College tax credits and deductions can significantly reduce what you pay in taxes, making higher education more affordable for your family. Maximizing these tax benefits, especially when combined with smart savings strategies like a 529 college savings plan, can save thousands of dollars throughout your child’s education.
Tax Credits vs. Tax Deductions: What’s the Difference?
Tax credits directly reduce the amount of tax you owe, while deductions lower your taxable income. This makes credits more valuable: a $2,000 credit saves you $2,000 in taxes, whereas a $2,000 deduction might only save you $400-$500, depending on your tax bracket.
College Tax Credits for Parents
As a parent paying for your child’s education, you can access two powerful tax breaks. You can only claim one per student per year, so choosing the right one matters.
American Opportunity Tax Credit (AOTC)
The AOTC is generally the more valuable option, offering up to $2,500 per year per dependent child. You can claim 100% of the first $2,000 in qualified expenses (tuition, mandatory fees, and course materials) plus 25% of the next $2,000.
Key requirements:
- The student must be enrolled at least half-time in a degree program
- Available for only the first four years of undergraduate education
- Phased out for Modified Adjusted Gross Incomes (MAGI) of $80,000-$90,000 (single) or $160,000-$180,000 (married filing jointly)
Bonus: Up to 40% of this credit ($1,000) is refundable, meaning you could get money back even if you owe no taxes.
Lifetime Learning Credit (LLC)
The LLC offers up to $2,000 per year (20% of the first $10,000 in eligible expenses). While less generous than the AOTC, it’s more flexible.
Key advantages:
- No requirement for degree programs or half-time enrollment
- Works for graduate school and professional development courses
- No limit on the number of years you can claim it
- Same income phase-out ranges as the AOTC
Which Credit Should You Choose?
Choose the American Opportunity Credit if:
- Your child is enrolled at least half-time in a degree program
- They haven’t completed four years of college yet
- You want the maximum credit amount and potential refund
Choose the LLC if:
- Your child is enrolled less than half-time
- They’re taking non-degree or career development courses
- They’ve already completed four years of undergraduate study
- They’re in graduate school
Important: Both you and your child cannot claim credits for the same expenses. If you claim your child as a dependent on your tax return, they cannot claim these credits on their own return.
Earned Income Tax Credit (EITC)
While not education-specific, parents with lower incomes and multiple children may qualify for this refundable credit (up to $8,046 for 2025). Check eligibility using the IRS’ EITC Assistant.
How to Claim These Credits
Use Form 8863 with information from your student’s Form 1098-T (sent by the school). Students not claimed as dependents can claim these credits on their own returns following the same eligibility rules.
College Tax Deductions
Student Loan Interest Deduction
You can deduct up to $2,500 per year in student loan interest paid on loans for yourself, your spouse, or a dependent. The student must have been enrolled at least half-time in a degree program when the loan was taken.
Income (MAGI) phase-outs: $85,000-$100,000 (single) or $170,000-$200,000 (joint return) for 2025.
Note: This deduction can only be claimed once. If you claim it for your dependent child, they cannot also claim it.
What Happened to the Tuition and Fees Deduction?
This deduction was repealed in 2021 because Congress enhanced the AOTC and LLC to provide more generous benefits. The current tax credits offer better value than the old deduction did.
Maximize Savings with a 529 Plan
A 529 savings plan works alongside education tax credits to provide tax benefits throughout your child’s education journey.
How 529 Plans and Tax Credits Work Together
- While saving: Investments grow tax-deferred
- When withdrawing: Qualified withdrawals are completely tax-free
- When filing taxes: You can still claim the AOTC or LLC for expenses paid with non-529 funds
529 Plan Benefits
Qualified withdrawals (for tuition, room and board, books, and supplies) are tax-free at the federal level. You can also use up to $10,000 per year tax-free for K-12 tuition and expenses ($20,000 starting in 2026) and up to $10,000 lifetime for student loan repayments.
Pro tip: Start early. The earlier you invest, the more time your savings have to grow tax-free. But it’s never too late to open a 529 and take advantage of the tax benefits.
For help choosing a plan, check out this guide.
The Bottom Line
Smart use of education tax credits and deductions can save your family thousands of dollars. The AOTC typically provides the most value for undergraduate students, while the LLC offers flexibility for part-time students and graduate education. Combine these credits with a 529 savings plan for maximum tax advantages.
For more guidance, see this tax filing guide for college students.
Frequently Asked Questions
Do you get a tax credit for paying college tuition?
Yes. You can claim the American Opportunity Tax Credit (AOTC) or Lifetime Learning Credit (LLC) for your or your dependent child’s college tuition. However, you cannot claim both for the same expenses in the same tax year.
How much tax credit do you get as a parent for a college student?
If your child is a dependent, you can claim up to $2,500 per year with the AOTC or $2,000 per year with the LLC per dependent child.
What are the qualifications for the education tax credit?
For the AOTC: The student must be enrolled at least half-time in a degree program and cannot have completed more than four years of undergraduate study.
For the LLC: Any tertiary education qualifies, including career development courses, with no minimum enrollment and no limit on years of study. Both credits have income limits and phase-outs for higher earners.
