by Amy Ye
In conjunction with the rising demand for higher education in the United States, the cost of attending a postsecondary institution has increased significantly. As reported by the Georgetown University Center on Education and the Workforce, the average price of getting an undergraduate degree (tuition, housing, etc.) increased 169% from 1980 to 2020. In an attempt to palliate the pressures of college costs, “Education Tax Credit” incentives help ordinary households with these costs by reducing their tax burdens.
Education Tax Credits
There are two main types of Education Tax Credit: The American Opportunity Tax Credit (AOTC) and the Lifetime Learning Credit (LLC). Individuals make the choice between the two based on their unique qualifications and benefits. As established on the IRS website:
| Feature | American Opportunity Tax Credit (AOTC) | Lifetime Learning Tax Credit (LLC) |
|---|---|---|
|
Maximum Credit |
Up to $2,500 per eligible student: 100% of the first $2,000 of qualified education expenses, plus 25% of the next $2,000 |
Up to $2,000 per tax bill: 20% of the first $10,000 of qualified education expenses |
|
Refundable Portion |
Up to 40% (up to $1,000) refundable if the credit exceeds the tax bill |
Non-refundable; can reduce taxes to zero but not refunded if it exceeds the tax bill |
|
Income Limits (2024) |
MAGI must be less than $90,000 (single) or $180,000 (married); phases out between $80,000 and $90,000 (single) or $160,000 and $180,000 (married) |
MAGI must be less than $90,000 (single) or $180,000 (married); phases out between $80,000 and $90,000 (single) or $160,000 and $180,000 (married) |
|
Number of tax years benefit available |
4 tax years per eligible student |
Unlimited |
|
Eligibility Requirements |
Must be pursuing a degree or recognized credential, enrolled at least half-time for one semester, and have not completed the first four years of college; no felony drug convictions on record |
Can be used for any years of postsecondary education, including courses to upgrade job skills; no limit on the number of times the credit can be claimed |
Citations: “Compare education credits“, IRS, 2025. “American Opportunity Tax Credit“, IRS, 2025. “Lifetime Learning Credit“, IRS, 2025.
Making a Choice Between AOTC and LLC
It is important to note that you cannot claim both the AOTC and LLC for one student in the same year; therefore, it is critical to make an informed decision, one that would be the most beneficial given your circumstances.
One factor to consider is the area of flexibility provided by the credit. If you are looking to pay tuition for a four-year undergraduate degree, the AOTC could be the superior choice, as it gives a higher dollar-value of credit ($2,500) in comparison to the LLC’s $2,000. Additionally, the partially refundable nature of the AOTC can be advantageous. They allow the taxpayers to receive a refund even when their tax liability is zero. Lower-income families who do not owe taxes can still receive the benefits of the credit with the partial refund, thus providing them further financial aid.
However, for many students, a 4-year bachelor’s degree does not encompass their entire higher education journey. As its name suggests, LLC supports the path of life-long learning. From courses targeting specific job skills to one- or two-year degrees, the LLC gives flexibility in terms of the type of postsecondary education the student chooses to pursue. Being unlimited in the years of education can be an attractive characteristic that may push you towards choosing the LLC.
Student Loan Interest Deduction
In addition to the Education Tax Credits, taxpayers can further recuperate education costs through the student loan interest deduction. This allows taxpayers to deduct up to $2,500 of the interest on qualified higher education expenses from their taxable income.
To be eligible for the deduction, your income level is considered: if your modified adjusted gross income (MAGI) is under $80,000 (or $165,00 if you file a joint return) you can qualify to claim the $2,500 deduction, and the deduction amount is reduced to $0 until a MAGI of $95,000 (or $195,000 if you file a join return). Additionally, if your filing status is married filing separately, you are not eligible to receive the deduction.
Planning Ahead
The AOTC, LLC, and education expense deduction can offer remarkable tax relief, but an in-depth understanding of not only each policy’s qualities but also your economic situation is key in maximizing your satisfaction with your choice. Adjustments to tax laws and income limits may cause one type of credit to be a better choice than another. Strategizing means staying informed on any changes in policy or conditions.
To leverage these credits and deductions for your specific situation, it is recommended that you consult your tax advisor to ensure that you are maximizing your potential tax savings. Whether you’re seeking to support your child’s education or are looking to make investments in your own future education, the Education Tax Credits and expense deduction are worth looking into, as they can provide significant financial support.