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In August of 1997, Congress passed the Taxpayer Relief Act of 1997 (TRA97).  The TRA97 creates several new tax benefits for families who are saving for, or already paying, higher education costs or are repaying student loans.

A few of the benefits provided by the TRA97 include The Hope Scholarship and The Lifetime Learning Tax Credits, and a student loan interest deduction. These benefits help open the doors of college to a new generation, with the largest investment in higher education since the G.I. Bill 50 years ago. These tax cuts effectively make the first two years of college universally available, and they will give many more working Americans the financial means to go back to school if they want to choose a new career or upgrade their skills.

Hope Scholarship Tax Credit

Up to a $1500 "Hope Scholarship" Tax Credit for students starting college

The Hope Scholarship Tax Credit helps make the first two years of college universally available.  Students or their parents will receive a 100% tax credit for the first $1,000 of tuition and required fees and a 50% credit on the second $1,000. This credit is available for tuition and required fees less grants and scholarships, and other tax-free educational assistance and will be available for payments made after December 31, 1997 for college enrollment after that date.  A high school senior going into his or her freshman year of college in September, 1998, for example, could be eligible for as much as $1500 Hope Scholarship Tax Credit.

This credit is phased out for joint filers who have between $80,000 and $100,000 of adjusted gross income, and for single filers who have between $40,000 and $50,000 of adjusted gross income. The credit can be claimed in two years for students who are in the first two years of college or vocational school and who are enrolled on at least a half-time basis in a degree or certificate program for any portion of the year.  The taxpayer can claim a credit for his own tuition expense or for the expense of his or her spouse or dependent children.

The Lifetime Learning Tax Credit

This tax credit is targeted to college juniors, seniors, graduate and professional degree students as well as adults who want to go back to school, change careers, or take a course or two to upgrade their skills. A family will receive a 20% tax credit for the first $5,000 of tuition and required fees paid each year through 2002, and for the first $10,000 thereafter.  Just like the Hope Scholarship Tax Credit, the Lifetime Learning Tax Credit is available for tuition and required fees less grants, scholarships, and other tax-free educational assistance; families may claim the credit for amounts paid on or after July 1, 1998 for college or vocational school enrollment beginning on or after July 1, 1998. The maximum credit is determined on a per-taxpayer (family) basis regardless of their number of post-secondary students in the family, and is phased out at the same income levels as the Hope Scholarship Tax Credit.  Families will be able to claim the Lifetime Learning Tax Credit for some members of their families and the Hope Scholarship Tax Credit for others who qualify in the same year.

Student Loan Interest Deduction

This is an above-the-line deduction (the taxpayer does not need to itemize in order to claim this deduction) for interest paid in the first 60 months of repayment on private or government backed loans. The amount eligible for the deduction is limited to post-secondary expenses for tuition, fees, books, equipment, room, and board. The amount of the deduction is phased out at certain income levels. See income phase-out for more information.

Information for Student or Parents

For each qualified student, taxpayers must choose to claim the Hope Scholarship Credit, the Lifetime Learning Credit, or the exclusion for certain distributions from an education IRA for the taxable year.  They cannot claim more than one of these benefits for a student for any year. 

To claim the credits, taxpayers are required to provide the name and taxpayer identification number of the student on the return. The taxpayer is required to complete and return Form 8863, Education Credits, to the IRS when the tax return is filed in order to claim the Hope Scholarship or Lifetime Learning credits.

Information Supplied by Anderson University

In January of each year Anderson University will send a Form 1098-T to students who have made qualified educational payments during the preceding calendar year. On Form 1098-T the university is required to report whether the student was enrolled at least half-time during one semester of the tax year, and whether the student was exclusively taking graduate level courses. We will also provide Form 1098-T information to the Internal Revenue Service.

The IRS does not require that we show your specific financial information on the form even though there are spaces provided for that purpose (although this will change beginning in 2004). However, to further assist you in determining your eligibility for these tax credits and in the preparation of your federal income tax return you are able to view a complete history of your student account through AccessAU.

Information that the university is required to report on Form 1098-E is the amount of student loan interest paid during that tax year (if more than $600).

Anderson University cannot provide individual tax advice and shall not be liable for damages of any kind in connection with this information. Please contact your tax professional or the Internal Revenue Service with questions you may have.

Additional Information

Additional Information about the Hope Scholarship Tax Credit, the Lifelong Learning Tax Credit, and other educational tax benefits enacted in 1997 may be obtained by: