The IRS offers three tax breaks for the costs of your higher education.
- Lifetime Learning Credit (LLC) – $2,000
- American Opportunity Credit (AOC) – $2,500
- Tuition and Fees Deduction – $4,000
You can only choose one each year, so be sure to choose the one that will give you the most money back. It’s usually better to take a tax credit rather than a deduction because credits reduce your tax liability dollar for dollar. Deductions only reduce the amount of your income that is taxable.
So, if you are eligible for a $2,000 tax credit, you can subtract that directly from what you owe the IRS, and you will save $2,000. But if you take a deduction for the same amount, you simply reduce your taxable income by $2,000. Therefore, if your tax rate is 25%, you will only save $500.
As for the credits, one major difference between the AOC and the Lifetime Learning Credit is that the AOC requires the student to be pursuing a degree or other recognized education credential. For the Lifetime Learning Credit, you could also be studying to get or improve job skills without being on a degree track. There are many more differences between the two credits. The IRS offers a convenient table so you can compare them all side by side.
What Is the Lifetime Learning Credit (LLC)?
The Lifetime Learning credit is a tax credit that can help you to pay for undergraduate, graduate and professional courses. These include courses that you take to improve job skills. How many years you can claim the credit is unlimited.
Eligibility for the Lifetime Learning Credit
You must fulfill all these criteria to be eligible for the LLC:
- You pay qualified education expenses for higher education. Qualified expenses include tuition, fees, and related expenses. They do not include living expenses, room and board, transportation or similar expenses.
- You pay the education expenses for an eligible student enrolled at an eligible educational institution. An eligible educational institution is a school offering higher education beyond high school. You can check to be sure your institution is eligible at the S. Federal Student Aid Code List. However, if you don’t see your school on the list, it may be one of a few schools that are eligible but were not put on the list. Ask your school to be sure.
- The eligible student is yourself, your spouse or a dependent you listed on your tax return.
- The student is enrolled for at least one academic period beginning in the tax year. The definition of “academic period” is loose. An academic period is determined by the school and could be a quarter, a semester or other period.
- The student is taking higher education courses to get a degree or other recognized education credential or to get or improve job skills
You cannot claim an education credit when:
- Another person such as your parents is listing you as a dependent.
- You are married but filing separately.
- You already claimed another higher education benefit using the same student or same expenses. (We already addressed that you cannot get double benefits.)
- You or your spouse were a non-resident alien for any part of the year and did not choose to be categorized as a resident alien for tax purposes.
The IRS has an Interactive Tax Assistant that helps you determine if you are eligible. To use this tool, be prepared with
- Filing status
- Your adjusted gross income
- Student’s enrollment status
- Information on whether any expenses were paid with tax-exempt funds
- Who paid the expenses, when the expenses were paid and for what academic period.
- Information on whether expenses were paid with distributions from a Qualified Tuition Program or Coverdell Education Savings Account (a federally sponsored, tax-advantaged trust or custodial account set up to pay for qualified education expenses).
Income Limits for the Lifetime Learning Credit
- To get the full credit, your modified adjusted gross income (MAGI), has to be $65,000 or under if you file single. If you are married and file jointly, it must be $131,000 or under.
- If your MAGI is between $55,000 and $65,000 and you file individually, you will receive credit in a lesser amount. This also applies if you are married and file jointly, and your MAGI is from $111,000 to less than $131,000.
- If your MAGI is over $65,000 for individual filers, you cannot claim the credit. Those who file jointly cannot claim it if they make over $130,000.
There are worksheets in Publication 970, Tax Benefits for Education, to help you determine your MAGI.
How to Claim the Lifetime Learning Credit
Your school will usually send you a Form 1098-T, Tuition Statement on or before January 31. It will help you to figure out your credit. You will see an amount received or billed during the year, but that may not be the same as the amount you are able to claim. If the school does not send you the form of or if it contains incorrect information, contact your school for a correction.
Form 8863 to your tax return.
How Much Is the Lifetime Learning Credit Worth?
The maximum is $2,000 per return. You can get 20% of the initial $10,000 of qualified education expenses up to that amount. You can pay any tax you like with the credit, but if you don’t owe that much, you won’t get a refund for the amount you don’t use.
Higher education is expensive.
Be sure to take advantage of everything you can to help you to succeed. Everything adds up. The Lifetime Learning Credit can give you $8,000 in tax relief over the course of a four-year education, and it’s simple to claim. Be sure to compare which of the tax breaks offered by the IRS for higher education is right for your situation.
Compare the Best Student Loan Refinance Rates
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Student Debt Relief Loan Refinancing Advertiser Disclosure
College Ave: College Ave Student Loans products are made available through either Firstrust Bank, member FDIC or M.Y. Safra Bank, FSB, member FDIC. All loans are subject to individual approval and adherence to underwriting guidelines. Program restrictions, other terms, and conditions apply.
