Higher Education Tax Benefits: Brief Overview and Budgetary Effects

Higher Education Tax Benefits: Brief Overview May 26, 2021December 21, 2022
and Budgetary Effects
Margot L. Crandall-Hollick
The federal government provides financial assistance to individuals for higher education The federal government provides financial assistance to individuals for higher education
Acting Section ResearchSpecialist in Public Finance
expenses in two major ways: tax benefits and traditional student aid (loans, grants, and expenses in two major ways: tax benefits and traditional student aid (loans, grants, and
Manager
work-study assistance). Since 1997, education tax benefits have become an increasingly work-study assistance). Since 1997, education tax benefits have become an increasingly

Brendan McDermott important component of federal higher education policy. In important component of federal higher education policy. In 20212023, 11 higher education-, 11 higher education-

Analyst in Public Finance related tax benefits are available. related tax benefits are available. The available tax benefits are a mixture of credits, The available tax benefits are a mixture of credits,
deductions, exclusions, and other incentives. The Joint Committee on Taxation (JCT) estimates higher education-deductions, exclusions, and other incentives. The Joint Committee on Taxation (JCT) estimates higher education-
related tax benefits related tax benefits wil will cost an average of $25 cost an average of $25 bil ion per billion per year over the FY2020-FY2024 budgetary window. year over the FY2020-FY2024 budgetary window.
This report provides a brief overview of the higher education tax benefits that are currently available to students This report provides a brief overview of the higher education tax benefits that are currently available to students
and their families. These tax benefits can be divided into three groups: and their families. These tax benefits can be divided into three groups:
1. incentives for current-year expenses, 1. incentives for current-year expenses,
2. incentives related to the preferential tax treatment of student loan expenses, and 2. incentives related to the preferential tax treatment of student loan expenses, and
3. incentives for saving for college. 3. incentives for saving for college.
In In 20212023, incentives for current expenses included the American Opportunity Tax Credit; the Lifetime Learning , incentives for current expenses included the American Opportunity Tax Credit; the Lifetime Learning
Credit; an exclusion for scholarships, Credit; an exclusion for scholarships, fel owshipfellowship income, and tuition reductions; and an exclusion for employer- income, and tuition reductions; and an exclusion for employer-
provided education benefits. As a result of P.L. 115-97 (commonly referred to as the “Tax Cuts and Jobs Act”), the provided education benefits. As a result of P.L. 115-97 (commonly referred to as the “Tax Cuts and Jobs Act”), the
personal exemption (including for student dependents aged 19 to 23) and personal exemption (including for student dependents aged 19 to 23) and miscel aneousmiscellaneous itemized deductions itemized deductions
(including for unreimbursed work-related education expenses) are temporarily suspended from 2018 through the (including for unreimbursed work-related education expenses) are temporarily suspended from 2018 through the
end of 2025. The above-the-line tuition and fees deduction, which had expired at the end of 2017, was temporarily end of 2025. The above-the-line tuition and fees deduction, which had expired at the end of 2017, was temporarily
extended for 2018, 2019, and 2020 as part of P.L. 116-94. The Coronavirus Aid, Relief, and Economic Security extended for 2018, 2019, and 2020 as part of P.L. 116-94. The Coronavirus Aid, Relief, and Economic Security
(CARES) Act (P.L. 116-136) temporarily expanded the definition of qualifying(CARES) Act (P.L. 116-136) temporarily expanded the definition of qualifying educational assistance for educational assistance for
employer-provided education benefits to include student loan payments through the end of 2020. The tuition and employer-provided education benefits to include student loan payments through the end of 2020. The tuition and
fees deduction was permanently repealed in P.L. 116-260, while the income phaseout of the Lifetime Learning fees deduction was permanently repealed in P.L. 116-260, while the income phaseout of the Lifetime Learning
Credit was permanently expanded by the law. These two changes Credit was permanently expanded by the law. These two changes arewere effective beginning in 2021. The law also effective beginning in 2021. The law also
further extended the expanded definition of qualifyingfurther extended the expanded definition of qualifying educational assistance first enacted in the CARES Act educational assistance first enacted in the CARES Act
through the end of 2025. through the end of 2025.
Tax benefits for student loan expenses include a deduction for interest paid on student loans and an exclusion Tax benefits for student loan expenses include a deduction for interest paid on student loans and an exclusion
from income for the amount of discharged student loans. As a result of changes made in the American Rescue from income for the amount of discharged student loans. As a result of changes made in the American Rescue
Plan Act (ARPA;Plan Act (ARPA; P.L. 117-2), most forgiven student loan debt P.L. 117-2), most forgiven student loan debt wil will be excluded from income and hence not be excluded from income and hence not
taxable beginning in 2021. The exclusion is temporary and in effect through the end of 2025. taxable beginning in 2021. The exclusion is temporary and in effect through the end of 2025.
College saving tax incentives include Qualified Tuition Plans (529 plans); College saving tax incentives include Qualified Tuition Plans (529 plans); Coverdel Coverdell education savings accounts education savings accounts
(ESAs); an education savings bond program; withdrawals from individual retirement accounts (IRAs) to pay for (ESAs); an education savings bond program; withdrawals from individual retirement accounts (IRAs) to pay for
college expenses without penalty; and the college expenses without penalty; and the al owanceallowance of uniform transfers to minors. (Both of uniform transfers to minors. (Both Coverdel sCoverdells and 529s and 529s
can also be used for certain K-12 education expenses, subject to limitations.) can also be used for certain K-12 education expenses, subject to limitations.)

Congressional Research Service Congressional Research Service

---

link to page 4 link to page 4 link to page 5 link to page 9 link to page 11 link to page 17 link to page 17 link to page 18 link to page 4 link to page 4 link to page 5 link to page 9 link to page 11 link to page 17 link to page 17 link to page 18 Higher Education Tax Benefits: Brief Overview and Budgetary Effects

Contents
Introduction ..................................................................................................................................... 1
Tax Benefits Versus Traditional Student Aid ................................................................................... 1
Brief Historical Perspective of Tax Benefits ................................................................................... 2
Summary and Cost of Current Benefits ........................................................................................... 6

Tables
Table 1. Overview of Education Tax Benefits, 20212023 ....................................................................... 8
Table 2. Estimated Budgetary Impact of Tax Benefits for Higher Education Expenses,
FY2020-FY2024 ........................................................................................................................ 14 14

Contacts
Author Information ........................................................................................................................ 15

Congressional Research Service Congressional Research Service

---

link to page 11 link to page 17 link to page 17 link to page 11 link to page 17 link to page 17 Higher Education Tax Benefits: Brief Overview and Budgetary Effects

Introduction
Since 1997, education tax benefits have become an increasingly important component of federal Since 1997, education tax benefits have become an increasingly important component of federal
higher education policy. For higher education policy. For 20212023, 11 higher education-related tax benefits are available. After , 11 higher education-related tax benefits are available. After
2025, absent legislative action, this number 2025, absent legislative action, this number wil will effectively increase to effectively increase to 1213. Two provisions that . Two provisions that
are temporarily suspended are scheduled to be reinstated—the personal exemption for dependents are temporarily suspended are scheduled to be reinstated—the personal exemption for dependents
(including college-age dependents) and (including college-age dependents) and miscel aneousmiscellaneous itemized deductions (including for itemized deductions (including for
unreimbursed work-related education expenses)—while the exclusion for discharged or forgiven unreimbursed work-related education expenses)—while the exclusion for discharged or forgiven
student loan debt student loan debt wil will only be availableonly be available in limited circumstances.1in limited circumstances.1
The available The available tax benefits are a mixture of credits, deductions, exclusions, and other incentives. tax benefits are a mixture of credits, deductions, exclusions, and other incentives.
The benefits can be placed into one of three general categories: incentives for current year The benefits can be placed into one of three general categories: incentives for current year
expenses, preferential tax treatment of student loans, and incentives for saving for college. The expenses, preferential tax treatment of student loans, and incentives for saving for college. The
Joint Committee on Taxation (JCT) estimates currently available higher-education tax benefits Joint Committee on Taxation (JCT) estimates currently available higher-education tax benefits
wil will cost an average of $25 cost an average of $25 bil ionbillion per year over the FY2020-FY2024 budgetary window.2 per year over the FY2020-FY2024 budgetary window.2
This report provides a brief overview of the higher education tax benefits that are currently This report provides a brief overview of the higher education tax benefits that are currently
available available to students and their families. The report contrasts higher education tax benefits with to students and their families. The report contrasts higher education tax benefits with
traditional student aid; presents a brief history of higher education tax policy over the past 60 traditional student aid; presents a brief history of higher education tax policy over the past 60
years, including recent legislative proposals to modify these tax incentives; summarizes key years, including recent legislative proposals to modify these tax incentives; summarizes key
features of the available tax benefits; and provides JCT estimates of revenue losses resulting from features of the available tax benefits; and provides JCT estimates of revenue losses resulting from
individualindividual tax provisions. The summary is contained tax provisions. The summary is contained inin Table 1 and provides information on and provides information on
various aspects of each tax benefit including the type of benefit (credit, deduction, etc.), the various aspects of each tax benefit including the type of benefit (credit, deduction, etc.), the
annual dollar amount of the benefit, what expenses qualify for the benefit, what level of education annual dollar amount of the benefit, what expenses qualify for the benefit, what level of education
the benefit can be claimed for, income levels at which the benefit phases out, and, if the provision the benefit can be claimed for, income levels at which the benefit phases out, and, if the provision
is temporary, when it expiresis temporary, when it expires. Table 2 contains estimates of the annual forgone federal revenue contains estimates of the annual forgone federal revenue
attributable to each provision. attributable to each provision.
Tax Benefits Versus Traditional Student Aid
The federal government provides individuals with financial assistance for higher education The federal government provides individuals with financial assistance for higher education
expenses in two ways: tax benefits and traditional student aid (loans, grants, and work-study expenses in two ways: tax benefits and traditional student aid (loans, grants, and work-study
assistance). To qualify for traditional financial aid, students generally first submit a Free assistance). To qualify for traditional financial aid, students generally first submit a Free
Application for Federal Student Aid (FAFSA) to the Department of Education.3 Financial aid Application for Federal Student Aid (FAFSA) to the Department of Education.3 Financial aid
officers at the student’s college or university use the asset and income information provided by officers at the student’s college or university use the asset and income information provided by
the Department of Education to determine the student’s federal financial aid award.4 This the Department of Education to determine the student’s federal financial aid award.4 This
financial aid is then used to pay for higher education expenses at the time they are due. financial aid is then used to pay for higher education expenses at the time they are due.

1 T he 1 The Internal Revenue Code (IRC) and various Internal Revenue Service (IRS) Internal Revenue Code (IRC) and various Internal Revenue Service (IRS) guidance use guidance use the wordsthe words forgiveness
and and discharge interchangeably, and so they are used interchangeably, and so they are used int erchangeably interchangeably in this report. But for student loan policy in this report. But for student loan policy
purposes, the terms purposes, the terms discharge and and forgiveness are generally different. Forgiveness generally refers to the permanent are generally different. Forgiveness generally refers to the permanent
elimination of a borrower’s responsibility to repay all or a portion of their outstanding student loan debt, whichelimination of a borrower’s responsibility to repay all or a portion of their outstanding student loan debt, which is is
typically available following a borrower’s completion of service or meeting other requirements. Discharge generally typically available following a borrower’s completion of service or meeting other requirements. Discharge generally
refers to the permanent elimination of a borrower’s responsibility to repay all or a portion of their outstanding student refers to the permanent elimination of a borrower’s responsibility to repay all or a portion of their outstanding student
loan debt, which isloan debt, which is typically available basedtypically available based on a borrower’s hardship (e.g., they have become totally and permanently on a borrower’s hardship (e.g., they have become totally and permanently
disabled).disabled).
2 See Table 2 See Table 2 for more detailed information about the revenue losses associated with education tax benefits.for more detailed information about the revenue losses associated with education tax benefits.
3 T here 3 There are a myriad of smaller programs targeted at special populations for which the FAFSA are a myriad of smaller programs targeted at special populations for which the FAFSA is is not required, not required,
includingincluding veterans’ education benefits, State Department programs, Department of Defense (DOD) programs, and veterans’ education benefits, State Department programs, Department of Defense (DOD) programs, and
AmeriCorps. AmeriCorps.
4 This4 T his information can also be used information can also be used to calculate any aidto calculate any aid provided by the college or university to the student.provided by the college or university to the student.
Congressional Research Service Congressional Research Service

1 1

---

Higher Education Tax Benefits: Brief Overview and Budgetary Effects

A summary of available traditional financial aid is beyond the scope of this report. For more A summary of available traditional financial aid is beyond the scope of this report. For more
information, information, please see CRS Report RL31618, see CRS Report RL31618, Campus-Based Student Financial Aid Programs
Under the Higher Education Act, by Joselynn H. Fountain; CRS Report R45931, , by Joselynn H. Fountain; CRS Report R45931, Federal Student
Loans Made Through the William D. Ford Federal Direct Loan Program: Terms and Conditions
for Borrowers, by , by David P. Smole,Alexandra Hegji; CRS Report R45418, CRS Report R45418, Federal Pell Grant Program of the
Higher Education Act: Primer, by Cassandria Dortch, and CRS Report R46720, , by Cassandria Dortch, and CRS Report R46720, Student Loan
Programs Authorized by the Public Health Service Act: An Overview, by Elayne J. Heisler and , by Elayne J. Heisler and
Alexandra Hegji. Alexandra Hegji.
In contrast, most tax-based higher education assistance becomes available after higher education In contrast, most tax-based higher education assistance becomes available after higher education
expenses have been incurred—sometimes several months afterward. Aside from tax-preferred expenses have been incurred—sometimes several months afterward. Aside from tax-preferred
college savings accounts, taxpayers must wait until they file their federal income tax returns to college savings accounts, taxpayers must wait until they file their federal income tax returns to
claim any federal higher education tax benefits. Another difference between the two forms of claim any federal higher education tax benefits. Another difference between the two forms of
educational assistance is that traditional financial aid is often directed toward students with educational assistance is that traditional financial aid is often directed toward students with
financial need, while tax benefits are financial need, while tax benefits are general y available generally available to eligibleto eligible taxpayers regardless of need. taxpayers regardless of need.
Brief Historical Perspective of Tax Benefits
Tax benefits for higher education were first introduced nearly 60 years ago. While most of these Tax benefits for higher education were first introduced nearly 60 years ago. While most of these
benefits were benefits were original yoriginally structured as deductions and exclusions, which reduce taxable income, structured as deductions and exclusions, which reduce taxable income,
they now include tax credits, which directly reduce tax liability. they now include tax credits, which directly reduce tax liability.
Between 1954 and 1996, eight tax benefits for education were enacted: Between 1954 and 1996, eight tax benefits for education were enacted:
1. an exclusion for scholarships, 1. an exclusion for scholarships, fel owshipsfellowships, and tuition reductions; , and tuition reductions;
2. a parental exemption for students ages 19 to 23 who were enrolled in college; 2. a parental exemption for students ages 19 to 23 who were enrolled in college;
3. a 3. a miscel aneousmiscellaneous itemized itemized deduction for ordinary and necessary business deduction for ordinary and necessary business
expenses, which has been interpreted by the Treasury Department to include expenses, which has been interpreted by the Treasury Department to include
unreimbursed work-related education expenses; unreimbursed work-related education expenses;
4. an exclusion for employer-provided education assistance; 4. an exclusion for employer-provided education assistance;
5. an exclusion for the interest earned on educational savings bonds; 5. an exclusion for the interest earned on educational savings bonds;
6. an exclusion of qualifying 6. an exclusion of qualifying cancel edcancelled student loans from taxable income; student loans from taxable income;
7. an unlimited 7. an unlimited gift tax exclusion for amounts paid by a donor directly to an gift tax exclusion for amounts paid by a donor directly to an
educational institution for tuition payments on behalf of the donee; and educational institution for tuition payments on behalf of the donee; and
8. an exclusion of the earnings from qualified tuition 8. an exclusion of the earnings from qualified tuition programs (QTPs), also known programs (QTPs), also known
as Section 529 Plans. as Section 529 Plans.
The deduction for student loan interest, which had existed since 1954, was eliminated with the The deduction for student loan interest, which had existed since 1954, was eliminated with the
passage of the Tax Reform Act of 1986 (TRA86, P.L. 99-514). TRA86 passage of the Tax Reform Act of 1986 (TRA86, P.L. 99-514). TRA86 disal owed al disallowed all forms of forms of
personal interest deductions other than for mortgage interest. personal interest deductions other than for mortgage interest.
The Taxpayer Relief Act of 1997 (P.L. 105-34) enacted five new education tax benefits: The Taxpayer Relief Act of 1997 (P.L. 105-34) enacted five new education tax benefits:
1. the Hope Tax Credit; 1. the Hope Tax Credit;
2. the Lifetime 2. the Lifetime Learning Credit; Learning Credit;
3. a reinstatement of the 3. a reinstatement of the above-the-line deduction5deduction for student loan interest for student loan interest;

, which was made an above-the-line deduction;5 5 Above-the-line deductions, unlike itemized deductions, are available5 Above-the-line deductions, unlike itemized deductions, are available to all tax filers. to all tax filers. T axpayersTaxpayers who claim the who claim the
standard deduction cannot benefit from itemized standard deduction cannot benefit from itemized deduction sdeductions. .
Congressional Research Service Congressional Research Service

2 2

---

Higher Education Tax Benefits: Brief Overview and Budgetary Effects

4. an exclusion for earnings accruing to education individual retirement accounts 4. an exclusion for earnings accruing to education individual retirement accounts
(later renamed (later renamed Coverdel Coverdell education savings accounts); and education savings accounts); and
5. a 5. a cancel ationcancellation of the penalty for early withdrawals from individual retirement of the penalty for early withdrawals from individual retirement
accounts (IRAs). accounts (IRAs).
The Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA; P.L. 107-16) The Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA; P.L. 107-16)
temporarily temporarily modified several education tax benefits, including the exclusion of scholarships, several education tax benefits, including the exclusion of scholarships,
grants, and tuition reductions associated with certain scholarships;6 the student loan interest grants, and tuition reductions associated with certain scholarships;6 the student loan interest
deduction7; and Coverdel sdeduction;7 and Coverdells.8 These modifications were scheduled to expire at the end of 2010. .8 These modifications were scheduled to expire at the end of 2010.
In addition, the law extended the exclusion for employer-provided educational assistance through In addition, the law extended the exclusion for employer-provided educational assistance through
the end of 2010.9 EGTRRA also enacted a new temporary above-the-line deduction for higher the end of 2010.9 EGTRRA also enacted a new temporary above-the-line deduction for higher
education expenses (often referred to as the “tuition and fees” deduction). The tuition and fees education expenses (often referred to as the “tuition and fees” deduction). The tuition and fees
deduction was scheduled to expire at the end of 2005. (Several laws subsequently extended the deduction was scheduled to expire at the end of 2005. (Several laws subsequently extended the
deduction through the end of deduction through the end of 20172020.10) .10)
The American Recovery and Reinvestment Act of 2009 (ARRA; The American Recovery and Reinvestment Act of 2009 (ARRA; P.L. 111-5) modified a variety of P.L. 111-5) modified a variety of
parameters of the Hope Credit, increasing the amount of the credit and expanding eligibilityparameters of the Hope Credit, increasing the amount of the credit and expanding eligibility for for
the credit. Collectively, these modifications resulted in the Hope Credit being referred to as the the credit. Collectively, these modifications resulted in the Hope Credit being referred to as the
American Opportunity Tax Credit (AOTC). The AOTC as enacted under ARRA was scheduled to American Opportunity Tax Credit (AOTC). The AOTC as enacted under ARRA was scheduled to
be in effect only for 2009 and 2010. be in effect only for 2009 and 2010.
The Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 (P.L. The Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 (P.L.
111-312) extended the AOTC for two years (2011 and 2012). In addition, modifications to 111-312) extended the AOTC for two years (2011 and 2012). In addition, modifications to
education tax benefits education tax benefits original y originally made by EGTRRA were also extended through the end of 2012 made by EGTRRA were also extended through the end of 2012
by this law, including modifications to the exclusion of scholarships, grants, and tuition by this law, including modifications to the exclusion of scholarships, grants, and tuition
reductions concerning specific scholarships; the student loan interest deduction; and reductions concerning specific scholarships; the student loan interest deduction; and Coverdel s.

Coverdells. 6 Students must generally pay taxes on any part of a scholarship, fellowship, or tuition reduction that can be attributed 6 Students must generally pay taxes on any part of a scholarship, fellowship, or tuition reduction that can be attributed
to teaching, research, or other services that have been performed, are being performed, or willto teaching, research, or other services that have been performed, are being performed, or will be performed. EGT RRA be performed. EGTRRA
includedincluded a temporary exception to this general rule for fundinga temporary exception to this general rule for funding received from the National Health Service Corps received from the National Health Service Corps
Scholarships and F. EdwardScholarships and F. Edward Hebert ArmedHebert Armed Forces Health Professions Scholarship and Financial Assistance Program.Forces Health Professions Scholarship and Financial Assistance Program.
7 Prior to 7 Prior to EGT RRAEGTRRA, the deduction could, the deduction could only be claimedonly be claimed by eligibleby eligible taxpayers for the first 60 months of interest taxpayers for the first 60 months of interest
payments. In addition, the deduction phased out whenpayments. In addition, the deduction phased out when income wasincome was $40,000-$50,000 ($60,000-$70,000 for married joint $40,000-$50,000 ($60,000-$70,000 for married joint
filers), adjustedfilers), adjusted for inflation. As a result of for inflation. As a result of EGT RRAEGTRRA, up to $2,500 of student loan interest could be deducted, up to $2,500 of student loan interest could be deducted from from
grossgross income for the entire duration of repayment. income for the entire duration of repayment. T heThe amount that could be deducted amount that could be deducted phased out for taxpayers with phased out for taxpayers with
income between $50,000 and $65,000 ($100,000 and $130,000 for married joint filers), adjusted for inflation.income between $50,000 and $65,000 ($100,000 and $130,000 for married joint filers), adjusted for inflation.
8 Prior to 8 Prior to EGT RRAEGTRRA, the maximum contribution was $500 per beneficiary per year; qualified, the maximum contribution was $500 per beneficiary per year; qualified expenses wereexpenses were limited to limited to
higher education expenses; the phaseout range for married taxpayers was $150,000higher education expenses; the phaseout range for married taxpayers was $150,000 -$160,000; contributions could only -$160,000; contributions could only
be madebe made until the beneficiary wasuntil the beneficiary was 18; the balance of the account had to be distributed18; the balance of the account had to be distributed when the beneficiary turned 30, when the beneficiary turned 30,
for both special needs and non-special needs beneficiaries;for both special needs and non-special needs beneficiaries; a taxpayer could not claim an education credit if they also a taxpayer could not claim an education credit if they also
took a tax-free distribution from their Coverdell; and contributions to a Coverdell weretook a tax-free distribution from their Coverdell; and contributions to a Coverdell were subject subject to a 6% excise tax if to a 6% excise tax if
contributions for the same beneficiary werecontributions for the same beneficiary were made to a 529 plan. As a result of made to a 529 plan. As a result of EGT RRA, EGTRRA, the maximum contribution the maximum contribution
amount for a beneficiary wasamount for a beneficiary was $2,000 per year; qualified$2,000 per year; qualified expenses includedexpenses included both elementary and secondary school both elementary and secondary school
expenses and higher education expenses; the phaseout range for married taxpayers was $190,000-$220,000 (which is expenses and higher education expenses; the phaseout range for married taxpayers was $190,000-$220,000 (which is
doubledouble the phaseout range for unmarried taxpayers); age limitations were waivedthe phaseout range for unmarried taxpayers); age limitations were waived for special needs beneficiaries; for special needs beneficiaries;
beneficiaries who took tax-free distributions from Coverdells couldbeneficiaries who took tax-free distributions from Coverdells could also claim education tax credits (although expenses also claim education tax credits (although expenses
paid for with Coverdell fundspaid for with Coverdell funds cannot be usedcannot be used to claim the credits); and contributions could beto claim the credits); and contributions could be made to both a 529 plan made to both a 529 plan
and a Coverdell for the same beneficiary without penaltyand a Coverdell for the same beneficiary without penalty . .
9 9 EGT RRA EGTRRA also repealed a limitation to this exclusion that prevented its applicability to graduate education. also repealed a limitation to this exclusion that prevented its applicability to graduate education. T hisThis
expansion of the exclusion to cover graduate school expenses wasexpansion of the exclusion to cover graduate school expenses was also extended through the end of 2010.also extended through the end of 2010.
10 P.L. 109-432 extended the tuition and fees deduction for 2006 and 2007, while P.L. 110-343 extended the deduction 10 P.L. 109-432 extended the tuition and fees deduction for 2006 and 2007, while P.L. 110-343 extended the deduction
for 2008 and 2009. for 2008 and 2009.
Congressional Research Service Congressional Research Service

