Higher Education Tax Benefits:
Brief Overview and Budgetary Effects
Updated October 7, 2020
Congressional Research Service
https://crsreports.congress.gov
R41967

Higher Education Tax Benefits: Brief Overview and Budgetary Effects

Summary
The federal government provides financial assistance to individuals for higher education expenses
in two major ways: tax benefits and traditional student aid (loans, grants, and work-study
assistance). Since 1997, education tax benefits have become an increasingly important component
of federal higher education policy. In 2019 and 2020, 12 tax benefits are available to help college
students and their parents pay for higher education. The available tax benefits are a mixture of
credits, deductions, exclusions, and other incentives. The Joint Committee on Taxation (JCT)
estimates the cost to the federal government of education tax benefits—general y the revenue
foregone from offering these benefits—to be $141 bil ion between 2019 and 2023.
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:
1. incentives for current year expenses,
2. incentives for preferential tax treatment of student loan expenses, and
3. incentives for saving for college.
In 2019 and 2020, incentives for current expenses include the American Opportunity tax credit;
the Lifetime Learning tax credit; an above-the-line deduction for tuition and fees; an exclusion for
scholarships, fel owship 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 personal exemption (including for student dependents aged 19 to 23) and
miscel aneous itemized deductions (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 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 educational assistance for
employer-provided education benefits to include student loan payments through the end of 2020.
Tax benefits for student loan expenses include a deduction for interest paid on student loans and
an exclusion from income for the amount of forgiven student loans.
College saving tax incentives include Qualified Tuition Plans (529 plans); Coverdel education
savings accounts (ESAs); an education savings bond program; withdrawals from individual
retirement accounts (IRAs) to pay for college expenses without penalty; and the al owance of
uniform transfers to minors. (Both Coverdel s and 529s can also be used for certain K-12
education expenses, subject to limitations.)

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Introduction
Since 1997, education tax benefits have become an increasingly important component of federal
higher education policy. For the 2019 and 2020 tax years, 12 tax benefits are available for college
students and their parents to help pay for higher education (see Table 1). In 2025, absent
legislative action, this number wil increase to 13: two provisions which are temporarily
suspended are scheduled to be in effect—the personal exemption for dependents (including
college-age dependents) and miscel aneous itemized deductions (including for unreimbursed
work-related education expenses)—while one benefit is scheduled to have expired—the above-
the-line tuition and fees deduction, which is currently in effect through the end of 2020.
The available tax benefits are a mixture of
Did P.L. 115-97 modify education
credits, deductions, exclusions, and other
tax benefits?
incentives. The benefits can be placed into one
At the end of 2017, President Trump signed into law
of three general categories: incentives for
P.L. 115-97,1 which made numerous changes to the
current year expenses, preferential tax
federal income tax for individuals and businesses.2 The
treatment of student loans, and incentives for
final law made changes to several education tax benefits
including 529 plans, the tax treatment of discharged
saving for college. The Joint Committee on
student loan indebtedness, and personal exemptions
Taxation (JCT) estimates the cost to the
for col ege age-dependents. Other education tax
federal government of education tax
benefits were general y not changed by this law. For
benefits—the revenue foregone from offering
more information on these changes, see the section
these benefits—to be $141 bil ion over the
entitled “Brief Historical Perspective of Tax Benefits.”
2019-2023 budgetary window.
In addition to these direct changes, other changes in
3
the law could indirectly impact the value of education
This report provides a brief overview of the
tax benefits for certain taxpayers as wel as their
higher education tax benefits that are currently
budgetary score. For example, the tax law temporarily
lowered marginal tax rates. Since the value of a tax
available to students and their families. The
benefit like a deduction or exclusion—in terms of tax
report contrasts higher education tax benefits
savings—is proportional to a taxpayer’s marginal tax
with traditional student aid; presents a brief
rate, the reduction of these rates wil also reduce the
history of higher education tax policy over the
tax savings from these benefits. It wil also reduce the
past 60 years, including recent legislative
aggregate revenue loss from these provisions. In
addition, insofar as the law lowers a taxpayer’s income
proposals to modify these tax incentives;
tax liability, the taxpayer may also receive a smal er
summarizes key features of the available tax
Lifetime Learning credit (LLC) credit since as a
benefits; and provides JCT estimates of
nonrefundable credit the final value cannot exceed
revenue losses resulting from individual tax
income tax liability.
provisions. The summary is contained in
Table 1 and provides information on 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 the benefit can be claimed for, income levels at which the

