What Is the Hope Credit?

The Hope Credit Explained in Less Than 5 Minutes

Updated on June 30, 2022

Fact checked by J.R. Duren

Two college-age women look over a paper in a classroom — Photo:
skynesher / Getty Images

The Hope Credit, also known as the Hope Scholarship Credit, was a 1998 through 2008 tax credit for eligible students for the first two years of college. In 2009, the Hope Credit was expanded and renamed the American opportunity tax credit (AOTC).

Understanding current tax rules regarding higher education expenses help students and parents save thousands of dollars.

Key Takeaways

The Hope Credit was a higher education tax credit that allowed students to reduce their tax liabilities based on educational expenses.
The Hope Credit was based on a still-running Georgia program that aimed to make college more affordable.
The American opportunity tax credit (AOTC) replaced the Hope Credit in 2009.
The AOTC expanded the Hope Credit by increasing credit amounts, raising the income eligibility limits, and how many years students could use it.

Definition and Examples of the Hope Credit

The Hope Credit was a tax credit for college students that offered up to $1,500 (increased over time to $1,800) that students could claim for the first two years of higher education. The credit was created as part of the Taxpayer Relief Act of 1997 and was in effect from 1998 to 2008:

Alternate definition: The state of Georgia offers similar aid programs with a similar name, including the HOPE Scholarship, HOPE Grant, HOPE GED Grant, and HOPE Career Grant, although these are not tax credits
Alternate name: Hope Scholarship Credit

An example: A student paid $1,500 in September 2007 for the semester’s tuition. If she qualifies, she could use that $1,500 expense to claim the Hope Credit on her taxes the following April.

Note

Georgia offers six different HOPE programs to reduce post-secondary costs, including the HOPE Scholarship, HOPE Grant, HOPE GED Grant, and HOPE Career Grant.

How the Hope Credit Worked

The Hope Credit allowed higher education students—or parents who claimed students as their dependents—to reduce taxes owed on paying qualified educational expenses, like tuition. This program targeted more traditional full-time students attending college for the first time and those attending community college.

The Hope Credit, and now the AOTC, is available to students who:

Hadn’t yet finished the first two years of postsecondary education
Enrolled in a program leading to a degree, certificate, or other recognized credential
Enrolled at least half time in the course of study for at least one academic period
Hadn’t been convicted of a felony for possessing or distributing a controlled substance

Throughout its existence, calculating the tax credit meant taking 100% of the first amount in qualified expenses and then 50% of the next amount. In 1999, that meant applying 100% of the first $1,000 plus 50% of the next $1,000 of qualified tuition and related expenses. Inflation influenced the qualifying amounts, so by 2008, the tax credit was 100% of the first $1,200 and 50% of the next $1,200. To claim the full $1,800, a taxpayer needed to spend at least $2,400 on qualified educational expenses.

At the time, taxpayers first received a 1098-T Tuition Statement, then filled out Form 8863 to claim the Hope Credit and submitted with income taxes.

Note

Tax credits benefit taxpayers more than a tax deduction. A taxpayer can reduce taxes owed on a dollar-for-dollar basis with a tax credit. For example, if someone owed $10,000 in federal income taxes for the year, but they had a $1,500 tax credit from the Hope Credit, they only paid $8,500 in taxes after the credit.

Hope Credit vs. American Opportunity Tax Credit

Here are some differences between the older Hope Credit and the newer American opportunity tax credit.

	Hope Credit	American Opportunity Tax Credit
Available	No longer available	Available
Maximum length	First two years	First four years
Maximum annual credit	$1,800	$2,500
Phase-out income level	$50,000 to $60,000 for single taxpayers, and $100,000 and $120,000 for married couples filing jointly	$80,000 to $90,000 for single taxpayers, and $160,000 and $180,000 for a married couple filing jointly
Uses	Tuition and enrollment fees	Tuition, enrollment fees, and other expenses that are required for attendance
Tax Benefit	Reduced taxes owed by taxpayer	Up to 40% or $1,000 per year of the AOTC is refundable, even if you don’t owe taxes
Credit calculation	100% of the first $1,200 in qualifying expenses + 50% of the next $1,200 in qualifying expenses	100% of the first $2,000 in qualifying expenses + 25% of the next $2,000 in qualifying expenses

Notable Happenings

In 1997, President Bill Clinton modeled the Hope Credit on the Georgia-based HOPE (Helping Outstanding Pupils Educationally) Scholarship, a program created in 1992 and still active today.

The 2009 stimulus bill, however, changed the Hope Credit. The American Opportunity tax credit allows a tax credit of up to $2,500 per year for four years. The expanded credit is an incentive for community college students straining to pay third- and fourth-year expenses after a college transfer.

Note

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Sources

The Balance uses only high-quality sources, including peer-reviewed studies, to support the facts within our articles. Read our editorial process to learn more about how we fact-check and keep our content accurate, reliable, and trustworthy.

Georgia Student Finance Commission. "HOPE."
Congressional Research Service. "The American Opportunity Tax Credit: Overview, Analysis, and Policy Options."
IRS. "Tax Benefits for Higher Education For Use in Preparing 1999 Returns."
IRS. "Education Credits."
Department of the Treasury. "The American Opportunity Tax Credit."
IRS. "American Opportunity Tax Credit: Questions and Answers."
The American Presidency Project. "Address Before a Joint Session of the Congress on the State of the Union."
IRS. "American Opportunity Tax Credit."