With the 2025 tax season underway, many students and their families might be overlooking key tax breaks that can help offset education costs. Whether you’re currently enrolled in college, paying off student loans, or saving for future education expenses, there are several tax benefits available. However, some of these credits and deductions could be on the chopping block, so this may be the last chance to claim them.
Here’s what you need to know about education tax credits and deductions for the 2024 tax year.
American opportunity tax credit (AOTC)
The American Opportunity Tax Credit (AOTC) is a valuable tax break for students enrolled in college courses. This credit is partially refundable, meaning you may receive a refund even if you owe no taxes.
- Covers 100% of the first $2,000 spent on tuition, fees, and textbooks.
- Covers 25% of the next $2,000 spent.
- Total credit is worth up to $2,500 per qualifying student.
- If the credit exceeds the taxes owed, 40% of the remaining amount (up to $1,000) is refundable.
What expenses qualify?
Qualified expenses include tuition, books, supplies, and necessary fees. However, room and board, medical expenses, insurance, and transportation do not qualify.
Lifetime learning credit (LLC)
The Lifetime Learning Credit (LLC) offers up to $2,000 per tax return to students pursuing higher education, including graduate programs.
- Available for an unlimited number of years.
- Unlike the AOTC, students do not need to attend at least half-time.
- Not refundable means it can reduce your tax bill but won’t result in a refund.
- It cannot be claimed for the same expenses used to claim the AOTC.
Tax breaks for scholarships and grants
Scholarships, fellowships, and grants may be excluded from taxable income if used for qualified education expenses.
What Qualifies as an Education Expense?
- Tuition and fees are required for enrollment.
- Books, supplies, and other necessary equipment.
Scholarships cannot be used tax-free for non-education expenses like room and board or travel. Veterans receiving education benefits from the VA should also be aware that these payments are tax-free but may impact other tax credits.
Student loan interest deduction
Borrowers repaying student loans may qualify for a deduction on interest paid.
- Deduction is up to $2,500 per year.
- Available as an adjustment to income—no need to itemize.
- Eligibility depends on your modified adjusted gross income (MAGI).
- Married couples filing separately do not qualify.
- If you paid $600 or more in student loan interest, you should receive Form 1098-E.
529 savings plans: A smart way to save
A 529 plan is a tax-advantaged savings account for education expenses.
- It can be used for college, K-12 tuition, and trade schools.
- Allows up to $10,000 for private K-12 education.
- Up to $35,000 can be rolled over into a Roth IRA (subject to conditions).
- State-specific rules may apply.
Coverdell education savings accounts (ESAs)
Another tax-free savings option for education is the Coverdell ESA.
- Contribution limit of $2,000 per year per child.
- Income limits apply ($110,000 for individuals, $220,000 for joint filers).
- Must be used before the beneficiary turns 30 (unless they have special needs).
Employer-provided educational assistance
If your employer helps pay for education, you may be able to exclude up to $5,250 of those benefits from taxable income.
However, some costs are not covered, including:
- Meals, lodging, and transportation.
- Tools or supplies that you can keep.
- Hobby-related courses unless related to your job.
Education tax deductions for the self-employed
Self-employed individuals may deduct education expenses if the education is:
- Required to maintain or improve current job skills.
- Necessary to keep a professional license.
However, you cannot claim the deduction if the education is required to meet minimum job qualifications or prepare for a new career.