1 T he original title of the law, the T ax Cuts and Jobs Act, was stricken before final passage because it violated what is
known as the Byrd rule, a procedural rule that can be raised in the Senate when bills, like the tax bill, are considered
under the process of reconciliation. T he act ual title of the law is “ T o provide for reconciliation pursuant to titles II and
V of the concurrent resolution on the budget for fiscal year 2018.” For more information on the Byrd rule, see CRS
Report RL30862, The Budget Reconciliation Process: The Senate’s “Byrd Rule,” by Bill Heniff Jr.
2 For more information on the changes made to the tax code by P.L. 115-97 see CRS Report R45092, The 2017 Tax
Revision (P.L. 115-97): Com parison to 2017 Tax Law, coordinated by Molly F. Sherlock and Donald J. Marples.
3 See Table 2 for more detailed information about the revenue losses associated with education tax benefits.
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benefit phases out, and, if the provision is temporary, when it expires. Table 2 contains estimates
of the annual forgone federal revenue attributable to each provision.
Tax Benefits Versus Traditional Student Aid
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
assistance). To qualify for traditional financial aid, students general y first submit a free
application for federal student aid (FAFSA) to the Department of Education.4 Financial aid
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.5 This
financial aid is then used to pay for higher education expenses at the time they are due.
A summary of available traditional financial aid is beyond the scope of this report. For more
information, please see CRS Report RL31618, Campus-Based Student Financial Aid Programs
Under the Higher Education Act, 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 David P. Smole and CRS Report R45418, Federal Pell Grant Program of the
Higher Education Act: Primer, by Cassandria Dortch.
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
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
educational assistance is that traditional financial aid is often directed toward students with
financial need, while tax benefits are general y available to eligible 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
benefits were original y structured as deductions and exclusions, which reduce taxable income,
they now include tax credits, which directly reduce tax liability.
Between 1954 and 1996, eight tax benefits for education were enacted:
1. an exclusion for scholarships, fel owships, and tuition reductions;
2. a parental exemption for students ages 19 to 23 who were enrolled in college;
3. a miscel aneous itemized deduction for ordinary and necessary business
expenses, which has been interpreted by the Treasury Department to include
unreimbursed work-related education expenses;
4. an exclusion for employer-provided education assistance;
5. an exclusion for the interest earned on educational savings bonds;
6. an exclusion of qualifying cancel ed student loans from taxable income;
7. an unlimited gift tax exclusion for amounts paid by a donor directly to an
educational institution for tuition payments on behalf of the donee; and

4 T here are a myriad of smaller programs targeted at special populations for which the FAFSA is not required,
including veterans’ education benefits, State Department programs, Department of Defense (DOD) programs, and
AmeriCorps.
5 T his information can also be used to calculate any aid provided by the college or university to the student.
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Higher Education Tax Benefits: Brief Overview and Budgetary Effects

