Many families today are struggling with the cost of higher education for their children. Due largely to a lack of college savings, student loan debt is soaring. There are currently 45 million student loan borrowers in the U.S. who owe a collective $1.5 trillion in education debt. The average student loan borrower now graduates college with a debt burden of more than $26,000.\r\n\r\nHowever, there is some good news when it comes to paying for college. An under-utilized tax break called the American Opportunity Credit can save you up to $2,500 per year on qualified education expenses for your children or even yourself.\r\n\r\nWho Can Claim the American Opportunity Credit?\r\nThe American Opportunity Credit is available to individuals and families who paid education expenses for a dependent student who is enrolled on at least a half-time basis in an accredited post-secondary institution. The student must be pursuing a degree or other educational credential. \r\n\r\nHowever, the credit phases out once modified adjusted gross income (MAGI) reaches a certain level. For tax year 2019, the MAGI limit to claim the full American Opportunity Credit is $80,000 for single filers or $160,000 for married couples filing jointly. If your MAGI is between $80,000 and $90,000 if you\u2019re single \u2014 or between $160,000 and $180,000 if you\u2019re married and file jointly \u2014 you can claim a partial credit. Once your MAGI exceeds $90,000 if you\u2019re single or $180,000 if you\u2019re married and file jointly, you\u2019re ineligible for the credit.\r\n\r\nThe credit can be claimed for any expenses related to the student\u2019s program of study such as tuition, fees, books, supplies and equipment. However, it cannot be claimed for costs associated with a student\u2019s everyday living such as room and board, transportation or health insurance. \r\n\r\nHow to Calculate and Claim the Credit\r\nThe credit is equal to 100 percent of the first $2,000 you spend on qualified education expenses and 25 percent of qualified expenses that exceed $2,000, up to a maximum annual credit of $2,500. Practically speaking, this means that the credit is worth up to $2,500 on the first $4,000 spent on qualified expenses each year.\r\n\r\nOne of the biggest benefits of the American Opportunity Credit is that it\u2019s refundable. This means that if you owe no federal taxes, you can still receive a credit of up to 40 percent, or $1,000, in the form of a tax refund. The credit can also help offset the alternative minimum tax (AMT) and the self-employment tax. \r\n\r\nYou should receive IRS Form 1098-T from the qualifying educational institution you paid expenses to no later than January 31 listing the education expenses you paid the previous year. If you received any tax-free education assistance for the student \u2014 such as scholarships, fellowships or grants \u2014 you must subtract this amount. You\u2019ll then use Form 8863 to calculate the amount of your tax credit and attach this to your 1040 form. \r\n\r\nLimitations of the American Opportunity Credit\r\nNote that the American Opportunity Credit can only be claimed during the first four years of college or other qualifying type of higher education. It cannot be claimed for education expenses incurred for graduate studies. Also, you can only claim one credit per eligible student each year. \r\n\r\nA different education tax credit \u2014 the Lifetime Learning Credit \u2014 is available for graduate studies. However, the Lifetime Learning Credit is not refundable. You can\u2019t claim both of these education credits for one student, so if you qualify for both, determine which one offers the most benefit and claim that one. Click here to read more about the Lifetime Learning Credit.\r\n\r\nOur Take\r\nThe American Opportunity Credit could help ease some of the pressure of paying higher education expenses for your children. Visit the IRS website to learn more about the American Opportunity Credit.