Income tax center

What are adjusted qualified higher education expenses?

[Excerpts from Chapter 3 of The Best Way to Save for College – A Complete Guide to 529 Plans (2015-16 Edition)]

Adjusted qualified higher education expenses (AQHEE) are qualified higher education expenses (QHEE) reduced by expenses used to claim an education tax credit. See the section below concerning the American Opportunity and Lifetime Learning credits for a description of this adjustment.

QHEE means tuition, fees, books, supplies, and equipment required for enrollment or attendance on a full-time or part-time basis at an eligible educational institution, plus, in the case of a “special needs beneficiary,” any "special needs services." ¹ In addition, QHEE includes room and board expense (both on-campus and off-campus) for students enrolled in eligible college programs on at least a half-time basis.² The student’s qualifying expenses must be reduced by any tax-free scholarships or payments, and by educational assistance allowances provided under certain federal programs.

QHEE under current law does not include the cost of transportation or personal expenses, even though they may be considered part of the "cost of attendance" for federal financial aid purposes. Repayment of student loans also does not qualify.

Computers and related equipment (software, internet access, etc.) do not currently qualify as a qualified expense unless required by the educational institution. However, H.R. 529, a bill currently in Congress, would make such purchases a qualified expense. This bill has passed the House of Representatives, but not yet been signed into law.

What is an eligible educational institution?

Eligible educational institutions are defined by reference to Section 481 of the Higher Education Act of 1965 and include any accredited postsecondary educational institutions offering credit toward a bachelor’s degree, an associate’s degree, a graduate or professional degree, or another recognized postsecondary credential. Certain proprietary institutions and postsecondary vocational institutions also are eligible institutions. The institution must be eligible to participate in Title IV U.S. federal financial aid programs. To determine if a particular institution has been assigned a federal school code by the Department of Education, and presumably eligible under Section 529 as meeting these requirements, you may enter the name of an institution at the Department of Education’s website. Many foreign universities are included on the list. Some states have requested that the IRS provide an official listing of eligible educational institutions, but so far none has been published.

¹The definition of a "special needs beneficiary" has not yet been provided in Treasury Department regulations. The Conference Agreement to Act Sec. 401 of the 2001 EGTRRA references individuals who because of a physical, mental, or emotional condition (including learning disability) require additional time to complete their education.

²The amount paid for room and board as QHEE cannot exceed (i) the allowance applicable to the beneficiary for room and board included in the "cost of attendance", as defined in section 472 of the Higher Education Act as in effect on June 7, 2001, as determined by the eligible educational institution for that period, or (ii) if greater, the actual invoice amount the beneficiary residing in housing owned or operated by the eligible educational institution is charged for room and board costs for that period. The room and board costs must be incurred during an academic period during which the student is enrolled or accepted for enrollment in a degree, certificate or other program (including a program of study abroad approved for credit by the eligible educational institution) that leads to a recognized educational credential awarded by an eligible educational institution. A student will be considered to be enrolled at least half-time if the student is enrolled for at least half the full-time academic workload for the course of study the student is pursuing as determined under the standards of the institution where the student is enrolled. The institution's standard for a full-time workload must equal or exceed a standard established by the Department of Education under the Higher Education Act.

Next: Can I claim the American Opportunity or Lifetime Learning credit in the same year that I withdraw from my 529 account to pay for college?