8. an exclusion of the earnings from qualified tuition programs (QTPs), also known
as Section 529 Plans.
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 disal owed al forms of
personal interest deductions other than for mortgage interest.
The Taxpayer Relief Act of 1997 (P.L. 105-34) enacted five new education tax benefits:
1. the Hope Tax Credit;
2. the Lifetime Learning Credit;
3. a reinstatement of the above-the-line deduction6 for student loan interest;
4. an exclusion for earnings accruing to education individual retirement accounts
(later renamed Coverdel education savings accounts); and
5. a cancel ation of the penalty for early withdrawals from individual retirement
accounts (IRAs).
The Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA; P.L. 107-16)
temporarily modified several education tax benefits, including the exclusion of scholarships,
grants, and tuition reductions associated with certain scholarships; the student loan interest
deduction; and Coverdel s. These modifications were scheduled to expire at the end of 2010. In
addition, the law extended the exclusion for employer-provided educational assistance through
the end of 2010.7 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
deduction was scheduled to expire at the end of 2005. (Several laws subsequently extended the
deduction through the end of 2017.)8
The American Recovery and Reinvestment Act of 2009 (ARRA; P.L. 111-5) modified a variety of
parameters of the Hope Credit, increasing the amount of the credit and expanding eligibility for
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
be in effect only for 2009 and 2010.
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
education tax benefits original y made by EGTRRA were also extended through the end of 2012
by this law, including modifications to the exclusion of scholarships, grants, and tuition
reductions concerning specific scholarships; the student loan interest deduction; and Coverdel s.
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.
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
modifications to education tax benefits permanent, which are outlined in the shaded text box.
Final y ATRA extended the AOTC for five more years, through the end of 2017, and extended the
tuition and fees deduction for 2012 and 2013.

6 Above-the-line deductions, unlike itemized deductions, are available to all tax filers. T axpayers who claim the
standard deduction cannot benefit from itemized deduction s.
7 EGT RRA also repealed a limitation to this exclusion that prevented its applicability to graduate education. T his
expansion of the exclusion to cover graduate school expenses was also extended through the end of 2010.
8 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.
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Higher Education Tax Benefits: Brief Overview and Budgetary Effects

Modifications to Education Tax Incentives
Made Permanent by the American Taxpayer Relief Act (ATRA)

The Exclusion of Scholarships, Grants, and Tuition Reductions for Certain Scholarships: Students
must general y pay taxes on any part of a scholarship, fel owship, or tuition reduction that can be attributed
to teaching, research, or other services that have been performed, are being performed, or wil be
performed. Prior to ATRA, a temporary exception to this general rule was al owed for funding received from
the National Health Service Corps Scholarships and F. Edward Hebert Armed Forces Health Professions
Scholarship and Financial Assistance Program (enacted as part of EGTRRA). As a result of ATRA, this
exception was made permanent. Hence, funds from these two scholarships are not taxable.

The Student Loan Interest Deduction: Prior to ATRA, several modifications to this provision (enacted
as part of EGTRRA) were scheduled to expire. Upon their expiration, the deduction could only have been
claimed by eligible taxpayers for the first 60 months of interest payments. In addition, the income phaseout
levels would have been reduced to $40,000-$50,000 ($60,000-$70,000 for married joint filers) adjusted for
inflation. As a result of ATRA, up to $2,500 of student loan interest can be deducted from gross income for
the entire duration of repayment. The amount that can be deducted phases out for taxpayers with income
between $50,000 and $65,000 ($100,000 and $130,000 for married joint filers), adjusted for inflation. T hese
changes are permanent.

Coverdell Education Savings Accounts (ESAs): Prior to ATRA, several modifications to this provision
(enacted as part of EGTRRA) were scheduled to expire. Specifical y, if these modifications had expired, the
maximum contribution would have reverted to $500 per beneficiary per year; qualified expenses would have
been limited to higher education expenses; the phaseout range for married taxpayers would have been
$150,000-$160,000; contributions could only have been made until the beneficiary was 18 and the balance of
the account would have to be distributed when the beneficiary turned 30, for both special needs and non -
special needs beneficiaries; a taxpayer could not have claimed an education credit if they also took a tax-free
distribution from their Coverdel ; and contributions to a Coverdel would have been subject to a 6% excise
tax if contributions for the same beneficiary were made to a 529 plan. As a result of ATRA, the maximum
contribution amount for a beneficiary is $2,000 per year; qualified expenses include both elementary and
secondary school expenses and higher education expenses; the phaseout range for married taxpayers is
$190,000-$220,000 (which is double the phaseout range for unmarried taxpayers); age limitations are waived
for special needs beneficiaries; beneficiaries who take tax-free distributions from Coverdel s can also claim
education tax credits (although expenses paid for with Coverdel funds cannot be used to claim the credits);
and contributions can be made to both a 529 plan and a Coverdel for the same beneficiary without penalty.9
These changes are permanent.
The Tax Increase Prevention Act of 2014 (P.L. 113-295) extended the tuition and fees deduction
through the end of 2014.
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
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-
service programs (as defined in Section 448(e) of the Higher Education Act of 1965, P.L. 89-329).
P.L. 115-97 modified four education tax benefits: 529 plans, the tax treatment of discharged
student loan indebtedness, personal exemptions for college age-dependents, and the
miscel aneous itemized deduction for unreimbursed work-related education expenses. With
respect to 529 plans, it permanently al owed 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.
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 student loan debt
that is discharged on account of the death or permanent disability of the student. This change is in

