Can I Take an Education Credit or Deduction for Tuition Paid with Student Loans?

You can deduct tuition paid with student loans as education credits or deductions. You can claim either the American Opportunity Credit,  the Lifetime Learning Credit, or the Tuition and Fees Deduction depending on which guidelines you fall under.  

Under the American Opportunity Credit, you will receive a maximum credit of up to $2,500 per eligible student, under the Lifetime Learning Credit, you will receive up to $2,000 credit per return, and under the Tuition and Fees deduction your maximum deduction can be up to $4,000.    

*Click here for more information regarding Education Credits and the Tuition and Fees Deduction.    

You may have the following questions . . .

• Do you subtract loan money from tuition billed?
• All of my tuition is paid through student loans. Can I still take an education credit?

A loan is not tax-free educational assistance so you do not reduce your qualified education expenses, such as tuition, by the proceeds from your student loan.

For example: You paid $3,000 for tuition (a qualified expense). To help pay this cost, you obtained a $2,000 student loan.

Since the student loan is not tax-free educational assistance, you do not need to reduce the tuition by the amount paid with the student loan.

You are eligible to take the education credit or deduction for the entire $2,000 paid from proceeds of your loan as long as you meet the other requirements of either the American Opportunity Credit, the Lifetime Learning Credit, or the Tuition and Fees Deduction. 
 

You can claim the American Opportunity Credit or the Lifetime Learning Credit for qualified educational expenses paid with proceeds of a loan whether or not all of your tuition is paid with the proceeds of the loan.

You may also be able to claim the Tuition and Fees Deduction even if all of your tuition is paid through student loan.         

Your credit or deduction is figured based on the year the expenses are paid and not when the loan is repaid.  

We are here to help. Let Turbo Tax online calculate which alternative is best for you, which educational expenses qualify, and which credit will maximize your return.