The Education Savings Bond Program: Tax Benefits Explained

The Education Savings Bond Program is a federal tax provision allowing individuals to exclude interest earned on certain U.S. savings bonds from their taxable income. This benefit is available when the bond proceeds are used to pay for qualified higher education expenses. The program is designed to encourage saving for future college costs by providing a tax incentive, and it applies to Series EE bonds issued after 1989 and all Series I savings bonds.

Qualifying for the Tax Exclusion

To qualify for the tax exclusion, four conditions must be met regarding the bonds, the owner, your income, and the educational institution. The bonds must be redeemed in the same tax year that the qualified education expenses are paid.

Ownership of the bonds is subject to specific rules. The bonds must be registered in the name of the taxpayer, their spouse, or both, and not in the name of a dependent child. An age requirement also applies: the bond owner must have been at least 24 years old when the bond was issued. This rule prevents parents from buying bonds in a young child’s name to circumvent the ownership requirement.

Your income in the year you cash the bonds and pay for expenses is a determining factor. The tax exclusion is subject to Modified Adjusted Gross Income (MAGI) limitations that are adjusted annually for inflation. For the 2025 tax year, the interest exclusion begins to phase out for taxpayers with a MAGI between $99,500 and $114,500 for most filing statuses, and between $149,250 and $179,250 for those married filing jointly. If your MAGI is above these upper limits, you cannot claim the exclusion. Taxpayers using the married filing separately status are not eligible for this benefit regardless of their income level.

The student must attend an eligible educational institution, which includes most accredited schools that participate in federal student aid programs. You can verify a school’s eligibility through the U.S. Department of Education’s federal school code database. The expenses must be for a student enrolled in a degree, certificate, or other recognized credential program.

Defining Qualified Education Expenses

Qualified education expenses are primarily tuition and fees required for enrollment or attendance at an eligible educational institution. The costs must be for the taxpayer, their spouse, or a dependent for whom they claim an exemption on their tax return.

Certain educational costs are not covered. Expenses for room and board, even if paid directly to the school, do not qualify. The costs of books, supplies, and equipment are also not considered qualified expenses unless they are a mandatory fee required as a condition of enrollment. Transportation and other personal living expenses are also excluded.

Your qualified education expenses must be reduced by any tax-free educational assistance received. This includes:

• The tax-free portions of scholarships
• Pell grants
• Veterans’ educational assistance
• Employer-provided educational assistance

Funds from a Coverdell Education Savings Account or a 529 plan used for the same expenses must also be subtracted.

You cannot use the same expenses to claim multiple tax benefits. If you claim the American Opportunity Tax Credit or the Lifetime Learning Credit, the expenses used for those credits cannot be counted as qualified expenses for the bond interest exclusion. This prevents “double-dipping” on tax benefits. You must calculate any other education credits first and reduce your qualified expenses accordingly.

Claiming the Tax Exclusion

To claim the tax exclusion on your federal income tax return, you will need three pieces of information: the total proceeds from all Series EE and I bonds cashed during the year, the interest portion of those proceeds, and your adjusted qualified education expenses. The financial institution that cashed your bonds will report the total interest on Form 1099-INT.

The calculation of the excludable interest is performed on IRS Form 8815, Exclusion of Interest From Series EE and I U.S. Savings Bonds Issued After 1989. This form guides you through the steps to determine the portion of interest you can exclude. You will report your adjusted qualified expenses and the total bond proceeds on this form to see how much of the interest is tax-free.

The amount of interest you can exclude depends on the relationship between your expenses and your bond proceeds. If your adjusted qualified education expenses are equal to or greater than the total bond proceeds, all of the interest is tax-free, subject to MAGI limitations. If the bond proceeds are more than your expenses, you can only exclude a portion of the interest. The excludable amount is found by dividing the expenses by the total proceeds and multiplying that ratio by the total interest. For example, if you had $8,000 in expenses and cashed bonds for $10,000 (including $3,000 of interest), your exclusion is limited to $2,400.

After completing Form 8815, the excludable interest amount is transferred to your tax return. You will report the full interest from Form 1099-INT on Schedule B (Form 1040). You then list the excludable amount from Form 8815 on Schedule B and subtract it from the total interest to reduce your taxable income.