

It’s no secret that college tuition is one of the most crushing financial burdens that American families face today. But the tax code provides several ways to ease some of the pain, depending on your income. For taxpayers who qualify, the American Opportunity Tax Credit, which Congress has extended through 2012, is probably the best choice.
The American Opportunity Credit is worth up to $2,500 per student per year during the first four years of college. It covers 100% of the first $2,000 of expenses, including tuition, fees and books, and 25% of the next $2,000.
You can claim the full credit if you are single and your income is $80,000 or less ($160,000 if you’re married filing jointly). You get a partial credit if you are single with income up to $90,000 ($180,000 for joint filers).Use Form 8863. A portion of the credit—40% of up to $1,000—is refundable, meaning you could get money back if the credit exceeds your tax bill.

Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
But if you’re paying for graduate school, the American Opportunity Credit won’t help you because it applies only to the first four years of college. However, you have other options. You can choose between claiming the Lifetime Learning credit Credit or a tuition tax deduction. (But you cannot claim the deduction and either of the credits in the same year for the same student).
The Lifetime Learning Credit covers 20% of the cost of any post- high school classes, up to a maximum $2,000 per tax return (not per student). For the full credit, your income can’t top $50,000 if you’re single ($100,000 if you’re married). A partial credit is available to those if you’re single with income up to $60,000 ($120,000 if married). Claim it on Form 8863. It is available for both 2010 and 2011.
If your income is too high to claim the Lifetime Learning Credit, consider claiming a tuition deduction of worth up to $2,000 or $4,000, depending on your income. It and is available whether or not you itemize. Unlike a tax credit, which reduces your tax bill dollar dollar-for for-dollar, a tax deduction merely reduces the amount of income that is taxed. For example, if you’re in the 25% bracket, a $2,000 deduction reduces your taxes by just $500 while a $2,000 credit reduces your taxes by the full $2,000.
You can claim the full $4,000 tuition deduction if you earn less than $65,000 ($130,000 if you’re married filing jointly). The deduction is limited to $2,000 if your income is between $65,000 and $80,000 ($130,000 and $160,000 if married filing jointly). Use Form 8917.
Paying back student loans
In addition to extending the higher higher-education tuition deduction through 2011, Congress also extended the student-loan interest deduction through 2011. It allows you to deduct up to $2,500 of interest paid on student loans, whether or not you itemize your deductions or choose the standard deduction.
The same law, the Tax Relief Act passed in December, also extends the educational assistance exclusion through 2012. It allows employees to exclude up to $5,250 in employer-provided educational assistance annually from income and employment taxes.
Profit and prosper with the best of Kiplinger's advice on investing, taxes, retirement, personal finance and much more. Delivered daily. Enter your email in the box and click Sign Me Up.

-
The Surprising Truth About Loneliness and Longevity
We've all heard about the epidemic of loneliness that can shorten lives and make retirement miserable. But there's more to the story.
-
The Dollar Index Is Sliding. Is Your Portfolio Prepared?
The Dollar Index Is Sliding. Is Your Portfolio Prepared? The dollar's fall has been troubling because inflation appears to be constrained and the economy has been strong. Here's what it means for investors.
-
Why Your Summer Budget Feels Tighter: Tariffs Push Up Inflation
Tariffs Your summer holiday just got more expensive, and tariffs are partially to blame, economists say.
-
Don’t Miss Alabama Tax-Free Weekend 2025
Tax Holiday Ready to save? Here’s everything you need to know about the 2025 back-to-school Alabama sales tax holiday.
-
Parents Prepare: Trump's Megabill Brings Three Crucial Tax Changes
Tax Changes Are you a parent? The so-called ‘One Big Beautiful Bill’ (OBBB) impacts several key tax incentives that can affect your family this year and beyond.
-
‘I Play Pickleball in Retirement.’ Is It HSA-Eligible?
Retirement Tax Staying active after you retire may be easier with these HSA expenses. But there’s a big catch.
-
Mississippi Tax-Free Weekend 2025
Tax Holiday Just in time for Prime Day, Mississippi celebrated a tax holiday in July. Find out what back-to-school essentials were included.
-
Ten Cheapest Places to Live in Virginia
Property Taxes The Commonwealth of Virginia has some cheap places to live. Here are a few if you hate paying property taxes.
-
Elon Musk and Most Taxpayers Don't Like What's in Trump's 'Big Beautiful Bill'
Tax Policy President Trump is betting big on his newest tax cuts, signed into law on July 4. But not everyone is on board.
-
2025 SALT Cap Could Hurt Top 'Hidden Home Cost'
Tax Deductions The GOP tax bill could make hidden homeowner costs worse for you. Here’s how.