Paying for college can be an incredible financial burden for families. It pays to do your research to find any help available when planning for this expensive endeavor. In our last blog, we discussed two tax credits to help college students and their families pay for college.  Here are three other tax benefits to help with the cost of obtaining a college education.

Scholarships and Fellowships Not Taxed

Scholarships and fellowships received by the college student are tax-free only if:

  • The student is pursuing a degree at an eligible educational institution.
  • The scholarship or fellowship is used to pay for “qualified education expenses.”

Qualified education expenses are:

  • Tuition and fees required to enroll or attend the eligible educational institution.
  • Required course-related expenses such as fees, books, supplies, and equipment.

Education expenses that do not qualify:

  • Room and board.
  • Travel.
  • Research.
  • Clerical help.
  • Equipment and other supplies that are not required for enrollment or attendance.

Student Loan Interest Deduction

If your modified adjusted gross income is less than $80,000 ($160,000 if filing a joint return), you can deduct the interest you paid on a qualified student loan.  The maximum deduction is $2,500.

A qualified student loan is a loan taken out to pay for qualified education expenses for you, your spouse, or your dependent. The expenses must have been incurred or paid within a reasonable period before or after the loan was obtained. Loans from a related person or an employer plan do not qualify.  

Qualified education expense for this purpose are:

  • Tuition and fees.
  • Room and board.
    • If the student resides in housing other than that provided by the educational institution, the cost for room and board is limited to the amount determined by the institution for the academic period.  
  • Books, supplies, and equipment.
  • Other necessary expenses, such as transportation.

Employer-Provided Educational Assistance Excluded from Income

If the student’s employer has an educational assistance program, up to $5,250 of the benefits received are not taxable. Similar to the tax-free scholarships and fellowships, the funds can only be used for tuition, fees, books, supplies, and equipment that are required to enroll or attend the educational institution.  

Benefits received for the following expenses are not excluded from income:

  • Meals, lodging, or transportation.
  • Tools or supplies (other than textbooks) that the student can keep after completing the course(s).
  • Courses involving sports, games, or hobbies unless they:
    • Have a reasonable relationship to the employer’s business, or
    • Are required as part of the degree program.

It pays to do your research and find as much help as possible when it comes to paying for college for your children or yourself. Working with a qualified financial planner who has experience in this area is the best way to ensure you are receiving all the assistance available for your unique situation.


Judith Ackland has more than 26 years of experience in accountancy and financial planning, including seventeen years as a CFO of a diverse business. She started Crystal Financial in 2010 to help a wide array of individuals, families, and business owners better understand their finances and how good financial management could help them achieve their goals. Judith has an MA in Professional Accountancy from the University of Nebraska at Lincoln as well as a Certified Public Accountant Certificate and a Certified Financial Planner designation.

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