Tax-Saving College Funding Options

If you meet income and other requirements, a variety of grants and tax breaks can help you reduce higher education costs. Examples include:

Grants

The federal Pell Grant offers up to $7,395 for 2026-2027. The Federal Supplemental Educational Opportunity Grant (FSEOG) may provide up to $4,000 each year, depending on the availability of the grant at the school.

Most colleges or secondary schools offer grants from various private organizations. Two examples include grants aimed at specific groups of students, such as future teachers and children of veterans. To qualify for almost any grant or loan, you must fill out the Free Application for Federal Student Aid (FAFSA) form.

Tax Breaks

Get tax credits — which you subtract from taxes owed — from the American Opportunity Tax Credit and the Lifetime Learning Credit. The American Opportunity Tax Credit is for undergraduate expenses up to $2,500 per student per year. The Lifetime Learning Credit provides up to $2,000 per student per year. You cannot claim both credits in the same tax year for the same student, nor can the student be declared a dependent by someone else.

And, if you meet income requirements, you may deduct student loan interest of up to $2,500 from your taxable income.