Two federal tax credits can give back up to $2,500 a year of what you spend on college. Claiming the right one, for the right expenses, is where people slip.
Key numbers
- The American Opportunity Tax Credit is worth up to $2,500 per student a year for the first four years of college, and up to $1,000 of it is refundable.
- The Lifetime Learning Credit is worth up to $2,000 per tax return and covers any year of study, including graduate school.
- Both phase out between $80,000 and $90,000 of modified AGI for single filers, and $160,000 to $180,000 for joint filers.
- You can’t claim both for the same student in the same year, or for expenses paid with tax-free aid.
The IRS offers two education credits, which reduce your tax bill dollar for dollar. You claim them on Form 8863 with your tax return.
The two credits side by side
| American Opportunity Tax Credit | Lifetime Learning Credit | |
|---|---|---|
| Maximum | $2,500 per eligible student | $2,000 per tax return |
| How it’s calculated | 100% of the first $2,000 of expenses, plus 25% of the next $2,000 | 20% of up to $10,000 of expenses |
| Refundable | Up to 40%, so as much as $1,000 even with no tax owed | No |
| Years available | First four years of postsecondary education, claimed up to four times | Unlimited |
| Enrollment | At least half time in a degree or credential program | Even one course, including to improve job skills |
| Income phase-out (modified AGI) | $80,000–$90,000 single; $160,000–$180,000 joint | Same |
Which to choose
- Undergraduate in the first four years: usually the American Opportunity credit, because it’s bigger and partly refundable.
- Graduate students, part-time learners and career changers: the Lifetime Learning credit.
- Several students in the family: you can claim the American Opportunity credit for one student and the Lifetime Learning credit for another in the same year.
What counts as an expense
Tuition and required fees count for both credits. For the American Opportunity credit, required books, supplies and equipment count too, even if bought elsewhere. Housing, transportation and insurance don’t count for either.
Watch out
You can’t use the same expenses twice. Costs paid with tax-free scholarships, Pell Grants, employer assistance or tax-free 529 withdrawals can’t also be used for a credit. Sometimes it pays to use a 529 plan for housing and pay tuition from other money to keep the credit.
The student loan interest deduction
Separately, you may be able to deduct up to $2,500 a year of interest paid on qualified student loans, even if you don’t itemize. The deduction phases out at higher incomes, and your loan servicer reports interest paid on Form 1098-E.
For saving ahead of time, see 529 plans for college.
Questions families ask
Who claims the credit, the parent or the student?
Whoever claims the student as a dependent claims the credit. If the parents claim the student, the parents claim the credit, even if the student paid.
Do I need Form 1098-T?
Generally, yes. Colleges send Form 1098-T showing tuition paid; keep it with your own receipts, because the form doesn’t always match what you paid in the calendar year.
Can I deduct student loan interest too?
Yes, separately. You may be able to deduct up to $2,500 a year of student loan interest, subject to income limits.
Award amounts, loan limits and tax rules change, and some 2026 rules are still being finalized. This guide is general information for U.S. students and families, not financial or tax advice; confirm details at StudentAid.gov, with the IRS or with your school’s financial aid office.
