When paying for college, many students and families first think about financial aid programs like the Federal Pell Grant, Federal Student Loans, or Federal Work-Study. But there is another type of support that can help after expenses have been paid: federal education tax credits.
The two education tax credits people most often hear about are the American Opportunity Tax Credit (AOTC) and the Lifetime Learning Credit (LLC). They sound similar, but they are meant for different situations and come with different rules. If you qualify, one of these credits may help lower the federal tax you owe—or, in some cases, increase your refund when you file your tax return.
How is a tax credit different from financial aid?
The biggest difference is timing. Most financial aid helps you cover school costs before or during the school year. A tax credit, on the other hand, is usually claimed later when you file your federal tax return.
- Scholarships and direct aid, such as the Pell Grant, can help reduce tuition or other education-related costs upfront.
- Student loans can help pay for school while the student is enrolled, but they usually have to be repaid later.
- Tax credits work differently: you generally pay eligible expenses first, then claim the credit later through the federal tax filing process.
American Opportunity Tax Credit (AOTC)
The AOTC is generally aimed at students who are working toward an undergraduate degree and have not yet completed the first four years of postsecondary education.
For eligible students, the credit can be worth up to $2,500 per tax year. It is based on qualified education expenses, such as tuition, textbooks, and required course materials. Another important feature is that part of the AOTC may be refundable if IRS requirements are met.
A common question is whether transferring schools affects eligibility. In general, transferring from a community college to a university does not automatically disqualify a student, as long as the student has not already completed the first four years of postsecondary education. However, if the student completed those first four years before the start of the tax year, they would no longer be eligible for the AOTC—even if they did not claim the credit for all four years.
The student also generally needs to be enrolled at least half-time for at least one academic period during the tax year, along with meeting other IRS requirements.
Lifetime Learning Credit (LLC)
The Lifetime Learning Credit is a little more flexible. As the name suggests, it is designed for people who continue learning throughout life—whether that means pursuing another degree, taking graduate-level courses, or building new job skills.
The LLC may apply to undergraduate study, graduate programs, courses that improve job skills, and certain other eligible classes.
Unlike the AOTC, the LLC is not limited to the first four years of college. That means someone who has already graduated and started working may still qualify if they go back to school or take eligible courses to strengthen their professional skills.
How are the AOTC and LLC different?
Here is a simple side-by-side look at how the two credits compare:
| Criteria | American Opportunity Tax Credit (AOTC) | Lifetime Learning Credit (LLC) |
| Who it is mainly for | Primarily students in the first four years of undergraduate education | Undergraduate, graduate, and many other eligible courses |
| Year limit | Yes | No |
| Purpose | Helps with undergraduate education costs | Supports lifelong learning and skills development |
| Refundability | Partially refundable | Nonrefundable |
One important difference is refundability. The AOTC may be partially refundable, which means some eligible taxpayers may receive up to a portion of the credit as a refund even after their tax owed has been reduced to zero. The LLC is nonrefundable, so it can reduce tax owed to zero, but it will not create an extra refund beyond the tax owed.
Can you claim both the AOTC and LLC at the same time?
Usually, you cannot claim both credits for the same student in the same tax year. But if a family has more than one eligible student, one student might qualify for the AOTC while another qualifies for the LLC. The best option depends on the family’s situation and the IRS rules for that tax year.
What expenses may qualify?
Not every college-related expense counts. Depending on the credit, qualified expenses may include tuition, certain required fees, and required course materials. Because the rules can get specific, it is a good idea to review IRS guidance or speak with a tax professional before filing.
Can international students claim education tax credits?
It depends. A student’s tax status, filing situation, and the specific requirements of each credit all matter. Many F-1 international students are not eligible in their early years because they are generally considered nonresident aliens for tax purposes.
After becoming resident aliens for tax purposes and meeting other tax-law requirements, they may become eligible for the AOTC or LLC. If you are an international student, it is especially important to review IRS guidance or ask a tax professional before claiming a credit.
How do you claim higher education tax credits?
If you qualify, you usually claim education tax credits when filing your federal tax return. You may need Form 1098-T from your school, records of qualified education expenses, and the required IRS tax forms. When in doubt, check IRS guidance or talk with a tax professional.
Key takeaways
- The AOTC and LLC are two federal education tax credits for higher education.
- Tax credits can reduce the amount of tax owed and, in some cases, increase a refund if eligibility requirements are met.
- The AOTC is mainly for students in their first four years of undergraduate education.
- The LLC is more flexible and may apply to graduate programs or courses that improve job skills.
- The two credits have different rules and limits, and you generally cannot claim both for the same student in the same tax year.
Bottom line: education tax credits will not lower your tuition bill at the time you enroll. But if you qualify, they can still make college costs a little easier to manage when tax season comes around.
Learn more
For the latest information about income limits, qualified expenses, and how to claim higher education tax credits, refer to IRS Publication 970: Tax Benefits for Education and the official IRS website.
Frequently Asked Questions (FAQ)
1. Can I claim both the AOTC and LLC for the same student in the same year?
Usually, no. The IRS does not allow both credits to be claimed for the same student in the same tax year. However, families with multiple eligible students may be able to use one credit for one student and the other credit for another student, as long as IRS rules are met.
2. Can I claim the AOTC or LLC if I received a scholarship or Pell Grant?
Possibly. The key thing to remember is that you generally cannot use the same qualified expenses for multiple benefits. IRS rules explain how to determine which expenses can be used in each situation.
3. Do I need to submit the FAFSA to claim education tax credits?
No. FAFSA and education tax credits are separate. Whether you qualify for the AOTC or LLC depends on federal tax-law requirements, not on whether you submitted the FAFSA.