3 3

---

Higher Education Tax Benefits: Brief Overview and Budgetary Effects

The law also extended the exclusion for employer-provided educational assistance for 2011 and The law also extended the exclusion for employer-provided educational assistance for 2011 and
2012 and the tuition and fees deduction for 2010 and 2011. 2012 and the tuition and fees deduction for 2010 and 2011.
The American Taxpayer Relief Act of 2012 (P.L. 112-240; ATRA) made the exclusion for The American Taxpayer Relief Act of 2012 (P.L. 112-240; ATRA) made the exclusion for
employer-provided educational assistance permanent. The law also made several EGTRRA employer-provided educational assistance permanent. The law also made several EGTRRA
modifications to education tax benefits permanent. modifications to education tax benefits permanent. Final yFinally, ATRA, ATRA extended the AOTC for five extended the AOTC for five
more years, through the end of 2017, and extended the tuition and fees deduction for 2012 and more years, through the end of 2017, and extended the tuition and fees deduction for 2012 and
2013.2013.
The Tax Increase Prevention Act of 2014 (P.L. 113-295) extended the tuition and fees deduction The Tax Increase Prevention Act of 2014 (P.L. 113-295) extended the tuition and fees deduction
through the end of 2014. through the end of 2014.
The Protecting Americans from Tax Hikes (PATH) Act (Division Q of P.L. 114-113) extended the The Protecting Americans from Tax Hikes (PATH) Act (Division Q of P.L. 114-113) extended the
tuition and fees deduction for 2015 and 2016. In addition, the PATH Act made the AOTC tuition and fees deduction for 2015 and 2016. In addition, the PATH Act made the AOTC
permanent, effectively eliminating the Hope Credit. The PATH Act also expanded the exclusion permanent, effectively eliminating the Hope Credit. The PATH Act also expanded the exclusion
of scholarship income to apply to amounts received under comprehensive student work-learning-of scholarship income to apply to amounts received under comprehensive student work-learning-
service programs (as defined in Section 448(e) of the Higher Education Act of 1965, P.L. 89-329). service programs (as defined in Section 448(e) of the Higher Education Act of 1965, P.L. 89-329).
The law commonly referred to as the Tax Cuts and Jobs Act (TCJA; P.L. 115-97)P.L. 115-97 modified four education tax benefits: 529 plans, the tax treatment of discharged modified four education tax benefits: 529 plans, the tax treatment of discharged
student loan indebtedness, personal exemptions for college age-dependents, and the student loan indebtedness, personal exemptions for college age-dependents, and the
miscel aneousmiscellaneous itemized deduction for unreimbursed work-related education expenses.11 With itemized deduction for unreimbursed work-related education expenses.11 With
respect to 529 plans, it respect to 529 plans, it permanently al owedallowed up to $10,000 to be withdrawn tax-free per up to $10,000 to be withdrawn tax-free per
beneficiary per year and be used for tuition expenses at public, private, and parochial schools. beneficiary per year and be used for tuition expenses at public, private, and parochial schools.
With respect to the exclusion of certain discharged student loan debt, the law temporarily With respect to the exclusion of certain discharged student loan debt, the law temporarily
expanded the categories of nontaxable discharged student loan debt to include certain student expanded the categories of nontaxable discharged student loan debt to include certain student
loan debt that is discharged on account of the death or total and permanent disability of the loan debt that is discharged on account of the death or total and permanent disability of the
student. This change was student. This change was original yoriginally in effect from 2018 through the end of 2025. However, as a in effect from 2018 through the end of 2025. However, as a
result of changes included in the American Rescue Plan Act (ARPA; P.L. 117-2), result of changes included in the American Rescue Plan Act (ARPA; P.L. 117-2), virtual y al
virtually all student loan debt forgiven in 2021 through 2025 student loan debt forgiven in 2021 through 2025 wil will not be taxable. The law also temporarily not be taxable. The law also temporarily
suspended personal exemptions and the suspended personal exemptions and the miscel aneousmiscellaneous itemized deductions. Hence, from 2018 to itemized deductions. Hence, from 2018 to
2025, taxpayers cannot claim a personal exemption for their college-age dependents or the 2025, taxpayers cannot claim a personal exemption for their college-age dependents or the
miscel aneousmiscellaneous itemized deduction for unreimbursed work-related education expenses.12 itemized deduction for unreimbursed work-related education expenses.12 Al All else else
being equal, this change being equal, this change wil will increase the taxpayer’s taxable income. However, the ultimate increase the taxpayer’s taxable income. However, the ultimate
impact on the tax impact on the tax bil wil bill will depend on each taxpayer’s particular circumstances. depend on each taxpayer’s particular circumstances.
The Bipartisan Budget Act of 2018 (BBA; P.L. 115-123) extended the tuition and fees deduction
retroactively for 2017.

11 In addition to these direct changes, other changes in the law11 In addition to these direct changes, other changes in the law could could indirectly impact the value of education tax impact the value of education tax
benefits for certain taxpayers as wellbenefits for certain taxpayers as well as their budgetary score. For example, the tax law temporarily lowered marginal as their budgetary score. For example, the tax law temporarily lowered marginal
tax rates. Since the value of a tax benefit like a deduction or exclusiontax rates. Since the value of a tax benefit like a deduction or exclusion —in terms of tax savings—is—in terms of tax savings—is proportional to a proportional to a
taxpayer’s marginal tax rate, the reduction of these rates will also reducetaxpayer’s marginal tax rate, the reduction of these rates will also reduce the tax savings from these benefits. It willthe tax savings from these benefits. It will also
also reducereduce the aggregate revenue lossthe aggregate revenue loss from these provisions. In addition, insofar as the law lowersfrom these provisions. In addition, insofar as the law lowers a taxpayer’s income tax a taxpayer’s income tax
liability, the taxpayer may also receive a smaller Lifetime Learning Credit (LLC) because—asliability, the taxpayer may also receive a smaller Lifetime Learning Credit (LLC) because—as a nonrefundable credita nonrefundable credit ——
the final value cannot exceed income tax liability. the final value cannot exceed income tax liability.
12 12 T heThe miscellaneous itemized deduction for unreimbursed miscellaneous itemized deduction for unreimbursed work-related education expenses was,work-related education expenses was, when when it wasit was in effect, in effect,
available to employees for expenses that met the criteria for deductibility under Internal Revenue Code (IRC) §162 and available to employees for expenses that met the criteria for deductibility under Internal Revenue Code (IRC) §162 and
T reasuryTreasury Regulation §1.162-5, but only to the extent that the expenses, along with other miscellaneous deductions, Regulation §1.162-5, but only to the extent that the expenses, along with other miscellaneous deductions,
exceededexceeded 2% of the taxpayer’s adjusted gross2% of the taxpayer’s adjusted gross income (AGI), as requiredincome (AGI), as required under under IRC §67. While miscellaneousIRC §67. While miscellaneous itemized itemized
deductionsdeductions are suspendedare suspended from 2018 through the end of 2025, self-employed individuals may still befrom 2018 through the end of 2025, self-employed individuals may still be able to deduct able to deduct
certain work-related education expenses. For more information, see Internal Revenue Service, certain work-related education expenses. For more information, see Internal Revenue Service, Publication 970 Tax
Benefits for Education 2018, Chapter 12, January 17, 2019, https://www.irs.gov/forms-pubs/about, Chapter 12, January 17, 2019, https://www.irs.gov/forms-pubs/about -publication-970https://www.irs.gov/forms-pubs/about-publication-970. -publication-970.
Congressional Research Service Congressional Research Service

4 4

---

Higher Education Tax Benefits: Brief Overview and Budgetary Effects

The The Bipartisan Budget Act of 2018 (BBA; P.L. 115-123) extended the tuition and fees deduction retroactively for 2017. The Further Consolidated Appropriations Act, 2020 (P.L. 116-94) extended the tuition and fees Further Consolidated Appropriations Act, 2020 (P.L. 116-94) extended the tuition and fees
deduction through the end of 2020. In addition, the law made two permanent changes to 529 that deduction through the end of 2020. In addition, the law made two permanent changes to 529 that
go into effect in 2019.13 First, the law go into effect in 2019.13 First, the law al owsallows up to $10,000 to be withdrawn tax-free from a 529 up to $10,000 to be withdrawn tax-free from a 529
account to repay the beneficiary’s (and any of the beneficiary’s siblings’) qualifying student account to repay the beneficiary’s (and any of the beneficiary’s siblings’) qualifying student
loans.14 This $10,000 limit is an aggregate lifetime limitloans.14 This $10,000 limit is an aggregate lifetime limit per borrower.15 Second, the law expands per borrower.15 Second, the law expands
the definition of qualifying expenses for 529 plans to include fees, books, supplies, and the definition of qualifying expenses for 529 plans to include fees, books, supplies, and
equipment required for an apprenticeship program.16 Hence, beneficiaries can withdraw funds equipment required for an apprenticeship program.16 Hence, beneficiaries can withdraw funds
tax-free from their 529 plans and use them for qualified apprenticeship expenses. tax-free from their 529 plans and use them for qualified apprenticeship expenses.
The Coronavirus Aid, Relief, and Economic Security (CARES) Act (P.L. 116-136) modified the The Coronavirus Aid, Relief, and Economic Security (CARES) Act (P.L. 116-136) modified the
exclusion for employer-provided educational assistance, temporarily expanding the definition of exclusion for employer-provided educational assistance, temporarily expanding the definition of
qualifying educational assistance to include student loan payments through the end of 2020.17 qualifying educational assistance to include student loan payments through the end of 2020.17
The Taxpayer Certainty and Disaster Tax Relief Act of 2020 (Division EE of the Consolidated The Taxpayer Certainty and Disaster Tax Relief Act of 2020 (Division EE of the Consolidated
Appropriations Act, 2021; P.L. 116-260) eliminated the tuition and fees deduction and Appropriations Act, 2021; P.L. 116-260) eliminated the tuition and fees deduction and
permanently modified the Lifetime Leaning Credit. permanently modified the Lifetime Leaning Credit. Specifical ySpecifically, the law increased the statutory , the law increased the statutory
income level and the range over which the credit phased out from $40,000-$50,000 ($80,000-income level and the range over which the credit phased out from $40,000-$50,000 ($80,000-
$100,000 for married joint filers) to $80,000-$90,000 ($160,000-$180,000 for married joint $100,000 for married joint filers) to $80,000-$90,000 ($160,000-$180,000 for married joint
filers). Of note, the prior-law income range (i.e., $40,000-$50,000; $80,000-$100,000 for married filers). Of note, the prior-law income range (i.e., $40,000-$50,000; $80,000-$100,000 for married
joint filers) was joint filers) was annual yannually adjusted for inflation. Hence, in 2020, the income range over which the adjusted for inflation. Hence, in 2020, the income range over which the
credit phased out was $59,000-$69,000 ($118,000-$138,000 for married joint filers). The new credit phased out was $59,000-$69,000 ($118,000-$138,000 for married joint filers). The new
income range is not income range is not annual yannually adjusted for inflation. With this change, the phaseout ranges for the adjusted for inflation. With this change, the phaseout ranges for the
Lifetime Learning Credit and the AOTC are the same. These changes are effective beginning in Lifetime Learning Credit and the AOTC are the same. These changes are effective beginning in
2021. The law also further extended the expanded definition of qualifying2021. The law also further extended the expanded definition of qualifying educational assistance educational assistance
that was first enacted in the CARES Act, through the end of 2025. that was first enacted in the CARES Act, through the end of 2025.
The American Rescue Plan Act (ARPA, P.L. 117-2) included a provision temporarily modifying The American Rescue Plan Act (ARPA, P.L. 117-2) included a provision temporarily modifying
the tax treatment of forgiven student loan debt. the tax treatment of forgiven student loan debt. Specifical ySpecifically, the law excludes from gross income , the law excludes from gross income
qualifying student loans that are forgiven, for almost any reason, between December 31, 2020, qualifying student loans that are forgiven, for almost any reason, between December 31, 2020,
and January 1, 2026. Hence, these amounts of forgiven student loan debt and January 1, 2026. Hence, these amounts of forgiven student loan debt wil not be subject to
taxation. This change effectively replaces the more limited exclusion enacted as part of P.L. 115-

