New American Opportunity Education Tax Credit – Facts for Students and Parents

1. The Hope credit has been renamed the “American Opportunity Education Tax Credit” for the 2009 and 2010 tax year.

2. The maximum credit amount has been increased from $1,800 to $2,500 per year, per student.

3. This includes 100 percent of eligible expenses up to $2,000 plus 25 percent of expenses above $2,000. Total eligible expenses would have to reach $4,000 to reach the maximum credit amount.

4. More low-income and upper-middle income families will qualify. Adjusted gross income up to $160,000 for married couples or $80,000 for single parents. Income higher than these levels will receive a phased out credit as income levels rise.

5. 40 percent of the credit will be refundable to families that owe no income tax. Students can claim the credit as well if they provide more than half of their own support.

6. Those students and families that have used their eligibility under the old Hope credit will be able to claim the new expanded Hope limits today. The new law allows students and parents to covers a 4 year period.

7. Required course materials can now be counted in addition to tuition and student activity fees. Previously, the cost of textbooks could not be counted in computing the credit. This can contribute significantly to students that did not use up all of the credit while attending school online or part time.

8. The credit can’t be claimed against the following sources:

a. 529 Plans
b. Tax free Scholarships
c. Pells Grants
d. Coverdell Education Savings account (ESA)
e. Employer provided education assistance
f. Military educational assistance
g. Any other tax free educational assistance

9. Only one of these credits/deductions can be selected, per student:

a. The New American Opportunity Education Tax Credit
b. The existing $2,000 Lifetime Learning tax credit
c. The $4,000 above-the-line deduction

10. The New American Opportunity Education Tax Credit is the best of the three as it is a higher credit than the Lifetime Learning tax credit and a $4,000 deduction at most provides $1,400 in relief.

11. 529 savings accounts are now allowed to pay for computers, computer-related technology and Internet access for beneficiaries.

12. The Pell Grant will be increased from $4,731 to $5,350 starting July 1st, 2009. This is the largest increase in history and will get an additional 800,000 students into the Pell Grant Program.

13. In 2010 and 20111 the Pell Grant will be increased to $5,550.


  1. can someone pay $4000 for his tuition and get a pell to pay for his dormitory(which not a eligable expanse)? THANK YOU


    • Kourtnie McKenzie says:

      A Pell Grant may be used to cover all college-incurred expenses, although it typically is applied to your tuition first. The Pell Grant is one of the first things that reduces tuition expenses, as it is a grant given only to students with “severe financial need.”

      Read more about the Pell Grant
      to see all the stipulations involved in this federally-funded financial service.

  2. Teresa McGill says:

    If I currently reside in Wisconsin (an area outlined in this expanded tax credit) but attended an online accredited institution (located in Pennsylvania – The Art Institute of Pittsburgh) am I will eligible for the expanded tax credit? I did claim the Hope Credit this past tax season. Please advise.


    • Kourtnie McKenzie says:

      If you previously used the Hope program, you may use this new program. Old users of the Hope program have turned to this program for financial aid. Hope this helps!

  3. Who claims what on taxes? Situation: divorced parents both supporting daughter in college. We are splitting the expenses for tuition, room and board, meal plan, and books 50/50. We alternate years to claim our daughter as a dependent on our taxes. It is my ex’s year to claim her. Should he claim both portions (his and mine) of the college expenses on his taxes since it is his year to claim her as a dependent? OR should we both claim only our portion of the expenses regardless of who claims her as a dependent that particular year? 1st year student and I’m confused about this… Thanks for any assistance.

    • Kourtnie McKenzie says:

      B Nolan,

      You can find information on the American Opportunity Tax Credit at this site. All the official information is there. If you’d like to contact a member of the government–they are the best at handling specific questions such as this as they face situations like this on a day-to-day basis–you can check out the contact information here.

      With that in mind, tax credits for education are typically not retroactive. Scholarships do not have to be paid back, but all stafford loans must be paid back after the student finishes school. I am not sure how the IRS handles divorced parents claiming educational costs of their children. Hope this helps!

  4. Question number 2…I am a doctoral student still enrolled working on my dissertation. Tuition isn’t much at all now that I’ve completed the course work. I have taken the education tax credit in the past for tuition is this plan retroactive at all? Is there a possibility to get something back from the past 4 years? It never hurts to ask.

  5. I should have included this in question number 1… after scholarships and a subsidized stafford loan we are paying over $4000 for this first semester. What should we expect to have refunded?

  6. Reading information about the Amer Opport credit. If student is claimed as dependent but pays own tuition can the person claiming the dependent use this in the computation of the credit?

    • Kourtnie McKenzie says:

      J Walter,

      I am not honestly sure about this. You would want to get a government official or a representative from your child’s financial aid office to look into this to make sure you get an accurate answer. Sorry for the lack of information!

  7. Grant Smith says:

    Very good article, I’m glad to be a reader.

  8. S. Barnes says:

    FYI…I just talked to the IRS and was told that only the person claiming the student on their taxes that year can take the credit. So, I am a divorced mom of a first year college student and just found out that info. I now am pretty disappointed to find out that I won’t be able to take the credit this year and her father will. I guess I will make sure that I am the one claiming her next year!


  1. […] More details about this, additional credits and 529 plans can be found at the Online Education Blog. […]

  2. […] More details about this, additional credits and 529 plans can be found at the Online Education Blog. […]