Financing a college education is one of the most stressful things about going to college. But many people don't realize that under current tax law, the IRS offers as much as $2,500 per year toward college expenses.

In the following video, Dan Caplinger, The Motley Fool's director of investment planning, takes a closer look at the American Opportunity Tax Credit. Dan notes that the credit pays 100% of the first $2,000 of college expenses, as well as another 25% of the next $2,000 you pay toward tuition, fees, and other required materials. In the past, these credits were only available for two years, but recent changes made them available for up to four years of post-secondary education. The credits are available for traditional nonprofit college and universities as well as Apollo Group (NASDAQ:APOL), Bridgepoint Education (NYSE:BPI), ITT Educational (NYSE:ESI), and other for-profit institutions. Moreover, Dan observes that as much as 40% of the credit can be refundable, meaning that even if you don't have tax liability, you can get a check from the IRS for up to $1,000. Dan warns, though, that the credit is only fully available for single tax filers with modified adjusted gross income below $80,000 or joint filers with income below $160,000.

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Dan Caplinger doesn't own shares of any companies mentioned in this article. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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