If you’re paying you way through college, or your parents are helping you pay for school, you should know about some tax credits and deductions that are available.

If you’re a dependent on your parents’ tax return, they may qualify for the Hope Scholarship. The Hope Scholarship is only available for students in their first or second years of college or vocational schooling. It is a tax credit of up to $1,800 per year per student.

The Lifelong Learning Credit is more flexible and applies to any student in an undergraduate, graduate or professional program. There is no limit to the number of years in which the credit can be claimed, but the credit is limited to $2,000 per return.  If Mom and Dad are claiming the Hope Scholarship credit in your first two years of college, they cannot also claim the Lifelong Learning Credit for you in those years. Once your Hope eligibility is passed, they can start claiming your LLC.  Likewise, if your parents use the tax-free distributions from an Education IRA (Coverdell Account), they cannot also claim Hope Scholarship Credits for you.

Student loan interest deductions are available for use while you’re still in school, provided that you’re actually paying on your student loans. For most loans, the payments are deferred until after graduation, but private loans and PLUS loans may qualify for this favorable tax treatment. New PLUS loans issued after July 1, 2008 can be deferred – like regular student loans – until after the beneficiary graduates or leaves school. If your parents defer the payments, they’ll also defer the student loan interest credit. Check with the IRS for income-based limits on this deduction. Once you graduate and file your own tax returns, you can claim the student loan interest deductions on your own return.

Some government-issued savings bonds are eligible for favorable tax treatment if used to pay qualified higher education expenses.  Federal savings bonds are already exempt from municipal and state income taxes, but are normally subject to Federal income tax. If used for higher education expenses, the bonds may be tax-exempt. The bonds must be E, EE or I Series bonds issued after December 31, 1989. The bonds must be issued to the person claiming the deduction, and the bond owner must have been at least age 24 when the bond was issued to claim the break.  Bonds bought by parents and issued in a child’s name don’t qualify for the exclusion.

The tax code changes each year, but students and their parents can expect the favorable tax treatments for college expenses to continue while Congress wrestles with ways to reduce the high cost of higher education.