Hope Credit

Overview

The Hope Scholarship Tax Credit was a nonrefundable federal tax credit for higher education expenses that applied to a student’s first two years of postsecondary study. It was replaced in 2009 by the American Opportunity Tax Credit (AOTC), which expanded eligibility, increased the maximum credit, and made part of the credit refundable.

How the Hope Credit worked

• Eligible expenses: tuition, required fees and certain course materials (for example, books). Expenses such as room and board, insurance, and medical costs did not qualify.
• Benefit amount: the Hope Credit provided a maximum credit of $1,800 per eligible student (nonrefundable), which could reduce tax liability to zero but could not produce a refund.
• Years covered: the credit applied only to the first two years of postsecondary education.
• Enrollment requirement: the student had to be enrolled at an accredited postsecondary institution and pursuing a degree or recognized credential.
• Disqualifying factors: eligibility was denied for students convicted of a felony drug offense by the end of the tax year.

What changed with the American Opportunity Tax Credit (AOTC)

In 2009 the Hope Credit was expanded and renamed the American Opportunity Tax Credit. Key differences introduced by the AOTC:
– Coverage increased to up to four years of postsecondary education.
– Maximum credit increased (as of 2025 the AOTC maximum is $2,500).
– Up to 40% of the credit (maximum $1,000) became refundable — meaning eligible taxpayers could receive that portion as a refund even if their tax liability was zero.
– Updated income limits and phaseouts apply (see below).

Income limits and phaseouts (AOTC)

The AOTC (which replaced the Hope Credit) has income-based limits:
– Full credit available for taxpayers with modified adjusted gross income (MAGI) up to $80,000 ($160,000 for joint filers).
– Partial credit phases out for MAGI between $80,000 and $90,000 ($160,000–$180,000 for joint filers).
– No credit available above the phaseout ranges.

Note: These MAGI thresholds apply to the AOTC, not the pre-2009 Hope Credit rules.

Special considerations

• Qualified expenses paid with scholarships, grants, or 529 plan distributions generally cannot be used to claim the same expenses for the credit.
• If a student’s expenses are financed by a student loan, those expenses may still qualify for the credit.
• Only one education tax benefit can be claimed for the same student expenses on a single tax return — taxpayers must choose the credit or deduction that yields the best outcome.

Bottom line

The Hope Credit provided a modest, nonrefundable tax benefit for tuition and related expenses during the first two years of college. It was replaced in 2009 by the American Opportunity Tax Credit, which broadened eligibility, extended coverage to four years, increased the maximum credit, and made a portion refundable — making the AOTC the primary federal education credit for undergraduate expenses today.

Sources

• Internal Revenue Service, Publication 970, Tax Benefits for Education (archive)
• American Recovery and Reinvestment Act of 2009 (ARRA)