Tax Benefits for Students and Families

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 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 remains in place to help graduate students and lifetime learners.

In December 2017, Congress passed the Tax Cuts and Jobs Act of 2017 (TCJA).  While the final bill preserved all of the current higher education tax benefits for students and families, almost all of the provisions were at risk during the process.  In addition, Congress reached a short-term budget agreement in early 2018 that included extensions of expired or expiring tax provisions, and the tuition deduction was reinstated retroactively for 2017.  The tuition deduction, despite the intended phase-out, continues to be renewed by Congress. 


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.
  • 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.

The Student Loan Interest Deduction 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.
  • Encourage support for legislation to double the amount of tuition assistance available under IRC Section 127 employer-provided education assistance from $5,250 to $11,500 annually, and allow employees to also use the funds for loan repayment.
  • Encourage support for legislation to allow tax-free loan forgiveness.


Karin Johns: