the distinct purpose of various tax benefits

NAICU strongly supports the current three-tiered structure of higher education tax benefits, including benefits that help families save for college, pay tuition, and repay student loans.

A frequent criticism is that there are too many confusing and duplicative tuition tax benefits.  This was first addressed when omnibus tax and spending legislation was signed into law in December 2015.  That law made the American Opportunity Tax Credit (AOTC) permanent, and attempted to phase out the tuition deduction.  The permanent AOTC also replaces the Hope Tax Credit, and is more generous.  Since the AOTC is only available for the first four years of higher education, the Lifetime Learning Credit (LLC) remains in place to help graduate students and lifetime learners.  Further simplification occurred when the LLC was expanded in pandemic stimulus legislation signed into law in 2020, and the tuition deduction was eliminated.

The incorrect perception that there are dozens of overlapping and confusing education tax benefits led to an attempt by the House to eliminate almost all of those benefits during consideration of the Tax Cuts and Jobs Act in 2017.  Fortunately, the advocacy of colleges and universities and their students resulted in the preservation of all of the current benefits in the final bill. 


There are a variety of tax benefits available that help students and families save for college, pay tuition, and repay student loans:
  • Internal Revenue Code (IRC) Section 529 plans and Coverdell Education Savings Accounts (ESAs) provide tax-favored savings options.
  • The American Opportunity Tax Credit (AOTC), the Lifetime Learning Credit, and IRC Section 127 employer-provided education assistance provide assistance for paying tuition and repaying student loans.
  • The Student Loan Interest Deduction (SLID) helps students repay loans.

Importance of the Tax Benefits

Higher education tax benefits encourage families to save for college, thereby giving private colleges the ability to concentrate their institutional aid on the neediest students.  These benefits help middle class and low-income students and families pay tuition via refundable and non-refundable credits, and a benefit for working students.

Two pandemic stimulus bills signed into law by President Trump expanded and extended the important benefit of IRC Sec. 127 that now allows employers to not only provide annual tuition assistance to employees, but also annual student loan repayment assistance.  This new student loan expansion is available through December 31, 2025.  The Student Loan Interest Deduction also helps students repay their loans, but an additional benefit should be provided in the form of preventing borrowers whose federal loans have been forgiven from being taxed on that benefit.

These tax benefits provide some relief from tuition costs, encourage savings, and allow students and families a greater array of choices in selecting a college.


In communications with your elected officials in Washington:

  • Express your appreciation and say THANK YOU for the higher education tax benefits that help your students and families.
  • Emphasize how important the three tiers of tax benefits are to your students and their families.
  • Express your appreciation and say THANK YOU for the five-year expansion and extension of IRC Section 127 allowing tax-free employer provided education assistance to be used for either tuition or student loan repayment expenses.
  • Encourage support for legislation to double the amount of tuition assistance available under IRC Section 127 employer-provided education assistance from $5,250 to $12,000 annually.
  • Encourage support for legislation to allow tax-free loan forgiveness.



Karin Johns: