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Education Tax Benefits #291326

Course Overview

Credit

Amount

CPA

5.5

CFP^®

3.5

IAR/FINRA

EA / OTRP

Course Author: Paul J. Winn CLU ChFC Field of Study (CPA): Taxes Field of Study (CFP): Tax Planning Field of Study (IAR): Product & Practice Field of Study (EA/OTRP): Federal Tax Law

Course Description

Course publication/revision date: This course was updated on 2/11/2026 (covers 2026 tax law).

This course will examine the programs, credits, deductions and federal income tax treatment of various items that affect saving for and financing an individual’s education. In so doing, it will consider:

Qualified tuition programs;
Coverdell education savings accounts;
The education savings bond program;
Federal tax credits for education;
The federal tax treatment of scholarships, fellowships, grants and tuition reductions; and
Deductions available for student loan interest.

Table of Contents

Introduction1

Chapter 1 - §529 Qualified Tuition Programs2

Introduction	2
Chapter Learning Objectives	2
High Income-Education Correlation	2
Qualified Tuition Programs	2
Prepaid Tuition Plans	3
College Savings Plans	3
Limits on Contributions	4
Tax Treatment of Qualified Tuition Programs	4
Qualified Tuition Program Contributions Not Deductible and are Considered Gifts	4
College Savings Program Earnings Tax-Deferred	5
College Savings Plan Distributions may be Tax-Free	6
Qualified Education Expenses	6
Postsecondary Credentialing Expenses	7
Half-Time Student	8
Adjustments to Qualified Education Expenses	8
Eligible Educational Institution	8
Certain College Savings Plan Distributions Taxable	9
Coordination with American Opportunity and Lifetime Learning Credits	10
Coordination with Coverdell Education Savings Account Distributions	10
Additional Tax Payable on Taxable QTP Distributions	11
Exceptions to Additional Tax Liability	11
QTP Investment Losses	12
Rollovers and QTP Beneficiary Changes	12
Rollovers to a Roth IRA	12
Rollovers from Qualified Tuition Programs to ABLE Accounts	13
OBBBA Makes Rollovers to ABLE Accounts Permanent	13
Summary	13
Review Quiz	15

Chapter 2 – Coverdell Education Savings Accounts16

Introduction	16
Chapter Learning Objectives	16
Definition & Eligibility	16
Limits on Contributions	16
Eligible ESA Beneficiaries	17
Tax Considerations	17
Tax-Free ESA Distributions	18
Qualified Education Expenses	18
Eligible Educational Institution	18
Taxation of Excess ESA Distributions	18
Calculating Earnings Distributed	19
Adjusted Qualified Education Expenses	20
Coordination with American Opportunity and Lifetime Learning Credits	20
Coordination with Qualified Tuition Program Distributions	20
Additional Tax Payable on Taxable ESA Distributions	21
Exceptions to Additional Tax Liability	21
Coverdell ESA Investment Losses	21
Calculating the Taxable Part of the Distribution	21
ESA Rollovers	22
Summary	22
Review Quiz	23

Chapter 3 – Education Savings Bond Program25

Introduction	25
Chapter Learning Objectives	25
Education Savings Bond Program in Brief	25
Qualified U.S. Savings Bonds	25
Qualified Education Expenses	25
Eligible Educational Institutions	25
Qualified Education Expenses Reduced by Certain Tax-free Benefits Received	26
Figuring the Potentially Tax-Free Amount	26
Education Savings Bond Program Eligibility Subject to Income Limits/Filing Status	27
Summary	28
Review Quiz	28

Chapter 4 – Education Tax Credits30

Introduction	30
Chapter Learning Objectives	30
Two Tax Credits Offset Higher Education Costs	30
American Opportunity Credit	30
Overview of the American Opportunity Credit	30
Eligibility to Claim an American Opportunity Credit	31
Expenses Qualifying for an American Opportunity Credit	31
Qualified Education Expenses - American Opportunity Credit	31
Eligible Educational Institution	32
Double Benefit Prohibited	32
Adjustments to Qualified Education Expenses	32
Tax-Free Educational Assistance	32
Refunds	32
Expenses That Do Not Qualify	33
Eligible Students – American Opportunity Credit	33
Claiming a Dependent's Expenses	33
Expenses Paid by The Dependent	34
Expenses Paid by Others	34
Tuition Reductions	34
Tuition Reductions for Undergraduate Level Education	34
Tuition Reductions for Graduate Level Education	35
Figuring the American Opportunity Credit	35
Maximum American Opportunity Credit Subject to Income Limits/Filing Status	35
Refundable Part of the American Opportunity Credit	36
Credit Recapture	36
AOTC Due Diligence Requirement	37
Lifetime Learning Credit	37
Overview of the Lifetime Learning Credit	37
Eligibility to Claim a Lifetime Learning Credit	38
Expenses Qualifying for a Lifetime Learning Credit	38
Qualified Education Expenses – Lifetime Learning Credit	38
Eligible Educational Institution	38
Double Benefit Prohibited	39
Adjustments to Qualified Education Expenses	39
Tax-Free Educational Assistance	39
Refunds	39
Expenses That Do Not Qualify	40
Eligible Students – Lifetime Learning Credit	40
Claiming a Dependent's Expenses	40
Expenses Paid by the Dependent	40
Expenses Paid by Others	40
Tuition Reductions	41
Tuition Reductions for Undergraduate Level Education	41
Tuition Reductions for Graduate Level Education	41
Figuring the Lifetime Learning Credit	41
Maximum Lifetime Learning Credit Subject to Income Limits/Filing Status	41
Lifetime Learning Credit Recapture	42
Summary	43
Review Quiz	44

