A higher education tuition and fees tax deduction is available to individuals who do not use the Lifetime Learning or American Opportunity Credit. Unlike a tax credit, which reduces the amount of taxes owed, the tuition and fees deduction reduces taxable income. Both the tuition deduction and student loan interest deductions are “above-the-line” deductions, meaning tax filers need not itemize deductions to claim the benefits. In fiscal-year 2010, this policy reduced taxes for those who were eligible by $760 million (no estimate was available for fiscal-year 2013).
The maximum tuition and fees deduction is $4,000 and varies according to income level. But the income ceiling is $20,000 higher for the tuition and fees tax deduction than for the Lifetime Learning tax credits, making the deduction more popular for higher-income families. The tuition and fees deduction also cannot cover personal expenses such as room and board.
Individuals can also deduct the interest paid on a federal or private student loan from their taxable income. The maximum student loan interest deduction is $2,500 and decreases as income levels increase. The income ceiling for the loan interest deduction is $15,000 lower than the tuition and fees deduction. In 2013, the policy will reduce taxes for all student loan borrowers by an estimated $1.46 billion.