9 For further comparison of 529 plans and Coverdells, see CRS In Focus IF11254, Major Features of 529 Plans and
Coverdells, by Joseph S. Hughes, Molly F. Sherlock, and Margot L. Crandall-Hollick.
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Higher Education Tax Benefits: Brief Overview and Budgetary Effects

effect from 2018 through the end of 2025. The law also temporarily suspended personal
exemptions and the miscel aneous itemized deductions. Hence, from 2018 to 2025 taxpayers
cannot claim a personal exemption for their college-age dependents or the miscel aneous itemized
deduction for unreimbursed work-related education expenses.10 Al else being equal, this wil
increase the taxpayer’s taxable income. However, the ultimate impact on the tax bil wil 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.
The 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
go into effect in 2019.11 First, the law al ows 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
loans.12 This $10,000 limit is an aggregate lifetime limit per borrower.13 Second, the law expands
the definition of qualifying expenses for 529 plans to include fees, books, supplies, and
equipment required for an apprenticeship program.14 Hence, beneficiaries can withdraw funds
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
exclusion for employer-provided educational assistance, temporarily expanding the definition of
qualifying educational assistance to include student loan payments through the end of 2020.15

10 T he miscellaneous itemized deduction for unreimbursed work-related education expenses was, when it was in effect,
available to employees for expenses that met the criteria for deductibility under Internal Revenue Code (IRC) §162 and
T reasury Regulation § 1.162-5, but only to the extent that the expenses, along with other miscellaneous deductions,
exceeded 2% of the taxpayer’s adjusted gross income (AGI), as required under IRC §67. While miscellaneous itemized
deductions are suspended from 2018 through the end of 2025, self-employed individuals may still be able to deduct
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 -publication-970.
11 T hese changes were originally introduced as part of the SECURE Act. For more information, see CRS In Focus
IF11174, The SECURE Act and the Retirem ent Enhancem ent and Savings Act Tax Proposals (H.R. 1994 and S. 972) ,
by Jane G. Gravelle.
12 Qualifying student loans as defined for the student loan interest deduction under IRC Section 221(d). Student loan
interest that is paid for with a tax-free withdrawal from a 529 account is not eligible for the student loan interest
deduction. Joint Committee on T axation, Description of the Chairm an’s Am endm ent in the Nature of a Substitute to
H,R. 1994, the “Setting Every Com m unity up for Retirem ent Enhancem ent (SECURE) Act of 2019,” April 1, 2019,
JCX-13-19, p. 85.
13 As noted by the Joint Committee on T axation (JCT ), for purposes of this $10,000 per individual lifetime limit,
withdrawals for a sibling of the beneficiary “ are applied to the sibling’s lifetime limit and not the designated
beneficiary’s lifetime limit.” Joint Committee on T axation, Description of the Chairman’s Amendment in the Nature of
a Substitute to H,R. 1994, the “Setting Every Community up for Retirement Enhancement (SECURE) Act of 2019,”
April 1, 2019, JCX-13-19, pp. 84-85.
14 T he 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).
15 Under this provision, qualified 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
principal and interest of the qualified student loan. For more information, see CRS Report R46279, The Coronavirus
Aid, Relief, and Econom ic Security (CARES) Act—Tax Relief for Individuals and Businesses, coordinated by Molly F.
Sherlock.
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Summary and Cost of Current Benefits
Table 1 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,
incentives that provide preferential tax treatment of student loan expenses, and incentives for
saving for college. General y, a taxpayer cannot claim more than one tax benefit for the same
dollar of education expense.
The benefits available 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
the distinctions among the types of incentives:
 Tax credits reduce the amount an individual owes in taxes directly, on a dollar-
for-dollar basis. Credits are available to al qualified taxpayers, whether they
itemize deductions or not. Credits can be nonrefundable or refundable.
Nonrefundable credits cannot exceed taxes owed, and therefore can only reduce
an individual’s tax liability to zero. Refundable credits can exceed taxes owed,
meaning a taxpayer with no tax liability may receive al or part of the credit
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
taxation by the amount of the deduction. As a result, deductions reduce a
taxpayer’s tax liability, but only in proportion to the taxpayer’s highest marginal
tax bracket.16 Hence, deductions are general y less valuable than a given dollar
amount in tax credits. General y, the amount that may be deducted is equal to a
portion of some expense incurred. Deductions can either be “above-the-line” or
“itemized.” Above-the-line deductions are typical y more advantageous than
itemized deductions and may be claimed by most taxpayers. Itemized deductions
may only be claimed by those taxpayers who itemize al their deductions on their
tax returns. The alternative to itemizing is claiming the standard deduction.
Education tax deductions include the deduction for tuition and fees, 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
taxation, by a fixed dollar amount per exemption claimed. General y, every
taxpayer is al owed to claim one exemption for themselves, one exemption for a
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
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
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

