Is There a Tax Credit for Graduate Students?

Yes, there is a tax credit for graduate students. Most people in a master’s, doctoral, or professional program claim the Lifetime Learning Credit, which is worth up to $2,000 per tax return. The more generous American Opportunity Tax Credit is generally off-limits at the graduate level because it only covers the first four years of post-secondary education. A few related tax benefits — the student loan interest deduction and the employer educational assistance exclusion — can lower your overall cost on top of the credit.

How the Lifetime Learning Credit Works

The LLC equals 20 percent of the first $10,000 you pay in qualified tuition and required fees during the year, capping out at $2,000 per return.¹ The cap is per return, not per student, so a household paying tuition for more than one graduate student still tops out at $2,000 from this credit.

There is no limit on the number of years you can claim it. A two-year master’s, a six-year PhD, or a single course taken to build a job skill all qualify, and you don’t need to be pursuing a degree.²

The credit is nonrefundable. It can reduce your federal tax bill to zero, but any leftover credit disappears.³ If you owe $1,200 and qualify for the full $2,000, you’ll owe nothing, and the remaining $800 is gone. For graduate students living on a low stipend with little or no tax liability, the credit may be worth less than its headline value, or nothing at all.

Why the AOTC Usually Isn’t Available for Grad School

The American Opportunity Tax Credit is worth up to $2,500 per eligible student, and 40 percent of it — up to $1,000 — is refundable, meaning you can receive it even if you owe no tax.⁴ That refundable piece is what makes it more valuable than the LLC on paper.

The problem is eligibility. The AOTC covers only the first four years of post-secondary education, and it cannot have been claimed (counting the older Hope Credit) for more than four tax years for the same student.² Most graduate students have already used all four years during undergrad.

One narrow exception: if you finished your bachelor’s in three years and the AOTC (or Hope Credit) was claimed for you in only three tax years or fewer, you could use the remaining year during your first year of graduate school. You’d still need to be enrolled at least half-time in a program leading to a degree or credential, and meet the other AOTC requirements.⁴ It’s worth pulling your prior returns to check.

You cannot claim both credits for the same student in the same tax year. Pick one.² If your household includes another student — say an undergraduate child — you can claim a different credit for that person on the same return.

Income Limits and Who Can Claim It

The credit begins to phase out when your modified adjusted gross income exceeds $80,000 for single filers or $160,000 for joint filers. It disappears entirely above $90,000 single and $180,000 joint.¹ These thresholds are set by statute and have not moved for recent tax years.³

Two other rules catch graduate students. If you file as married filing separately, you cannot claim either education credit.² And if a parent claims you as a dependent, only the parent can take the credit; you cannot claim it on your own return. Coordinate this within the family before either return is filed.

What Tuition and Fees You Can Count

Qualified expenses for the LLC are tuition and required enrollment fees paid to an eligible institution. Room, board, insurance, transportation, and similar personal costs do not count.⁵

Books, supplies, and equipment qualify only if the school requires you to buy them directly from the institution as a condition of enrollment.⁵ A textbook you bought from an outside retailer, even one your professor assigned, doesn’t count under the LLC. The AOTC is more forgiving on this point, but since most grad students are on the LLC, the stricter rule is what matters.

Expenses must be for an academic period that begins during the tax year or within the first three months of the following year. Paying spring-semester tuition in December counts on that year’s return.³

Scholarships, Assistantships, 529 Plans, and Employer Aid

Tax-free money that pays for tuition reduces what you can claim. If you exclude a scholarship or fellowship from income because it covered tuition, you have to subtract that amount before calculating the credit.⁶ A $15,000 tuition bill covered by a $12,000 tax-free scholarship leaves only $3,000 of qualified expenses, producing a $600 credit rather than $2,000.

You have some room to plan around this. You can choose to treat part of a scholarship as taxable — reporting it as though it covered living expenses instead of tuition — which preserves more of your tuition dollars as qualified expenses.⁶ The credit returns 20 cents on the dollar, so this makes sense only if the extra tax on the “reclassified” income costs less than the credit you gain. Students in a low bracket often come out ahead.

Teaching and research assistantship stipends are wages for services and are already taxable, so they don’t reduce your qualified expenses.⁷

The same no-double-dipping rule applies to 529 plans. Tuition paid with a tax-free 529 withdrawal can’t also be counted toward the LLC.⁸ Families often split expenses: use the 529 for room and board (a qualified 529 expense but not credit-eligible) and pay tuition out of pocket so it supports the LLC.

Employer educational assistance works similarly. Up to $5,250 a year of tuition your employer pays can be excluded from your income, and that exclusion stays at $5,250 through tax year 2026, with inflation adjustments beginning for years after 2026.⁹ Tuition covered by that tax-free help cannot also feed the LLC.¹⁰ But if your total tuition exceeds the $5,250 exclusion, the remainder still counts. On a $15,000 tuition bill with $5,250 of employer aid, the remaining $9,750 supports a $1,950 credit — stacked on top of the tax-free exclusion.

Student Loan Interest Deduction

Separate from the credit, you can deduct up to $2,500 in interest paid on qualified student loans each year, and this deduction is available whether you itemize or not.¹¹ It applies to graduate school loans as it does to undergraduate ones, and you can claim it in the same year you claim the LLC.

The income phase-out is more generous than the credit’s. For tax year 2025, the deduction phases out between $85,000 and $100,000 for single filers and between $170,000 and $200,000 for joint filers.¹² The thresholds are adjusted annually, so check IRS Publication 970 for later years. Married filing separately disqualifies you here too.

The qualifying expenses for a loan to be a “qualified student loan” are broader than the LLC’s — tuition, fees, room, board, books, supplies, and transportation all count, as long as the loan was taken out solely for education costs at an eligible institution.¹²

How to Claim the Credit

Your school will send Form 1098-T by the end of January, showing the tuition it received during the calendar year in Box 1.¹³ Verify the number against your own records. The form sometimes leaves out late-year payments or misallocates amounts between calendar years; contact the registrar if it looks off.

File IRS Form 8863 with your return.¹⁴ You’ll need the school’s Employer Identification Number, which appears on the 1098-T, and the total of your qualified expenses after subtracting tax-free scholarships, grants, or employer assistance. If you file manually, complete a separate Part III on page 2 for each student before working through Parts I and II.

Hold onto your tuition receipts, scholarship award letters, and 1098-T forms for at least three years after filing. The IRS can ask for documentation, and the burden of proof is on the taxpayer.

1
Internal Revenue Service. Lifetime Learning Credit
2
Internal Revenue Service. Education Credits: American Opportunity Tax Credit (AOTC) and Lifetime Learning Credit (LLC)
3
Office of the Law Revision Counsel. 26 USC 25A: American Opportunity and Lifetime Learning Credits
4
Internal Revenue Service. American Opportunity Tax Credit
5
Internal Revenue Service. Qualified Education Expenses
6
Internal Revenue Service. The Interaction of Scholarships and Tax Credits
7
Internal Revenue Service. Topic No. 421, Scholarships, Fellowship Grants, and Other Grants
8
Office of the Law Revision Counsel. 26 U.S. Code 529 – Qualified Tuition Programs
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Office of the Law Revision Counsel. 26 U.S. Code 127 – Educational Assistance Programs
10
Internal Revenue Service. Education Credits: Questions and Answers
11
Internal Revenue Service. Topic No. 456, Student Loan Interest Deduction
12
Internal Revenue Service. Publication 970 (2025), Tax Benefits for Education
13
Internal Revenue Service. Form 1098-T Tuition Statement
14
Internal Revenue Service. Instructions for Form 8863 (2025)