13 T hesewill not be subject to 13 These changes were originally introduced as part of the SECURE changes were originally introduced as part of the SECURE Act. For more information, see CRSAct. For more information, see CRS In Focus In Focus
IF11174, IF11174, The SECURE Act and the Retirem ent Enhancem entRetirement Enhancement and Savings Act Tax Proposals (H.R. 1994 and S. 972) , ,
by Jane G.by Jane G. Gravelle. Gravelle.
14 Qualifying student loans as defined 14 Qualifying student loans as defined for the student loan interest deduction under IRCfor the student loan interest deduction under IRC Section 221(d). Student Section 221(d). Student lo anloan
interest that is paid for with a tax-free withdrawal from a 529 account is not eligibleinterest that is paid for with a tax-free withdrawal from a 529 account is not eligible for the student loan interest for the student loan interest
deduction. Joint Committee on deduction. Joint Committee on T axationTaxation, , Description of the Chairm an’s Am endm entChairman’s Amendment in the Nature of a Substitute to
H.R. 1994, the “Setting Every Com m unity up for Retirem ent Enhancem entCommunity up for Retirement Enhancement (SECURE) Act of 2019,” April 1, 2019, April 1, 2019,
JCX-13-19, p. 85. JCX-13-19, p. 85.
15 As noted by the Joint Committee on 15 As noted by the Joint Committee on T axation (JCT Taxation (JCT), for purposes of this $10,000 per individual lifetime limit, ), for purposes of this $10,000 per individual lifetime limit,
withdrawalswithdrawals for a siblingfor a sibling of the beneficiary “of the beneficiary “ are applied to the sibling’s lifetime limit and not the designated are applied to the sibling’s lifetime limit and not the designated
beneficiary’s lifetime limit.” Joint Committee on beneficiary’s lifetime limit.” Joint Committee on T axationTaxation, , Description of the Chairman’s Amendment in the Nature of
a Substitute to H.R. 1994, the “Setting Every Com m unity up for Retirem ent Enhancem entCommunity up for Retirement Enhancement (SECURE) Act of 2019,”
April 1, 2019, JCX-13-19, pp. 84-85. April 1, 2019, JCX-13-19, pp. 84-85.
16 16 T heThe apprenticeship program must be registered and certified with the Secretary of Labor under Section 1 of the apprenticeship program must be registered and certified with the Secretary of Labor under Section 1 of the
National Apprenticeship Act (29 U.S.C. 50). National Apprenticeship Act (29 U.S.C. 50).
17 Under this provision, qualified 17 Under this provision, qualified student loan payments are subject to the overall cap of $5,250 per employee per year. student loan payments are subject to the overall cap of $5,250 per employee per year.
Payments made by the employer can go to the employee directly or to the lender. Payments can cover both the Payments made by the employer can go to the employee directly or to the lender. Payments can cover both the
principal and interest of the qualified student loan. For more information, see CRSprincipal and interest of the qualified student loan. For more information, see CRS Report R46279, Report R46279, The Coronavirus
Aid, Relief, and Econom icEconomic Security (CARES) Act—Tax Relief for Individuals and Businesses, coordinated by Molly F. , coordinated by Molly F.
Sherlock. Sherlock.
Congressional Research Service Congressional Research Service

5 5

---

link to page 11 link to page 11 Higher Education Tax Benefits: Brief Overview and Budgetary Effects

taxation. This change effectively replaces the more limited exclusion enacted as part of P.L. 115-97. Qualifying student loans include 97. Qualifying student loans include al all federal student loans, and certain private education and federal student loans, and certain private education and
institutional loans. institutional loans.
Summary and Cost of Current Benefits
Table 1 summarizes the higher education tax benefits currently available to individuals. The summarizes the higher education tax benefits currently available to individuals. The
benefits can be divided into three groups: incentives for current year higher education expenses, benefits can be divided into three groups: incentives for current year higher education expenses,
incentives that provide preferential tax treatment of student loan expenses, and incentives for incentives that provide preferential tax treatment of student loan expenses, and incentives for
saving for college. saving for college. General yGenerally, a taxpayer cannot claim more than one tax benefit for the same , a taxpayer cannot claim more than one tax benefit for the same
dollar of education expense. dollar of education expense.
The benefits available The benefits available are structured as a tax credit, deduction, exemption, or exclusion. While are structured as a tax credit, deduction, exemption, or exclusion. While
these terms are sometimes used interchangeably, they are different. It is important to understand these terms are sometimes used interchangeably, they are different. It is important to understand
the distinctions among the types of incentives: the distinctions among the types of incentives:
  Tax credits reduce the amount an individual owes in taxes directly, on a dollar- reduce the amount an individual owes in taxes directly, on a dollar-
for-dollar basis. Credits are available for-dollar basis. Credits are available to al to all qualified taxpayers, whether they qualified taxpayers, whether they
itemize deductions or not. Credits can be nonrefundableitemize deductions or not. Credits can be nonrefundable or refundable. or refundable.
Nonrefundable credits cannot exceed taxes owed, and therefore can only reduce Nonrefundable credits cannot exceed taxes owed, and therefore can only reduce
an individual’san individual’s tax liabilitytax liability to zero. Refundable credits can exceed taxes owed, to zero. Refundable credits can exceed taxes owed,
meaning a taxpayer with no tax liabilitymeaning a taxpayer with no tax liability may receive may receive al all or part of the credit or part of the credit
amount as a refund check. amount as a refund check. Education tax credits include the Lifetime Learning
Credit, which is nonrefundable, and the American Opportunity Tax Credit, which
is refundable, although the maximum amount that can be received as a refund is
limited to 40% of the total credit ($1,000).
  Tax deductions reduce the amount of a taxpayer’s income that is subject to reduce the amount of a taxpayer’s income that is subject to
taxation by the amount of the deduction. As a result, deductions reduce a taxation by the amount of the deduction. As a result, deductions reduce a
taxpayer’s tax liability,taxpayer’s tax liability, but only in proportion to the taxpayer’s highest marginal but only in proportion to the taxpayer’s highest marginal
tax bracket.18 Hence, deductions are tax bracket.18 Hence, deductions are general ygenerally less valuable than a given dollar less valuable than a given dollar
amount in tax credits. amount in tax credits. General yGenerally, the amount that may be deducted is equal to a , the amount that may be deducted is equal to a
portion of some expense incurred. Deductions can either be “above-the-line” or portion of some expense incurred. Deductions can either be “above-the-line” or
“itemized.” Above-the-line deductions are “itemized.” Above-the-line deductions are typical ytypically more advantageous than more advantageous than
itemized deductions and may be claimed by most taxpayers. Itemized deductions itemized deductions and may be claimed by most taxpayers. Itemized deductions
may only be claimed by those taxpayers who itemize may only be claimed by those taxpayers who itemize al all their deductions on their their deductions on their
tax returns. The alternative to itemizing is claiming the standard deduction. tax returns. The alternative to itemizing is claiming the standard deduction.
Education tax deductions include the deduction for tuition and fees (repealed
beginning in 2021), and the student loan interest deduction (both above-the-line
deductions). Under P.L. 115-97, miscellaneous itemized deductions (including
for unreimbursed work-related education expenses) are suspended from 2018
through 2025.
  Tax exemptions reduce the amount of a taxpayer’s income that is subject to reduce the amount of a taxpayer’s income that is subject to
taxation, by a fixed dollar amount per exemption claimed. taxation, by a fixed dollar amount per exemption claimed. General yGenerally, every , every
taxpayer is taxpayer is al owedallowed to claim one exemption for themselves, one exemption for a to claim one exemption for themselves, one exemption for a
spouse, and one for each dependent. Exemptions function similarly to deductions spouse, and one for each dependent. Exemptions function similarly to deductions
in that they reduce the income that is subject to taxation, but they are based on a in that they reduce the income that is subject to taxation, but they are based on a
fixed amount per person instead of actual expenses. An exemption’s value to a

18 For example, a $4,000 deduction for someone whose highest marginal tax bracket is the 10% bracket will18 For example, a $4,000 deduction for someone whose highest marginal tax bracket is the 10% bracket will result in a result in a
$400 reduction in that taxpayer’s tax bill. If the taxpayer’s highest marginal tax bracket is the 35% bracket, their tax bill$400 reduction in that taxpayer’s tax bill. If the taxpayer’s highest marginal tax bracket is the 35% bracket, their tax bill
willwill fall by $1,400. fall by $1,400.
Congressional Research Service Congressional Research Service

