Tax Benefits for Education

Take advantage of all the ways you can save on college – including tax benefits.

Any money students or parents can save on taxes or college is a big plus. Fortunately, the U.S. government offers several tax benefits for higher education. Consult with a tax advisor or an accountant to see if you’re eligible for these credits or deductions and to find out how to claim them. Here are some things to consider:

Are these tax benefits being claimed by parents or students?

Either parents or students (not both) may claim tax benefits.

  • Many full-time students do not work or receive any taxable income. If that is the case, the parent may be the one to claim the tax benefit.
  • Many parents are employed and pay substantial money towards their child’s education. If parents can claim a student as a dependent, they may be able to claim tax benefits for the child’s college expenses.
  • Remember, to please see the IRS website for more details on tax filing status or consult with a tax professional.

What kinds of educational tax breaks are there?

There are two common types of college tax benefits:

  • Tax deductions and credits – tax breaks for college-related expenditures made by students or the parents of students.
  • Tax advantages for college savings – tax benefits for college savings plans created by parents for their children, often started when their kids are very young.  

Note: The IRS states that you may be restricted to claiming only one educational tax benefit per tax year- “no double benefit allowed.”1 For more information, please see IRS Publication 970 or go to the IRS website.

Tax deductions and credits

American Opportunity Tax Credit (AOTC)

The AOTC reduces the amount of tax you pay by giving you a credit for qualified education expenses such as tuition and course materials for the first four years of college. The AOTC:

  • Depending on income, can be claimed by the student or a parent who claims the student as a dependent. 
  • May be claimed for no more than 4 tax years (use of the Hope scholarship counts towards the 4 years).
  • Tip: pay attention to the income limits for this credit in order to claim the credit.

Lifetime Learning Credit3

Like the AOTC, the Lifetime Learning Credit reduces the amount of tax you pay by giving you a credit for qualified education expenses, but it has different requirements and provisions. The Lifetime Learning Credit:

  • Can be claimed by the student or someone who claims the student as a dependent.
  • Unlike the American Opportunity Credit, does not have a limit on the number of years it can be claimed.
  • Tip: pay attention to the income limits for this credit in order to claim the credit. 

The American Opportunity Tax Credit and Lifetime Learning Credit are just two of the most popular tax benefits. You may also wish to take advantage of the following:

Student Loan Interest Deduction

Scholarships, fellowships and grants reductions (awards like these may count as income and could be taxable unless tax benefits are requested)

Tax advantages for college savings

The U.S. government gives a variety of tax breaks to parents and students who save for a higher education). Some of the most common tax-advantaged programs include:

  • Coverdell Education Savings Account - a savings account that is set up to pay the qualified education expenses of a designated beneficiary1
  • 529 Plan –a tax-advantaged college savings plan also known as a qualified tuition plan may allow for pre-tax savings benefits
  • IRA Withdrawals to pay for qualified higher education expenses

Remember, if you don’t take advantage of the tax benefits that are available, you’re just leaving money on the table!

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Important Information

This content does not constitute legal, tax, accounting, financial or investment advice. You are encouraged to consult with competent legal, tax, accounting, financial or investment professionals based on your specific circumstances. We do not make any warranties as to accuracy or completeness of this information, do not endorse any third-party companies, products, or services described here, and take no liability for your use of this information.

Before applying for a private student loan, SunTrust recommends comparing all financial aid alternatives including grants, scholarships, and both federal and private student loans. View and compare the available features of SunTrust private student loans.

Union Federal is a federally registered trademark of Cognition Financial Corporation used by SunTrust Bank under license. The Union Federal Private Student Loan is funded by SunTrust Bank and is not offered in connection with any other lender or the federal government. Cognition Financial Corporation is not an affiliate of SunTrust Bank.

Certain restrictions and limitations may apply. SunTrust Bank reserves the right to change or discontinue these programs without notice. These loan programs are subject to approval under the SunTrust credit policy and other criteria and may not be available in certain jurisdictions.

1  Source: Department of the Treasury Internal Revenue Service: Publication 970, Tax Benefits for Education for use in preparing 2017 Returns.

2  Source: Department of the Treasury Internal Revenue Service: American Opportunity Tax Credit.

3  Source: Department of the Treasury Internal Revenue Service: Lifetime Learning Credit.

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