If you are working toward your college degree and looking for ways to cut your educational costs as much as possible, you have several options. One of the most well-known involves applying for student loans. That's in addition to all of the scholarships and grants for which you can apply.

While each of these forms of financial aid can help reduce your total educational expenses, the Internal Revenue Service (IRS) offers another opportunity to save even more via the Lifetime Learning Credit. What is this credit and what do you need to know before applying?

What Is the Lifetime Learning Credit?

The Lifetime Learning Credit is a tax credit offered by the IRS to help offset college tuition and other qualified educational expenses for certain students. So, unlike some of the other financial aid options that pay in alignment with the expenses as they occur—oftentimes, at the beginning of the school year or academic term—this savings comes back at tax time.

Though some confuse it with the American Opportunity Tax Credit (AOTC), the Lifetime Learning Credit is actually a different educational credit with its own criteria, benefits, and more.

7 Things College Students Should Know About the Lifetime Learning Credit

If you are interested in filing for the Lifetime Learning Credit to help offset some of your college expenses, there are a few things you should know.

1. You must meet eligibility requirements to qualify for this tax credit.

To apply for the Lifetime Learning Credit, you have to be enrolled in higher education courses or job skill improvement courses at an eligible educational institution for at least one academic period beginning in that tax year.

2. But you don't have to be in a degree program to get this credit.

Unlike eligibility requirements for the AOTC, you do not need to be pursuing a degree or other credential to qualify for the Lifetime Learning Credit. You only need to be taking courses or working to "get or improve" your job-related skills.

3. You also don't have to be taking a certain number of courses.

Some tax credits and financial aid programs require students to be enrolled in a certain number of credit hours to be eligible. This is not a qualification of the Lifetime Learning Credit. As long as you're enrolled in at least one course, you meet this requirement.

Like other forms of financial aid, this IRS educational credit is for students at or below certain income levels. For the 2020 tax year, for instance, your modified adjusted gross income (MAGI) could not exceed $69,000 if you were single or $138,000 if you filed jointly to qualify for the Lifetime Learning Credit. Additionally, if you made over $59,000 as a single filer or $118,000 as a joint filer in 2020, your total credit was reduced as this credit is phased out once certain income levels are reached.

5. You can apply for the Lifetime Learning Credit every year.

Unlike some other IRS tax credits that max out over time (either in the number of years you can apply or the total amount of money you can receive), the Lifetime Learning Credit is unlimited. It can be sought every year that the student meets the eligibility requirements.

The IRS reports that the Lifetime Learning Credit is 20 percent of your first $10,000 in educational expenses annually. So, this credit will not exceed $2,000 per tax return. In other words, if you pay out more than $10,000 in educational expenses in a specific tax year, this credit will not increase over the $2,000 amount.

7. The Lifetime Learning Credit is nonrefundable.

What does it mean for a tax credit to be nonrefundable? If you owe the IRS at tax time, this credit can be applied toward the amount you owe but it will not be paid as a refund. For example, if you owe $1,500 in taxes when you file, the Lifetime Learning Credit can be used to offset this amount but you will not receive a check for the remaining $500 of the credit.

If you're still unsure whether this credit is available to you, the IRS offers a 10-minute online interview that can help you determine not only whether you might qualify for the Lifetime Learning Credit, but also if you may meet the qualifications for other educational tax credits such as the AOTC.

You can also contact Saint Leo University's Student Financial Services team and speak with one of our trusted and knowledgeable advisors. Together, we can identify your financial aid options based on your situation and needs.