As tuition continues to climb, these are the top tax breaks for college expenses


  • The cost of college can be a challenge for families, but a few tax breaks may lessen the burden.
  • The American opportunity tax credit offers up to $2,500 per student for undergraduate expenses, and the lifetime learning credit extends to graduate or professional courses, worth up to $2,000 per return.
  • Working students may also qualify for the earned income tax credit or saver’s credit for retirement contributions.

The cost of college can be a challenge for families, but a few tax breaks may lessen the burden, financial experts say.

For the 2021-22 academic year, the average tuition and fees for full-time undergraduate students ranged from $10,740 (1.6% higher than the year before) for in-state public schools to $38,070 for private schools (a 2.1% year-over-year increase), according to the College Board.

While 529 college savings plans provide a tax incentive to save, and the student loan interest deduction may help after graduation, other write-offs may be limited.

“There’s just not a lot there,” said certified financial planner John Loyd, owner at The Wealth Planner in Fort Worth, Texas.

However, there are some tax credits worth exploring.

American opportunity tax credit

If there’s an undergrad in the family, you’ll want to consider the American opportunity tax credit, a break for qualified education expenses, limited to four years per student.

Here’s how it works: You can claim 100% of the first $2,000 of costs per student and 25% of the next $2,000 for a maximum credit of $2,500 per student. To qualify, you’ll need Form 1098-T from the school, covering tuition and expenses paid.

Moreover, up to $1,000 is refundable, which means you can claim part of the benefit even without tax liability, a possible boost for lower earners, said Tommy Lucas, a CFP and enrolled agent at Moisand Fitzgerald Tamayo in Orlando, Florida.

However, the more you make, the tougher it may be to qualify. For 2021, eligibility starts to phase out once your modified adjusted gross income, or MAGI, exceeds $80,000 ($160,000 for couples filing together). You can’t claim the write-off with MAGI above $90,000 ($180,000 for joint filers).

Lifetime learning credit

Another tax break, the lifetime learning credit, extends to graduate studies and professional degree courses, worth up to $2,000 per tax return.

You may claim 20% of the first $10,000 of qualified education expenses. Although the credit isn’t refundable, you can take it for an unlimited number of years.

However, there are lower thresholds to qualify, with the phaseout beginning once MAGI passes $59,000 ($119,000 for joint filers). You lose eligibility once MAGI exceeds $69,000 ($139,000 for married couples filing together).

You can’t claim both credits for the same expenses, so if you’re eligible for the American opportunity tax credit, it’s better to take that one, Loyd explained. “That’s where you’re going to get the most bang for your buck.”

Tax breaks for working students

Parents may claim the American opportunity tax credit or lifetime learning credit while children are dependents, but working students may also qualify for a couple of tax breaks.

Students may claim the earned income tax credit, a refundable write-off for low- to moderate-income workers, with expanded eligibility for 2021.

If they can afford to save some of their earnings, they may also take the retirement savings contributions credit, Lucas said, applying to up to 50% of deposits for a maximum of $1,000 for single investors.

“Essentially, you’re getting a free 50 cents on the dollar for every dollar you put into a Roth IRA,” he added.