Chapter 5 – Educational Assistance & Student Loan Interest46

Introduction	46
Chapter Learning Objectives	46
Educational Assistance	46
Scholarships and Fellowships	46
Tax-Free Scholarships and Fellowships for Degree Candidates	46
Eligible Educational Institution	47
Qualified Education Expenses	47
Taxable Scholarships and Fellowships	47
Amounts Used to Pay Non-qualifying Expenses	47
Payments for Services Constitute Taxable Income	47
Scholarship Prizes	48
Reporting Scholarships and Fellowships	48
Other Types of Educational Assistance	48
Fulbright Grants	48
Pell Grants and Other Need-Based Education Grants	48
Service Academy Cadet Payments	48
Veterans' Benefits	49
Tuition Reduction	49
Tuition Reductions for Undergraduate Level Education	49
Tuition Reductions for Graduate Level Education	49
Reporting Tuition Reductions	49
Student Loan Interest Deduction	50
Student Loan Interest Defined	50
Qualified Student Loan	50
Dependents for Student Loan Interest Deductions	51
Exceptions to Usual Dependent Rules	51
Reasonable Period of Time	51
Eligible Student	52
Qualified Education Expenses	52
Eligible Educational Institution	52
Adjustments to Qualified Education Expenses	52
Amounts Included as Interest	52
Amounts Not Included as Interest	53
Eligibility to Claim the Deduction	53
Determining the Student Loan Interest Deduction	53
Income and Filing Status may Affect Student Loan Interest Deduction	53
MAGI Defined for Student Loan Interest Deduction	54
Student Loan Cancellations and Repayment Assistance	54
Tax-Free Student Loan Cancellation	55
Qualified Lenders	55
Eligible Educational Institutions	56
Refinanced Loans	56
Tax-Free Student Loan Repayment Assistance	56
TRA 2020 Extends CARES Act Repayment Provision	56
Student Loan Payments Treated as Elective Deferrals for Employer Match	57
Qualified Student Loan Payment	57
IRA Distributions	58
Eligible Individuals	58
Qualified Education Expenses	58
Eligible Educational Institution	59
Figuring the Amount Not Subject to the Penalty Tax	59
Summary	59
Review Quiz	60

Glossary61

Answers to Review Quizzes63

Chapter 1	63
Chapter 2	64
Chapter 3	67
Chapter 4	68
Chapter 5	70

Index73

Appendix A75

Appendix B78

Appendix C80

Appendix D81

Course Details

Author: Paul J. Winn CLU ChFC

Paul J. Winn CLU ChFC — Financial Writer, Editor & Trainer. Education: B.A., St. John’s University (1961–1964); Law School, University of Virginia (1964–1965); MBA program Binghamton University (1986–1989); CLU (1985); ChFC (1987). Experience: Thirty years in the life insurance and investment industry (1965–1995). Thirty-one years as a financial writer, editor and trainer (1995–2026). Paul held positions at Mutual Life Insurance Company of New York as product developer and compensation officer; at Security Mutual Life Insurance Company as general agent, marketing vice president, and agency vice president; at Principal Financial Group as agency manager; and as president of Maryland Financial Corporation, managing a financial adviser corporation providing tax, investment and financial planning. As a writer and editor, Paul is a published book author whose books include Tax Planning from the Heart, Business Succession Planning, and Dominating Obamacare. He served as writer and editor of a major mutual life insurance company’s agent training university, created more than 200 insurance, securities and tax training courses in online, print and scripted classroom formats, and is the founder and CEO of Winn Publications LLC, a tax and insurance continuing education course licensor.

Publication/Revision Date: 2/11/2026

Course Exam Questions (online): 30 (multiple-choice)

Program Delivery Method: Self-Study (NASBA QAS Self-Study)

Available Formats of Course Text: Downloadable PDF, Printed/Mailed

Course Level, Prerequisites, and Advance Preparation Requirements

License	Course Level	Prerequisites	Advance Preparation Requirements
CPA	Overview	None	None
CFP®	Intermediate	None	None
IAR	Intermediate	None	None
EA/OTRP	Overview	None	None

* This program is appropriate for professionals at all organizational levels.

Sponsor ID Numbers

National Registry of CPE Sponsors I.D.: 107615

CFP Board Sponsor I.D.: 1008 — Course I.D.: 298395

NASAA Sponsor I.D.: S17460 — Course I.D.: C80847

IRS Qualified Sponsor I.D.: FWKKO — Course I.D.: FWKK0-T-00739-26-S

State CPA Board Sponsor ID Numbers (where applicable)

Florida Division of Certified Public Accounting: 0004761

Hawaii Board of Public Accountancy: 14003

New York State Board for Public Accountancy: 002146

Ohio Accountancy Board: CPE .51 PSR

Pennsylvania State Board of Accountancy: PX178025

Texas State Board of Public Accountancy: 009349

Learning Objectives

As a result of studying the course material, you should be able to meet the objectives listed below:

Identify the features and tax benefits of qualified tuition programs available under IRC §529;
Recognize the limits and tax treatment of contributions to and distributions from a Coverdell education savings account (ESA);
Identify the tax treatment of interest earned under qualified U.S. savings bonds used to pay certain education expenses;
Apply the American opportunity and lifetime learning credit rules;
Recognize the tax treatment given to scholarships, fellowships and other types of educational assistance; and
Apply the federal income tax rules applicable to student loan interest, student loan cancellations and repayment assistance.