16 For example, a $4,000 deduction for someone whose highest marginal tax bracket is the 10% bracket will 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
will fall by $1,400.
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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
purposes because the tax code explicitly excludes—or exempts—them from
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 loans, and the exclusion
of direct transfers to educational institutions.
As Table 1 shows, there are a number of limitations to the available tax benefits. Some benefits
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
type of “qualifying” expenses they are used to offset. For some tax benefits, only tuition and
required fees qualify. General y, 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
used to offset course-related books, supplies, and materials. And stil other benefits may be used
to cover travel and other expenses.
A number of higher education tax benefits also have income limitations. When an income
limitation does exist, it is in the form of an income phaseout range. Taxpayers with incomes
below the start of the phaseout range are eligible 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
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.
Table 2 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
provisions. This is because of interaction effects. When the revenue loss associated with a specific
tax provision is estimated, the estimate is made assuming that there are no changes in other
provisions or in taxpayer behavior. When individual tax expenditures are summed, the interaction
effects may lead to different revenue loss estimates. Consequently, aggregate 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
various tax provisions.
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Table 1. Overview of Education Tax Benefits, 2020
Income
Phaseout
Annual
Qualifying
Qualifying
Range

Limit
Expenses
Education Level
*married joint
Expiration
TAX BENEFITS FOR TUITION AND RELATED EXPENSES
American Opportunity Credit
$2,500 credit per
(1) Tuition and required
First 4 years of
$80,000-
None
IRC §25A
student
enrol ment fees
postsecondary education
$90,000
Tax credit partial y refundable. 40% of credit may
(2) Course-related books,
(General y undergraduate)
$160,000-
be refundable (up to $1,000)
supplies, and equipment
$180,000*
Lifetime Learning Credit
$2,000 credit per
(1) Tuition and required
Undergraduate and graduate $59,000-
None
IRC §25A
tax return
enrol ment fees
Courses to acquire or
$69,000
Tax credit nonrefundable
improve job skil s
$118,000-
$138,000*
amounts adjusted
annual y for
inflation
Deduction for Tuition and Fees
$4,000 deduction
(1) Tuition and required
Undergraduate and graduate $65,000-
Dec. 31, 2020
IRC §222
enrol ment fees
$80,000
Deduction (“above the line”) of qualified
$130,000-
expenses from gross income
$160,000*
TEMPORARILY SUSPENDED 2018-2025. Pre-2018:

