Qualified education expenses

Qualified education expenses are tuition, fees and other related expenses paid for an eligible student to enroll or attend an eligible educational institution. Eligible expenses also include the payment of student activity fees required to enroll or attend the school. For example, fees that all students must pay to fund on-campus student organizations and activities are considered qualified education expenses.

• For the American Opportunity Credit: Expenses paid for books, supplies, and equipment the student needs for a course of study are considered qualified education expenses, even if it is not paid to the school. For example, the cost of a required course book bought from an off-campus bookstore is a qualified education expense.
• For the Lifetime Learning Credit: Expenses paid for course-related books, supplies, and equipment are considered qualified education expenses only if they are required to be paid directly to the school as a condition of enrollment or attendance.

You must pay the qualified education expenses for an academic period that starts during the tax year or the first three months of the next tax year. Academic periods can be semesters, trimesters, quarters, or any other period of study such as a summer school session. The school determines academic periods. For schools that use clock or credit hours and do not have academic terms, the payment period may be treated as an academic period.

Expenses that do not qualify

Even if you pay the following expenses to enroll or attend the school, the following are not qualified education expenses:

• Room and board
• Insurance
• Medical expenses (including student health fees)
• Transportation
• Similar personal, living or family expenses

Sports, games, hobbies, or non-credit course

• For the American Opportunity Credit: Expenses for sports, games, hobbies, or non-credit courses do not qualify for the education credits or tuition and fees deduction, except when the course or activity is part of the student’s degree program. 
• For the Lifetime Learning Credit: These expenses qualify if the course helps the student acquire or improve job skills.

Payment of qualified education expenses

Qualified education expenses must be paid by:

• You (or your spouse, if you file a joint return,)
• A student you claim as a dependent on your return, or
• A third-party, including relatives or friends.

Payment Method

You can claim an education credit for qualified education expenses paid by cash, check, credit, or debit card or paid with money from a loan. If you pay the expenses with money from a loan, you take the credit for the year you pay the expenses, not the year you get the loan or the year you repay the loan. 

Type of Program

• For the American Opportunity Credit: You must pay the expenses for higher education that result in a degree or other recognized education credential. 
• For the Lifetime Learning Credit: You must pay the expenses for higher education that result in a degree or other recognized education credential or for a course to acquire or improve your job skills.

No double education benefit allowed

You can’t take more than one education benefit for the same student and the same expenses. That means:

• You can't take the American Opportunity Tax Credit (AOTC) and Lifetime Learning Credit (LLC) for the same student in the same tax year.
• You can’t use the same education expenses to claim the AOTC or LLC to:
  • Take a deduction on the return elsewhere.
  • Figure the tax-free portion of a Coverdell Education Savings Account (ESA) or Qualified Tuition Program (QTP).

You cannot claim a credit for education expenses paid with tax-free funds. You must adjust the amount of qualified education expenses paid with tax-free grants, scholarships and fellowships and other tax-free education help.

Tax-free educational assistance

Examples of tax-free educational assistance include:

• Tax-free parts of scholarships and fellowships
• Pell Grant and other need-based education grants
• Employer-provided and veterans educational assistance
• Any other tax-free payments (other than gifts or inheritances) received as educational assistance

How to adjust qualified education expenses

Generally, for each student:

1. Take the total amount of qualified education expenses paid for the student
2. Subtract the amount of tax-free educational assistance the student received
3. Use any remaining qualified education expenses to claim an education credit

Tip: Consider including all or part of a tax-free scholarship, fellowship or grant in your student’s income to increase the amount of the education credit.

When not to adjust expenses

You don’t need to reduce qualified education expenses by amounts paid with:

• Payments for services, such as wages
• Money from loans
• Gifts
• Inheritances
• Student's personal savings
• Scholarships or fellowships reported as income on the student's tax return when:
  • Scholarship or fellowship terms restrict the money’s use to costs of attendance that aren’t for qualified education expenses (such as room and board)
  • Money’s use isn’t restricted and may be used for qualified or not-qualified expenses

What if the student withdraws from classes?

You can claim a credit for any qualified education expenses paid but not refunded if the student withdraws.

Refund of qualified education expenses

A refund of qualified education expenses may:

• Reduce adjusted qualified education expenses for the tax year
• Require repayment (recapture) of a credit claimed in an earlier year

See Publication 970 for information on what to do if you receive a refund of qualified education expenses during the tax year.
Return to Education Credits

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