6 6

---

link to page 11 link to page 17 link to page 11 link to page 17 Higher Education Tax Benefits: Brief Overview and Budgetary Effects

fixed amount per person instead of actual expenses. An exemption’s value to a taxpayer is also similar to the value of a deduction in terms of being proportional taxpayer is also similar to the value of a deduction in terms of being proportional
to a taxpayer’s highest marginal tax bracket. to a taxpayer’s highest marginal tax bracket. Parents of students between the ages
of 19 and 23 are eligible for a personal tax exemption for their children. Under
P.L. 115-97, the personal exemption, including for students ages to 19 to 23, is
suspended from 2018 through 2025.
  Tax exclusions are amounts of income that are not included as income for tax are amounts of income that are not included as income for tax
purposes because the tax code explicitly excludes—or exempts—them from purposes because the tax code explicitly excludes—or exempts—them from
taxation. taxation. Education tax exclusions include the exclusion of certain scholarships,
grants, and tuition reductions, the exclusion of employer-provided educational
assistance, the exclusion of qualifying cancelled student loan debt, and the
exclusion of direct transfers to educational institutions.
AsAs Table 1 shows, there are a number of limitations to the availableshows, there are a number of limitations to the available tax benefits. Some benefits tax benefits. Some benefits
are subject to an annual limit, or “cap.” For example, the maximum annual American Opportunity are subject to an annual limit, or “cap.” For example, the maximum annual American Opportunity
Tax Credit that may be claimed is $2,500. A number of the tax benefits may be limited by the Tax Credit that may be claimed is $2,500. A number of the tax benefits may be limited by the
type of “qualifying” expenses they are used to offset. For some tax benefits, only tuition and type of “qualifying” expenses they are used to offset. For some tax benefits, only tuition and
required fees qualify. required fees qualify. General yGenerally, fees that must be paid to the educational institution as a , fees that must be paid to the educational institution as a
condition of enrollment or attendance are considered “required fees.” Other tax benefits can be condition of enrollment or attendance are considered “required fees.” Other tax benefits can be
used to offset course-related books, supplies, and materials. And used to offset course-related books, supplies, and materials. And stil still other benefits may be used other benefits may be used
to cover travel and other expenses. to cover travel and other expenses.
A number of higher education tax benefits also have income limitations. When an income A number of higher education tax benefits also have income limitations. When an income
limitationlimitation does exist, it is in the form of an income phaseout range. Taxpayers with incomes does exist, it is in the form of an income phaseout range. Taxpayers with incomes
below the start of the phaseout range are eligiblebelow the start of the phaseout range are eligible to claim the maximum tax benefit amount. The to claim the maximum tax benefit amount. The
amount of the credit that can be claimed is then reduced for individuals with incomes within the amount of the credit that can be claimed is then reduced for individuals with incomes within the
phaseout range, and is zero for those with incomes above the phaseout range. In addition, the phaseout range, and is zero for those with incomes above the phaseout range. In addition, the
expiration date for the provision, if temporary, is provided. expiration date for the provision, if temporary, is provided.
Table 2 presents the JCT cost estimates for each available tax benefit. The JCT advises that these presents the JCT cost estimates for each available tax benefit. The JCT advises that these
estimates cannot be simply summed to estimate the aggregate revenue loss from multiple tax estimates cannot be simply summed to estimate the aggregate revenue loss from multiple tax
provisions. This effect is because of interactions. When the revenue loss associated with a specific provisions. This effect is because of interactions. When the revenue loss associated with a specific
tax provision is estimated, the estimate is made assuming that there are no changes in other tax provision is estimated, the estimate is made assuming that there are no changes in other
provisions or in taxpayer behavior. When individualprovisions or in taxpayer behavior. When individual tax expenditures are summed, the interaction tax expenditures are summed, the interaction
effects may lead to different revenue loss estimates. Consequently, aggregate tax expenditure effects may lead to different revenue loss estimates. Consequently, aggregate tax expenditure
estimates, derived from summing the estimated revenue effects of individual tax expenditure estimates, derived from summing the estimated revenue effects of individual tax expenditure
provisions, are unlikely to reflect the actual change in federal receipts associated with removing provisions, are unlikely to reflect the actual change in federal receipts associated with removing
various tax provisions. various tax provisions.
Congressional Research Service Congressional Research Service

7 7

---

Table 1. Overview of Education Tax Benefits, 20212023
Income
Phaseout
Annual
Qualifying
Qualifying
Range

Limit
Expenses
Education Level
*married joint
Expiration
TAX BENEFITS FOR TUITION AND RELATED EXPENSES
American Opportunity Tax Credit
$2,500 credit per $2,500 credit per
(1) Tuition and required (1) Tuition and required
First 4 years of First 4 years of
$80,000- $80,000-
$90,000 None None
IRC §25A
student student
enrol ment enrol ment fees fees
postsecondary education postsecondary education
$ $90160,000,000
- Tax credit Tax credit partial ypartially refundable. 40% of credit refundable. 40% of credit may
(2) Course-related (2) Course-related books, books,
( (General y Generally undergraduate) undergraduate)
$ $160180,000* may ,000-
be refundable (up to $1,000) be refundable (up to $1,000)
supplies, and equipment supplies, and equipment
$180,000*
Lifetime Learning Credit
$2,000 credit per $2,000 credit per
(1) Tuition and required (1) Tuition and required
Undergraduate and Undergraduate and graduate $80,000-$80,000-
$90,000 None None
IRC §25A
tax return tax return
enrol ment enrol ment fees
Courses to acquire or
$90,000
fees graduate $160,000- Tax credit nonrefundable Courses to acquire or $180,000* improve job skil s Tax credit nonrefundable
improve job skil s
$160,000-
$180,000*
PERMANENTLY REPEALED BEGINNING IN 2021. Pre-2021:
Deduction for Tuition and Fees
$4,000 deduction
(1) Tuition and required enrol ment
Undergraduate and graduate
$65,000-
Dec. 31, 2020
IRC §222
fees
$80,000
Deduction (“above the line”) of qualified expenses
$130,000-
from gross income
$160,000*
TEMPORARILY SUSPENDED 2018-2025. Pre-2018:
Miscellaneous Itemized Deduction for
None
(1) Tuition and required enrol ment enrollment
Education must be required by
None
Under current
Unreimbursed Work-Related Education
fees
employer by employer or law to keep
law (P.L.P.L. 115-115-
Expenses
(2) Transportation and travel
present job, salary, status or
97 97), this
IRC §67 & 162; Reg §1.162-5
(3) Other necessary expenses
maintain or improve job skil sskills
provision wil will be
Deduction (itemized) of qualified expenses from AGI
in effect in
2026.
CRS-8 CRS-8

---

Income
Phaseout
Annual
Qualifying
Qualifying
Range

Limit
Expenses
Education Level
*married joint
Expiration
Exclusion of Scholarships, Grants, and
None None
(1) Tuition and required (1) Tuition and required
Undergraduate and Undergraduate and graduate None None
None None
Tuition Reductions
enrol ment enrol ment fees fees
graduate IRC §117 IRC §117
(2) Course-related (2) Course-related books, books,
Exclusion from taxable income if scholarship, Exclusion from taxable income if scholarship,
supplies, and equipment supplies, and equipment
grant is used to pay qualifying education expenses grant is used to pay qualifying education expenses
and does not represent payment for and does not represent payment for services services (i.e., (i.e.,
“work-based”). Work-based“work-based”). Work-based scholarships are scholarships are
general ygenerally taxable. taxable.
There are three work-based scholarships that are There are three work-based scholarships that are
not taxable. not taxable. Specifical y, Specifically, the National Health the National Health
ServiceService Corps Scholarships, the F. Edward Corps Scholarships, the F. Edward
Hebert ArmedHebert Armed Forces Forces Health Professions Health Professions
Scholarship and Financial Assistance Program,Scholarship and Financial Assistance Program, and and
amounts receivedamounts received under a comprehensive under a comprehensive
student work-learning-servicestudent work-learning-service program program (as (as
defined in Section 448(e) of the Higher Education defined in Section 448(e) of the Higher Education
Act of 1965, P.L. 89-329) operated by a work Act of 1965, P.L. 89-329) operated by a work
col egecol ege are excludible fromare excludible from taxation. taxation.
Exclusion of Employer Provided
$5,250 exclusion $5,250 exclusion
(1) Tuition and required (1) Tuition and required
Undergraduate and Undergraduate and graduate None None
Expansion to Expansion to
Educational Assistance
enrol ment enrol ment fees
include student fees graduate include
IRC §127 IRC §127
(2) Course-related (2) Course-related books, books,
loan paymentsstudent loan
Exclusion from taxable income Exclusion from taxable income
supplies, and equipment supplies, and equipment
expires at thepayments
(3) Student loan payments 3) Student loan payments
end of 2025expires at the
(principal and interest) paid by an (principal and interest) paid by an
employer end of 2025 employer after March 27, 2020, after March 27, 2020,
and before January 1, 2026and before January 1, 2026
TEMPORARILY SUSPENDED 2018-2025. Pre-2018:
Parental Personal Exemption for Dependent
$4,050 per
NA
Student must be under 24 by
None
Under current
Students 19-23 Years Old
dependent in 2017
the end of the tax year and
law (P.L.P.L. 115-115-
IRC §151 & 152
amounts adjusted
enrol ed ful enrolled full time at a
97 97), this
Exemption of fixed amount per dependent
annual y for inflation
qualifying institution.
provision wil will be
in effect in
2026.
CRS-9 CRS-9