College Ave Refi Education loans are not currently available to residents of Maine.
1 – The 0.25% auto-pay interest rate reduction applies as long as the borrower or cosigner, if applicable, enrolls in auto-pay and authorizes our loan servicer to automatically deduct your monthly payments from a valid bank account via Automated Clearing House (“ACH”). The rate reduction applies for as long as the monthly payment amount is successfully deducted from the designated bank account and is suspended during periods of forbearance and certain deferments. Variable rates may increase after consummation.
2 – $5,000 is the minimum requirement to refinance. The maximum loan amount is $300,000 for those with medical, dental, pharmacy or veterinary doctorate degrees, and $150,000 for all other undergraduate or graduate degrees. Information advertised valid as of 04/26/2019. Variable interest rates may increase after consummation.
3 – This informational repayment example uses typical loan terms for a refi borrower with a Full Principal & Interest Repayment and a 10-year repayment term, has a $40,000 loan and a 5.5% Annual Percentage Rate (“APR”): 120 monthly payments of $434.11 while in the repayment period, for a total amount of payments of $52,092.61. Loans will never have a full principal and interest monthly payment of less than $50. Your actual rates and repayment terms may vary.
ELFI: Subject to credit approval. Terms and conditions apply. To qualify for refinancing or student loans consolidation through ELFI, you must have at least $15,000 in student loan debt and must have earned a bachelor’s degree or higher from an approved post-secondary institution.
LendKey: Refinancing via LendKey.com is only available for applicants with qualified private education loans from an eligible institution. Loans that were used for exam preparation classes, including, but not limited to, loans for LSAT, MCAT, GMAT, and GRE preparation, are not eligible for refinancing with a lender via LendKey.com. If you currently have any of these exam preparation loans, you should not include them in an application to refinance your student loans on this website. Applicants must be either U.S. citizens or Permanent Residents in an eligible state to qualify for a loan. Certain membership requirements (including the opening of a share account and any applicable association fees in connection with membership) may apply in the event that an applicant wishes to accept a loan offer from a credit union lender. Lenders participating on LendKey.com reserve the right to modify or discontinue the products, terms, and benefits offered on this website at any time without notice. LendKey Technologies, Inc. is not affiliated with, nor does it endorse, any educational institution.
CommonBond: Offered terms are subject to change. Loans are offered by CommonBond Lending, LLC (NMLS # 1175900). If you are approved for a loan, the interest rate offered will depend on your credit profile, your application, the loan term selected and will be within the ranges of rates shown. All Annual Percentage Rates (APRs) displayed assume borrowers enroll in auto pay and account for the 0.25% reduction in interest rate.
Splash Financial: Terms and Conditions apply. Splash reserves the right to modify or discontinue products and benefits at any time without notice. Rates and terms are also subject to change at any time without notice. Offers are subject to credit approval.com
Earnest: To qualify, you must be a U.S. citizen or possess a 10-year (non-conditional) Permanent Resident Card, reside in a state Earnest lends in, and satisfy our minimum eligibility criteria. You may find more information on loan eligibility here: https://www.earnest.com/eligibility. Not all applicants will be approved for a loan, and not all applicants qualify for the lowest rate. Approval and interest rate depend on the review of a complete application.
Earnest’s fixed-rate loan rates range from 3.89% APR (with autopay) to 7.89% APR (with autopay). Variable rate loan rates range from 2.50% APR (with autopay) to 7.27% APR (with autopay). For variable rate loans, although the interest rate will vary after you are approved, the interest rate will never exceed 8.95% for loan terms of 10 years or less. For loan terms of 10 to 15 years, the interest rate will never exceed 9.95%. For loan terms over 15 years, the interest rate will never exceed 11.95% (the maximum rates for these loans). Earnest variable interest rate loans are based on a publicly available index, the one month London Interbank Offered Rate (LIBOR). Your rate will be calculated each month by adding a margin between 0.26% and 5.03% to the one month LIBOR. The rate will not increase more than once per month. Earnest rate ranges are current as of April 23, 2019 and are subject to change based on market conditions and borrower eligibility.
Auto Pay Discount: If you make monthly principal and interest payments by an automatic, monthly deduction from a savings or checking account, your rate will be reduced by one quarter of one percent (0.25%) for so long as you continue to make automatic, electronic monthly payments. This benefit is suspended during periods of deferment and forbearance.
The information provided on this page is updated as of 04/23/19. Earnest reserves the right to change, pause, or terminate product offerings at any time without notice.
Earnest loans are originated by Earnest Operations LLC. California Finance Lender License 6054788. NMLS # 1204917. Earnest Operations LLC is located at 303 2nd Street, Suite 401N, San Francisco, CA 94107. Terms and Conditions apply. Visit https://www.earnest.com/terms-of-service, e-mail us at firstname.lastname@example.org, or call 888-601-2801 for more information on our student loan refinance product.