Students: College Tax Deductions Are Better Than Beer for Your Wallet

By Anna Neiger, DebtSolutions.com Writing Team

How college tax deductions benefit students now and in the future

As a college student, it's important to know what college tax deductions can help you when you are struggling to make ends meet. Even if you don't have to file taxes, you SHOULD, especially if you have a job where tax money has been deducted from your income.

It's best if you start early — your latest pay stub will have all the tax information you need if you haven't gotten your W-2s yet. Starting early enables you to thoroughly check your work and get filing help if you need it, helping you get the college tax deductions you deserve, but most of all, avoiding any future tax debt.

    There are three main college tax deductions you can choose from—keep in mind, you can only chose one, so pick the most beneficial college tax deduction.
  • Lifetime learning credit. This isn't exactly a college tax deduction; it's a tax credit, which directly reduces the amount of taxes you have to pay. The Lifetime learning credit gives you a tax credit for 20 percent of your tuition and college expenses, limited to $2,000.
  • Hope Scholarship credit. Again, this is a tax credit as opposed to a college tax deduction. The Hope Scholarship credit applies only to your first two years of college, giving you a tax credit of up to 100 percent of the first $1,000 of your tuition and up to 50 percent of the second $1,000, limited to $1,500.
  • Higher education expenses deduction. This is a college tax deduction, rather than a college tax credit. College tax deductions reduce the amount of income you're getting taxed on. Depending on your income, you could qualify for a college tax deduction of up to $4,000.

Are you a student in the Midwest?
You may be eligible for the college tax deduction for Students in a Midwestern Disaster Area. You must be attending college in a disaster area in Arkansas, Illinois, Indiana, Iowa, Missouri, Nebraska or Wisconsin in order to qualify for this college tax deduction. If you do qualify, it's just another reason you should file your taxes this year!

Still have questions? Here are some answers:

How do I know if I qualify for a college tax deduction?

You qualify for a college tax deduction if you are a student with a high school diploma or a GED, currently enrolled in one or more classes at a qualified educational institution.

According to the IRS, a qualified educational institution is"any college, university, vocational school, or other postsecondary educational institution eligible to participate in a student aid program administered by the U.S. Department of Education. It includes virtually all accredited public, nonprofit, and proprietary (privately owned profit-making) postsecondary institutions."

If you're not sure whether or not you're attending a qualifying school, just ask someone in the financial aid department at your school.

What expenses qualify for college tax deductions?

Your college tax deduction is contingent upon education expenses paid to a qualified educational institution in the fiscal year. You can claim college tax deductions on your tuitions and fees if they've been paid with a loan (which, if you almost every college student in the country, they have been). You can also claim a college tax deduction for fees that weren't refunded if you withdrew from or dropped a class.

Be careful when claiming college tax deductions on student activity fees and course book expenses, because, according to the IRS, these fees only qualify for college tax deductions if "the fees and expenses MUST be paid to the institution as a condition of enrollment or attendance."

So how is this college tax deduction thing better than beer?

It might be obvious by now, but college tax deductions put money back into your pocket. At the very least, college tax deductions SAVE you money. Beer doesn't. But, you know, what you do with the money from your college deductions are up to you, isn't it?

Making sure you file your taxes properly helps you avoid having any tax debt, but most of all ensures you don't have to worry about finding a tax debt solution in the future.

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