Updated for 2025.
College can be expensive, but the IRS offers several tax benefits for college students to make higher education more affordable for Americans.
Whether you’re a parent of a college student or paying your own way through school, here are 10 important things to know about college and taxes as a taxpayer.
At a glance
- Filing a tax return can get you a tax refund even if you don’t technically have to file.
- Know which educational tax credits and tax deductions you qualify for, such as the American Opportunity Credit, Lifetime Learning Credit, and student loan interest deduction.
- Utilize tax-free education savings plans like 529 plans or Coverdell accounts to pay for college expenses.
1. File even if you don’t have to.
Technically, you only have to file a tax return if you reach a certain income level.
For example, if you were a dependent who earned more than $14,600 in tax year 2025, you’re required to file an income tax return. But even if you earned less than that, you might still be due a refund if your employer withheld taxes from your paycheck.
Take some time to file, and you might discover you’re owed a tax refund — you don’t want to leave that lying on the table.
2. Consider filing independently (not being claimed as a dependent).
In most cases, it makes perfect sense for a traditionally aged college student to remain a dependent for tax purposes.
However, there are certain situations where it might be advantageous for college students to file independently. For example, some higher education tax credits are only available to moderate-income earners. You might be better off filing independently if your parents earn too much to qualify for these credits. Just make sure to sit down with your parents or student and have a conversation about whether you meet the dependency requirements and how you plan on filing.
3. Check out the Lifetime Learning Credit.
The Lifetime Learning Credit (LLC) is one of two tax credits available to help cover college tuition. It will pay up to $2,000 per year per family to offset qualified educational expenses. The credit is good for every year in which a student is enrolled in college, graduate school, or part-time learning.
To qualify for the LLC, you must be taking higher education classes (enrolled in at least one course) and have spent money on qualified education expenses. Qualifying expenses for the LLC include tuition and fees required for enrollment and any required course materials purchased from the educational institution.
There are also income limits when it comes to claiming this tax credit. You can read more about the eligibility requirements in Tax Breaks Students (and Parents) Can Claim This Year.
New for 2025: To claim the LLC, both the taxpayer and the student (if different) must have valid Social Security numbers (SSNs).
4. Apply for the American Opportunity Tax Credit.
The American Opportunity Tax Credit (AOTC) is even more generous than the LLC, offering up to $2,500 per year per student. To be eligible, you must be an undergraduate student or the parent of an undergraduate student who qualifies as your dependent. The student must be enrolled at least half-time and be pursuing a degree or education credential.
The AOTC has one drawback: You can only claim it for four years per student, so there is no credit for graduate work if you choose to continue your higher education after undergrad.
Like the LLC, there are income limits for those wishing to claim this tax credit (under $90,000 for single filers, under 180,000 for joint filers).
New for 2025: The AOTC now requires the taxpayer and the student to have valid SSNs.In addition, your tax return must list the employer identification number (EIN) of the educational institution receiving the tuition payment.
5. The AOTC might pay you.
One more excellent perk of the American Opportunity Tax Credit: The $2,500 credit is refundable up to $1,000, meaning that if you have no tax liability, you’ll still receive up to that amount as a tax refund.
If you’re eligible for the LLC and the AOTC for the same student in the same year, you can only choose one credit, but not both. If you’re trying to decide between them, typically, the AOTC is more valuable due to the higher credit amount and its partial refundability.
6. Take the student loan interest deduction.
Millions of current college students and college graduates make student loan payments every month. Like mortgage interest, student loan interest is deductible up to a limit of $2,500 or the amount of interest you actually paid — whichever is lower.
Even better, you can take the student loan interest deduction even if you don’t itemize.
For 2025, the deduction begins to phase out if your modified adjusted gross income (MAGI) is between $85,000 and $100,000 for single filers, or $170,000 and $200,000 for joint filers.
7. Get a tax refund for work-study.
Unlike other types of college financial aid (like grants and scholarships), the money you earn from a work-study job is considered taxable income.
But that’s not all bad! The school will withhold income taxes from your paychecks. So, when it’s time to file your taxes in April, you may likely get a tax refund.
8. Pay college expenses tax-free.
There are two types of college savings plans that every parent of a future college student should know about: 529 plans and Coverdell Education Savings Accounts.
In both cases, money in the accounts grows tax-free. But even better, you can withdraw money tax-free if the funds are used to pay for qualified education expenses.
9. Use your IRA for qualified education expenses if needed.
It’s generally not a good idea to withdraw from a retirement account early. Not only are you taxed on the cash, but you’re also hit with a 10% penalty.
There’s a loophole, though, for qualified education expenses. If you withdraw money to pay for college costs, you’ll still owe taxes on what you withdraw, but the 10% penalty is waived.
10. Geography matters when it comes to state taxes.
If you attend school in a different state than your tax home (aka your parents’ house), make sure you pay taxes on any earnings from both states if applicable.
For example, different tax rates may apply if you have a summer job at home and a part-time job at school. You might even get lucky and work in a state without income tax. Read up on both states’ tax laws and be prepared to file twice if necessary.
The bottom line
College often comes with a hefty price tag, but the tax code offers plenty of ways to lighten the load. From tax credits like the AOTC and LLC to deductions for student loan interest and tax-free savings options, you have multiple opportunities to save as a student. Make sure you take advantage of every benefit you qualify for to keep more money in your pocket while you study!
This article is for informational purposes only and not legal or financial advice.
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