How Do Students and Recent Graduates Handle Education Credits and the 1098-T?

If you paid qualified tuition in 2026, an education credit may lower your federal tax, and the Form 1098-T from your school is where most people start. The catch is that the 1098-T reports what the school received, which is not always what you paid. Build your credit from your own payment records, and check first whether a parent can claim you, because that changes everything.

What is the American opportunity credit?

For most students in their first four years of college, the American opportunity credit is the larger of the two education credits. Publication 970, Tax Benefits for Education (2025 edition), says it can be worth up to $2,500 per eligible student. It counts 100% of the first $2,000 of qualified expenses you paid, plus 25% of the next $2,000. Up to 40% of the credit may be refundable, which means part of it can reduce your tax below zero. The rest only reduces the tax you owe.

You generally qualify if you were enrolled at least half-time in a program leading to a degree or other recognized credential, had not finished your first four years of postsecondary education, and had no felony drug conviction. You cannot claim it if you file as married filing separately, or if someone else claims you as a dependent. Publication 970 lists the 2025 income phase-out ranges as $80,000 to $90,000 of MAGI for single filers and $160,000 to $180,000 for joint filers. Those figures are not in the 2026 inflation table, so confirm them in the Form 8863 instructions for the year you file.

What is the lifetime learning credit?

The lifetime learning credit works for courses that do not lead to a degree, and it has no four-year limit. Publication 970 says you can claim up to $2,000 per return, which is 20% of up to $10,000 of qualified expenses. You can choose only one education credit for a given student in a year. For different students in the same household, you can choose different credits.

What does the 1098-T actually tell me?

Schools generally must send Form 1098-T by early February. Box 1 reports payments received for qualified tuition and related expenses. The figure can differ from what you paid, because it reflects payments the school received in the calendar year, and tax-free scholarships reduce the expenses that count. If the school did not have to send the form and you paid qualifying tuition, Publication 970 explains that you may still claim the credit with proof of payment.

Can I also deduct my student loan interest?

Yes, and it is a separate benefit. You can deduct up to $2,500 of interest paid on a qualified education loan. It is an adjustment to income reported on Schedule 1 (Form 1040), so you do not need to itemize. Revenue Procedure 2025-32 says that for 2026 the deduction begins to phase out above $85,000 of MAGI ($175,000 for joint returns) and is gone at $100,000 ($205,000 for joint returns). Your loan servicer's Form 1098-E shows the interest you paid.

Worked example

Illustration only, with made-up round numbers: Jordan is 23, single, and not claimed as anyone's dependent. In 2026 Jordan is in the second year of a degree and enrolled at least half-time. The 1098-T shows $6,200 in Box 1. Jordan also received a $1,400 tax-free scholarship, and paid $1,400 of student loan interest. Jordan's MAGI is $60,000.

Step 1: Subtract the tax-free scholarship from the 1098-T amount: $6,200 minus $1,400 is $4,800 of qualified expenses.

Step 2: Apply the credit formula. The first $2,000 counts at 100%, which is $2,000. The next $2,000 counts at 25%, which is $500. The credit is $2,500.

Step 3: Jordan's MAGI of $60,000 is below the $80,000 start of the phase-out, so the full credit applies. Of the $2,500, up to $1,000 may be refundable and the other $1,500 only reduces tax.

Step 4: The $1,400 of interest is under the $2,500 cap and under the $85,000 phase-out start, so the full $1,400 is deductible.

What is the most common mistake?

The most common error is copying the Box 1 number onto the credit worksheet without subtracting tax-free scholarships or checking which payments were made in 2026. The second is claiming the credit on your own return while a parent claims you as a dependent. If someone claims you as a dependent, you cannot claim the education credit yourself (Publication 970).

What should I do next?

1. Download your Form 1098-T from the school portal, and your Form 1098-E from your loan servicer.
2. Pull a list of 2026 payments and any scholarships or grants.
3. Decide, before you file, whether a parent is claiming you as a dependent.
4. Confirm your half-time enrollment and how many years of college credit you already have.

A tidy-paperwork checklist

• Form 1098-T, with Box 1 noted next to your own payment total
• Receipts or bank records of 2026 tuition payments
• Scholarships and grants, and whether any were tax-free
• Form 1098-E for student loan interest
• A yes or no answer on whether anyone can claim you as a dependent
• Your estimated MAGI, so you can check the phase-out ranges

See how it works.

Sources: IRS Publication 970, Tax Benefits for Education (2025 edition), chapters 2, 3 and 4 (American opportunity credit, lifetime learning credit, student loan interest deduction, Form 1098-T and Form 1098-E); Revenue Procedure 2025-32, section .29 (2026 student loan interest phase-out); Form 8863 and its instructions (confirm credit phase-out ranges for the year filed); Schedule 1 (Form 1040); Form 1098-T; Form 1098-E. This is general information, not advice about your specific return.

← Back to the blog · Leer en español