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Yes, you can claim an education credit for higher education expenses paid by a government-subsidized loan, provided that you must repay the loan. The credit is claimed in the year in which the expenses are paid, not in the year in which the loan is repaid.
According to § 1.25A-5(e)(3), an education tax credit may be claimed for qualified tuition and related expenses paid with the proceeds of a loan only in the taxable year in which the expenses are paid. Loan proceeds disbursed directly to an eligible educational institution will be treated as paid on the date the institution credits the proceeds to the student's account.
Additionally, the IRS FAQ confirms that higher education expenses paid with the proceeds of a government-subsidized loan may qualify for the credit if you must repay the loan. The credit is claimed in the year in which you pay the expenses, not in the year in which you repay the loan.
Sources:
Instructions for Form 8863 (2023)
§ 25A. American Opportunity and Lifetime Learning credits
Publication 970 (2023)
§ 1.25A-5. Special rules relating to characterization and timing of payments.