---

Income
Phaseout
Annual
Qualifying
Qualifying
Range

Limit
Expenses
Education Level
*married joint
Expiration
TAX BENEFITS FOR STUDENT LOANS
Student Loan Interest Deduction
$2,500 $2,500
(1) Tuition and required (1) Tuition and required
Undergraduate and Undergraduate and graduate $70,000-
$75,000-$90,000 None None
IRC §221 IRC §221
enrol ment enrol ment fees fees
$85,000
graduate $155,000- Deduction (“above-the-line”) of interest Deduction (“above-the-line”) of interest paid paid
(2) Course-related (2) Course-related books, books,
$ $140185,000,000-
* supplies, and equipment supplies, and equipment
$170,000*
(3) Room and board (3) Room and board
amounts amounts adjusted annual y for inflation
(4) Other necessary expenses (4) Other necessary expenses
adjusted annual y
(including transportation) (including transportation)
for inflation
Exclusion of Qualifying Cancelled Student
None None
(1) Tuition and required (1) Tuition and required
Undergraduate and Undergraduate and graduate None None
General yGenerally, ,
Loans Debt
enrol ment enrol ment fees fees
graduate none. none.
(Temporary expansion of nontaxable discharged (Temporary expansion of nontaxable discharged
(2) Course-related (2) Course-related books, books,
Temporary Temporary
student loan debt to include most forgiven student loan debt to include most forgiven
supplies, and equipment supplies, and equipment
expansion of expansion of
student loan debt.) student loan debt.)
(3) Room and board (3) Room and board
nontaxable nontaxable
IRC §108(f) IRC §108(f)
(4) Other necessary expenses (4) Other necessary expenses
discharged discharged
Exclusion from taxable income Exclusion from taxable income
(including transportation) (including transportation)
student loan student loan
debt to include debt to include
most forgiven most forgiven
student loan student loan
debt in effect debt in effect
from 2021 to from 2021 to
2025. 2025.
CRS-10 CRS-10

---

Income
Phaseout
Annual
Qualifying
Qualifying
Range

Limit
Expenses
Education Level
*married joint
Expiration
TAX BENEFITS FOR EDUCATION SAVINGS PLANS
Qualified Tuition Programs (529 Plans)
No federal No federal
K-12: K-12:
K-12 K-12
None None
None None
IRC §529 IRC §529
contribution limit contribution limit
Tuition expenses at public, Tuition expenses at public,
Undergraduate and Undergraduate and graduate
Earnings not taxed Earnings not taxed
(individual states (individual states
private, and parochial schools, private, and parochial schools,
graduate may set limits.) may set limits.)
subject to limit subject to limit of $10,000 per of $10,000 per
K-12: K-12:
beneficiary per year. beneficiary per year.
$10,000 per $10,000 per
Higher Education: Higher Education:
beneficiary per beneficiary per
(1) Tuition and required (1) Tuition and required
year withdrawal year withdrawal
enrol ment enrol ment fees fees
limit limit for qualifying for qualifying
(2) Books, (2) Books, supplies,supplies, and and
K-12 expenses. K-12 expenses.
equipment equipment
Higher Education Higher Education
(3) Expenses for special needs (3) Expenses for special needs
& & Apprenticeships:
services services
No withdrawalApprenticeships:
(4) Room and board if at least (4) Room and board if at least
limit if used forNo withdrawal
half-time student half-time student
higher educationlimit if used for
Apprenticeships: Apprenticeships:
or apprenticeshiphigher education
Fees, Fees, books, supplies,books, supplies, and
expenses.
and or apprenticeship equipment required equipment required for an for an
Student Loans:
expenses. apprenticeship program. apprenticeship program.
$10,000 perStudent Loans:
Student Loans: Student Loans:
borrower lifetime$10,000 per
Student loan repayments— Student loan repayments—
limit. Borrowersborrower lifetime
principal and/or interest, subject principal and/or interest, subject
include thelimit. Borrowers
to a per borrower to a per borrower lifetime limit
beneficiary and lifetime limit include the
of $10,000. of $10,000.
beneficiary and their siblings. their siblings.
CRS-11 CRS-11

---

link to page 16 link to page 16
Income
Phaseout
Annual
Qualifying
Qualifying
Range

Limit
Expenses
Education Level
*married joint
Expiration
Coverdell Education Savings Account
$2,000 $2,000
K-12: K-12:
K-12 K-12
$95,000- $95,000-
$110,000 None None
IRC §530 IRC §530
contribution per contribution per
(1) Tuition and fees (1) Tuition and fees
Undergraduate and Undergraduate and graduate $110,000
$190,000- Earnings not taxed Earnings not taxed
beneficiary beneficiary
(2) Books, (2) Books, supplies,supplies, and graduate $220,000*a equipment (3) Academic and
$190,000-
equipment
$220,000*a
(3) Academic tutoring tutoring
(4) Special needs services (4) Special needs services
(5) Room and board (5) Room and board
(6) Uniforms (6) Uniforms
(7) Transportation (7) Transportation
(8) Required supplementary items (8) Required supplementary items
and services and services
(9) The purchase of a computer if (9) The purchase of a computer if
it is used by the beneficiary or it is used by the beneficiary or
their family. their family.
Higher Education:Higher Education:
(1) Tuition and required (1) Tuition and required
enrol mentenrol ment Fees Fees
(2) Books,(2) Books, supplies,supplies, and and
equipment equipment
(3) Expenses for special needs (3) Expenses for special needs
services services
(4) Payments to QTP (4) Payments to QTP
(5) Room and board if at least (5) Room and board if at least
half-time student half-time student
Exclusion of Interest on Education Savings
Amount of Amount of
(1) Tuition and required (1) Tuition and required
Undergraduate and Undergraduate and graduate $82,350-
$91,850-$106,850 None None
Bonds
qualified qualified education enrol mentenrol ment fees fees
$97,350
graduate $137,800- IRC §135 IRC §135
expenseseducation
(2) Payments to (2) Payments to Coverdel Coverdell ESAs ESAs
$ $123,550-
167,800* Interest not taxed Interest not taxed expenses
(3) Payments to QTPs (3) Payments to QTPs
$153,550*
amounts amounts
adjusted adjusted annual y annual y
for inflation
CRS-12

---

Income
Phaseout
Annual
Qualifying
Qualifying
Range

Limit
Expenses
Education Level
*married joint
Expiration
for inflation Early Withdrawals from IRAs
Amount of Amount of
(1) Tuition and required (1) Tuition and required
Undergraduate and Undergraduate and graduate None None
None None
IRC §72(t) IRC §72(t)
qualified qualified education enrol mentenrol ment fees fees graduate
No 10% additional tax on early withdrawal No 10% additional tax on early withdrawal
expenseseducation
(2) Books, (2) Books, supplies,supplies, and
and expenses equipment equipment
(3) Expenses for special needs (3) Expenses for special needs
services services
(4) Room and board if at least (4) Room and board if at least
half-time student half-time student
CRS-12 Income Phaseout Annual Qualifying Qualifying Range Limit Expenses Education Level *married joint Expiration Uniform Transfers to Minors
Unlimited Unlimited
(1) Amounts paid directly to (1) Amounts paid directly to
Undergraduate and Undergraduate and graduate None None
None None
IRC §2503(e) IRC §2503(e)
educational institution for tuition educational institution for tuition
graduate Exclusion from incomeExclusion from income of direct transfer to of direct transfer to
educational institution educational institution
Sources: Internal Revenue Service,Internal Revenue Service, Publication 970: Tax Benefits for Education 2019: For Use in Preparing 2021 Returns and Internal Revenue Service, and Internal Revenue Service, Revenue Procedure Revenue Procedure 19-44.
22-38. Note: NA = not applicable. NA = not applicable.
a. The income phaseouts for a. The income phaseouts for Coverdel s Coverdells apply to any individual who contributes to the apply to any individual who contributes to the Coverdel Coverdell (including the beneficiary). (including the beneficiary).

CRS-13 CRS-13

---

link to page 17 link to page 17 link to page 17 link to page 17 link to page 17 link to page 17 link to page 17 link to page 17 Higher Education Tax Benefits: Brief Overview and Budgetary Effects

Table 2. Estimated Budgetary Impact of Tax Benefits for
Higher Education Expenses, FY2020-FY2024
( (bil ions of dol ars)
202
20
20
20
20
Tota
Tax Benefit
0
21
22
23
24
lbillions of dollars) Tax Benefit 2020 2021 2022 2023 2024 Total
Higher Education Tax Credits Higher Education Tax Credits (AOTC and (AOTC and LLCLLC)a
14. 14.
5 15. 15.
5 16. 16.
4 16. 16.
4 16. 16.
3 79.1 79.1
5
5
4
4
3
Exclusion of Scholarship and Exclusion of Scholarship and Fel owship Fellowship Income Income
3.8 3.8
3.9 3.9
4.0 4.0
4.1 4.1
4.2 4.2
20.1 20.1
Deduction for Student Loan Interest Deduction for Student Loan Interest
1.4 1.4
1.9 1.9
2.3 2.3
2.3 2.3
2.4 2.4
10.2 10.2
Exclusion of Employer-Provided Exclusion of Employer-Provided Education Education BenefitsbBenefitsb
1.6 1.6
2.1 2.1
1.8 1.8
2.0 2.0
2.0 2.0
9.5 9.5
Exclusion of Earnings of Qualified Tuition Programs Exclusion of Earnings of Qualified Tuition Programs (529 (529 Plans)
1.3 1.3
1.1 1.1
1.3 1.3
1.7 1.7
2.1 2.1
7.3 7.3
Plans) Exclusion of Employer-ProvidedExclusion of Employer-Provided Tuition Reductions Tuition Reductions
0.3 0.3
0.3 0.3
0.3 0.3
0.3 0.3
0.3 0.3
1.7 1.7
Exclusion of Certain Discharged Student Loan Exclusion of Certain Discharged Student Loansc
0.2 0.2
0.2 0.2
0.2 0.2
0.2 0.2
0.2 0.2
0.9 0.9
Exclusion of Earnings of Coverdel Exclusion of Earnings of Coverdel Education Savings Education Savings Accounts
0.1 0.1
0.1 0.1
0.1 0.1
0.1 0.1
0.1 0.1
0.3 0.3
Accounts Deduction for Tuition andDeduction for Tuition and Feesd Feesd
0.3 0.3
0.1 0.1
— —
— —
— —
0.3 0.3
Exclusion of Interest Exclusion of Interest Onon Education Savings Bonds Education Savings Bonds
-i- -i-
-i- -i-
-i- -i-
-i- -i-
-i- -i-
-i- -i-
Parental Personal Exemption for Students ages 19 to Parental Personal Exemption for Students ages 19 to 23Error!
— —
— —
— —
— —
— —
— —
Reference 23Error! Reference source not found.
Error! Re Total
23.
5 25.
1 26.
4 27.
1 27.
6 129.
4 ference source not found. 5
1
4
1
6
46
6 Source: Joint CommitteeJoint Committee on Taxation: JCX-11R-20, JCX-23-20, JCX-24-20, and JCX-14-21. on Taxation: JCX-11R-20, JCX-23-20, JCX-24-20, and JCX-14-21.

Notes: A positive estimateA positive estimate corresponds to a federal revenue cost. Items may not sum due to rounding. “-i-” corresponds to a federal revenue cost. Items may not sum due to rounding. “-i-”
indicates revenue lossesindicates revenue losses for FY2020-FY2024 are lessfor FY2020-FY2024 are less than $50 mil ion;than $50 mil ion; “—” indicates no budgetary impact.“—” indicates no budgetary impact.
a. The Taxpayer Certainty and Disastera. The Taxpayer Certainty and Disaster Tax ReliefTax Relief Act of 2020 (DivisionAct of 2020 (Division EE of the Consolidated EE of the Consolidated
Appropriations Act, 2021; P.L. 116-260) eliminated the tuition and fees deduction and permanently modified Appropriations Act, 2021; P.L. 116-260) eliminated the tuition and fees deduction and permanently modified
the Lifetimethe Lifetime Learning Credit.Learning Credit. These changes are estimated to reduce revenues by $173 mil ionThese changes are estimated to reduce revenues by $173 mil ion in FY2021, in FY2021,
$860 mil ion$860 mil ion in FY2022, $835 mil ionin FY2022, $835 mil ion in FY2023, and $782 mil ionin FY2023, and $782 mil ion in FY2024in FY2024 . These revenue loss estimates . These revenue loss estimates
are included above. are included above.
b. The Coronavirus Aid, Relief, b. The Coronavirus Aid, Relief, and Economic Security (CARES) Act (P.L. 116-136) modified the exclusion for and Economic Security (CARES) Act (P.L. 116-136) modified the exclusion for
employer-provided employer-provided educational assistance,educational assistance, temporarily temporarily expanding the definition of qualifying educational expanding the definition of qualifying educational
assistance to include student loan payments through the end of 2020. These changes are estimatedassistance to include student loan payments through the end of 2020. These changes are estimated to to
reduce revenues by $215 mil ionreduce revenues by $215 mil ion in FY2020 and $245 mil ionin FY2020 and $245 mil ion in FY2021. These revenue loss estimatesin FY2021. These revenue loss estimates are are
included above. The Taxpayer Certainty and Disasterincluded above. The Taxpayer Certainty and Disaster Tax ReliefTax Relief Act of 2020 (Division EE of the Act of 2020 (Division EE of the
Consolidated Appropriations Act, 2021; P.L. 116-260) further extended the expanded definition of qualifying Consolidated Appropriations Act, 2021; P.L. 116-260) further extended the expanded definition of qualifying
educational assistance that was first enacted in the CARES Act, through the end of 2025. These changes are educational assistance that was first enacted in the CARES Act, through the end of 2025. These changes are
estimated to reduce revenues by $429 mil ionestimated to reduce revenues by $429 mil ion in FY2021, $640 mil ionin FY2021, $640 mil ion in FY2022, $676 mil ionin FY2022, $676 mil ion in FY2023in FY2023 , ,
$712 mil ion$712 mil ion in FY2024, $748 mil ionin FY2024, $748 mil ion in FY2025, and $227 mil ionin FY2025, and $227 mil ion in FY2026in FY2026 . The revenue loss. The revenue loss estimates estimates for for
FY2021-FY2024 are included above. FY2021-FY2024 are included above.
c. The American c. The American Rescue Plan Act (ARPA, P.L.Rescue Plan Act (ARPA, P.L. 117-2) included a provision temporarily117-2) included a provision temporarily modifying the tax modifying the tax
treatment of discharged student loan debt. treatment of discharged student loan debt. Specifical ySpecifically, the law excludes from the law excludes from gross income qualifying gross income qualifying
student loans that are discharged, for almost any reason, between Decemberstudent loans that are discharged, for almost any reason, between December 31, 2020, and January 1, 202631, 2020, and January 1, 2026 . .
Hence, these amounts of forgiven student loan debt wilHence, these amounts of forgiven student loan debt wil not be subject to taxation. This provision not be subject to taxation. This provision
effectively replaceseffectively replaces the morethe more limited limited exclusion enacted as part of P.L.exclusion enacted as part of P.L. 115-97. This change was estimated to 115-97. This change was estimated to
reduce revenues by $1 mil ionreduce revenues by $1 mil ion in FY2020, $8 mil ionin FY2020, $8 mil ion in FY2021, $8 mil ionin FY2021, $8 mil ion in FY2022, $9 mil ionin FY2022, $9 mil ion in FY2023, in FY2023,
and $9 mil ionand $9 mil ion in FY2024. Due to rounding, these amounts do not change the revenue lossin FY2024. Due to rounding, these amounts do not change the revenue loss estimates estimates
provided above. provided above.
d. The deduction for tuition and fees expired at the end of 2017. It was extended through the end of 2020 as d. The deduction for tuition and fees expired at the end of 2017. It was extended through the end of 2020 as
part of P.L. 116-94, signed into law on December part of P.L. 116-94, signed into law on December 20, 2019. It was permanently repealed beginning in 2021 20, 2019. It was permanently repealed beginning in 2021
as part of P.L. 116-260.as part of P.L. 116-260.
e. P.L. 115-97 temporarily e. P.L. 115-97 temporarily suspended the personal exemption from 2018 through the end of 2025. suspended the personal exemption from 2018 through the end of 2025.
Congressional Research Service Congressional Research Service

14 14

---

Higher Education Tax Benefits: Brief Overview and Budgetary Effects


Author Information

Margot L. Crandall-Hollick Margot L. Crandall-Hollick

Acting Section Research Manager

Brendan McDermott Specialist in Public Finance Analyst in Public Finance

Disclaimer
This document was prepared by the Congressional Research Service (CRS). CRS serves as nonpartisan This document was prepared by the Congressional Research Service (CRS). CRS serves as nonpartisan
shared staff to congressional committees and Members of Congress. It operates solely at the behest of and shared staff to congressional committees and Members of Congress. It operates solely at the behest of and
under the direction of Congress. Information in a CRS Report should under the direction of Congress. Information in a CRS Report should n otnot be relied upon for purposes other be relied upon for purposes other
than public understanding of information that has been provided by CRS to Members of Congress in than public understanding of information that has been provided by CRS to Members of Congress in
connection with CRS’s institutional role. CRS Reports, as a work of the United States Government, are not connection with CRS’s institutional role. CRS Reports, as a work of the United States Government, are not
subject to copyright protection in the United States. Any CRS Report may be reproduced and distributed in subject to copyright protection in the United States. Any CRS Report may be reproduced and distributed in
its entirety without permission from CRS. However, as a CRS Report may include copyrighted images or its entirety without permission from CRS. However, as a CRS Report may include copyrighted images or
material from a third party, you may need to obtain the permission of the copyright holder if you wish to material from a third party, you may need to obtain the permission of the copyright holder if you wish to
copy or otherwise use copyrighted material. copy or otherwise use copyrighted material.

Congressional Research Service Congressional Research Service
R41967 R41967 · VERSION 5153 · UPDATED
15 15

---