Hope Scholarship Tax Credit

Many students are eligible to receive a Hope Scholarship income tax credit for the first two years of college covering 100% of the first $1,000 of tuition and fees and 50% of the second $1,000. Students must be enrolled at least half-time in a degree, certificate, or other program leading to a recognized education credential. The scholarship is in the form of an income tax credit that can be claimed by eligible students or their parents on their tax returns for two tax years. The credit does not cover any fees that are not academically related such as student activity fees. Only students attending an eligible college that is regionally accredited and meets other federal guidelines can claim the credit.

The credit is phased out starting at $80,000 modified adjusted gross income on joint returns or $40,000 on individual returns. The credit is not available on joint returns over $100,000 or individual returns over $50,000. The amount of tuition and fees covered by the Hope tax credit will be reduced by other grant and scholarship aid received. For example, if a Pell grant covered a student's entire tuition costs, the student would not be eligible to receive any tax credit. Other tax considerations may apply in specific situations, so individuals may want to consult their tax advisor. All decisions regarding tax credits are made by the IRS, not be LSUE. Students convicted of a felony related to the possession or distribution of a controlled substance such as heroin or marijuana are not eligible for any tax credit.

The Lifetime Learning Credit
Anyone returning to college to acquire or improve skills who does not qualify for the Hope Scholarship can receive a lifetime learning tax credit worth 20% of the first $5,000 of tuition and fees through 2002 and 20% of the first $10,000 thereafter. The same phase out provisions apply as those for the Hope Scholarship. In addition to college juniors, seniors, graduate students, and adults returning to college, the Lifetime Learning Credit also applies to students enrolling during their first two years who cannot qualify for the Hope Scholarship credit because they are attending on less than a half time basis.

Other Federal Tax Changes
The Tax Relief Act of 1997 includes provisions allowing deduction of up to $2,500 per year of interest on education loans for expenses of students enrolled in higher education. The maximum deduction is $1,000 in 1998, increasing in $500 increments each year until reaching $2,500. The deduction is allowed only for the first 60 months of interest payments. Months during which the loan is in deferral or forbearance do not count against the 60-month period. Eligibility for this deduction is phased out for single filers with incomes between $40,000 and $55,000, and for joint filers with incomes between $60,000 and $75,000.

In addition, the law now allows penalty-free withdrawal of IRA savings to pay for higher education, and new education IRAs ($500 annual contribution per beneficiary).

For more information please visit the NASFAA website.