Miscellaneous Itemized Deduction for
None
(1) Tuition and required
Education must be required
None
Under current
Unreimbursed Work-Related Education
enrol ment fees
by employer or law to keep
law (P.L. 115-
Expenses
(2) Transportation and travel
present job, salary, status or
97), this
IRC §67 & 162; Reg. §1.162-5
(3) Other necessary expenses
maintain or improve job
provision wil
Deduction (itemized) of qualified expenses from
skil s
be in effect in
AGI
2026.
CRS-8

Income
Phaseout
Annual
Qualifying
Qualifying
Range

Limit
Expenses
Education Level
*married joint
Expiration
Exclusion of Scholarships, Grants, and
None
(1) Tuition and required
Undergraduate and graduate None
None
Tuition Reductions
enrol ment fees

IRC §117
(2) Course-related books,
Exclusion from taxable income if scholarship,
supplies, and equipment
grant is used to pay qualifying education expenses
and does not represent payment for services (i.e.,
“work-based”). Work-based scholarships are
general y taxable.
There are three work-based scholarships that are
not taxable. Specifical y, the National Health
Service Corps Scholarships, the F. Edward
Hebert Armed Forces Health Professions
Scholarship and Financial Assistance Program, and
amounts received under a comprehensive
student work-learning-service program (as
defined in Section 448(e) of the Higher Education
Act of 1965, P.L. 89-329) operated by a work
col ege are excludible from taxation.
Exclusion of Employer Provided
$5,250 exclusion
(1) Tuition and required
Undergraduate and graduate None
Expansion to
Educational Assistance
enrol ment fees
include student
IRC §127
(2) Course-related books,
loan payments
Exclusion from taxable income
supplies, and equipment
expires at the
(3) Student loan payments (principal
end of 2020
and interest) paid by an employer
after March 27, 2020, and before
January 1, 2021
TEMPORARILY SUSPENDED 2018-2025. Pre-2018:
Parental Personal Exemption for
$4,050 per
NA
Student must be under 24
None
Under current
Dependent Students 19-23 Years Old
dependent in 2017
by the end of the tax year
law (P.L. 115-
IRC §151 & 152
amounts adjusted
and enrol ed ful time at a
97), this
annual y for inflation
Exemption of fixed amount per dependent
qualifying institution.
provision will
be in effect in
2026.

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
(1) Tuition and required
Undergraduate and graduate $70,000-
None
IRC §221
enrol ment fees
$85,000
Deduction (“above the line”) of interest paid
(2) Course-related books,
$140,000-
supplies, and equipment
$170,000*
(3) Room and board
amounts adjusted
(4) Other necessary expenses
annual y for
(including transportation)
inflation
Exclusion of Qualifying Cancelled Student
None
(1) Tuition and required
Undergraduate and graduate None
General y,
Loans for Individuals that Work a Certain
enrol ment fees
none.
Period of Time in Certain Professions
(2) Course-related books,

(Temporary expansion of nontaxable discharged
supplies, and equipment
Temporary
student loan debt to include student loan debt that is
(3) Room and board
expansion of
discharged on account of the death or permanent
(4) Other necessary expenses
nontaxable
and total disability of the student.)
(including transportation)
discharged
IRC §108(f)
student loan
Exclusion from taxable income
debt to
discharges
based on death
or disability is in
effect from
2018 to 2025.
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
K-12
K-12
None
None
IRC §529
contribution limit
Tuition expenses at public,
Undergraduate and graduate
Earnings not taxed
(individual states
private, and parochial schools,
may set limits.)
subject to limit of $10,000 per

beneficiary per year.
K-12

$10,000 per
Higher Education
beneficiary per
year withdrawal
(1) Tuition and required
limit for qualifying
enrol ment fees
K-12 expenses.
(2) Books, supplies, and
equipment

(3) Expenses for special needs
Higher Education
services
& Apprenticeships
(4) Room and board if at least
No withdrawal
half-time student
limit if used for

higher education
Apprenticeships
or apprenticeship
Fees, books, supplies, and
expenses.
equipment required for an

apprenticeship program.
Student Loans

$10,000 per
Student Loans
borrower lifetime
Student loan repayments—
limit. Borrowers
principal and/or interest, subject
include the
to a per borrower lifetime limit
beneficiary and
of $10,000.
their siblings.

CRS-11

link to page 16
Income
Phaseout
Annual
Qualifying
Qualifying
Range

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

Income
Phaseout
Annual
Qualifying
Qualifying
Range

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

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 Higher Education Tax Benefits: Brief Overview and Budgetary Effects

Table 2. Estimated Budgetary Impact of Tax Benefits for
Higher Education Expenses, 2019-2023
(bil ions of dol ars)
Tax Benefit
2019 2020
2021 2022 2023
Total
American Opportunity Tax Credit (AOTC) and
18.3
18.3
18.3
18.3
18.3
91.4
Lifetime Learning Credit
Parental Personal Exemption for Students ages 19 to 23a
—
—
—
—
—
—
Exclusion of Scholarship and Fel owship Income
3.5
3.6
3.7
3.8
3.8
18.4
Deduction for Student Loan Interest
2.2
2.3
2.4
2.5
2.6
12.0
Exclusion of Employer-Provided Education Benefitsb
1.3
1.5b
1.5b
1.4
1.4
6.7
Exclusion of Earnings of Qualified Tuition Programs (529
1.3
1.3
1.6
2.1
2.5
8.7
Plans)c
Exclusion of Employer-Provided Tuition Reductions
0.3
0.3
0.3
0.3
0.3
1.6
Exclusion of Certain Discharged Student Loansc
0.2
0.2
0.2
0.2
0.2
1.0
Deduction for Tuition and FeesError! Reference source n
—c
0.5
0.2
—
—
0.7
ot found.
Exclusion of Earnings of Coverdel Education Savings Accounts
0.1
0.1
0.1
0.1
0.1
0.5
Exclusion of Interest On Education Savings Bonds
-i-
-i-
-i-
-i-
-i-
-i-
Total
27.2
27.9
28.1
28.7
29.2
141.0
Source: Joint Committee on Taxation: JCX-55-19, JCX-54r-19, and JCX-11R-20.
Notes: A positive estimate corresponds to a federal revenue cost. Items may not sum due to rounding. “-i-”
indicates revenue losses for 2019-2023 are less than $50 mil ion; “—” indicates no budgetary impact.
a. P.L. 115-97 temporarily suspended the personal exemption from 2018 through the end of 2025.
b. The definition of qualifying expenses for the exclusion of employer-provided education benefits was
modified to include certain student loan payments. This was estimated to reduce revenues by $215 mil ion
in 2020, and $245 mil ion in 2021. These amounts are included in the estimates provided.
c. P.L. 115-97 expanded 529 plans and discharged student loan debt. With respect to 529 plans, it permanently
al owed 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. 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
student loan debt that is discharged on account of the death or permanent disability of the student. This
change is in effect from 2018 through the end of 2025. In both cases, JCT estimated the annual revenue loss
of these changes as less than $50 mil ion. In addition, the two permanent changes made to 529 plans as part
of P.L. 116-94 with respect to student loan payments and apprenticeship expenses were estimated by JCT
to reduce revenues by less than an average $20 mil ion annual y, or $215 mil ion over the 2020 -2029
budgetary window.
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 20, 2019.

Congressional Research Service

14

Higher Education Tax Benefits: Brief Overview and Budgetary Effects

Author Information

Margot L. Crandall-Hollick

Acting Section Research Manager

Disclaimer
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Congressional Research Service
R41967 · VERSION 46 · UPDATED
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