Student loans and Savings Bond education deduction

Wednesday, August 4th, 2004
Categorized as: Savings Bond college education deduction

I purchased Series EE US Saving Bonds for my daughter’s education, however, she used student loans to finance her college expenses. My daughter has already graduated and is working. Can she redeem these EE US Saving Bonds now and pay off part of her student loans? If so, can she avoid paying taxes on the bonds?

Tom’s response

Unfortunately, the Savings Bonds education deduction isn’t available for paying off student loans. You can certainly cash the bonds to pay off the loans, but you won’t get the income tax deduction.

If your daughter has recently consolidated her student loans, she may be paying a lower rate on the loans than the bonds are earning. You should check this.

Banking is based on nothing more spectacular than borrowing at a low interest rate and lending or investing at a higher interest rate.

If the interest rate on the loans is lower than the rate paid by the Savings Bonds, it doesn’t make financial sense to redeem the bonds to pay off the loans. If she keeps them both your daughter becomes her own banker!

Rate this post (1 to 5 stars):  1 Star2 Stars3 Stars4 Stars5 Stars
(Average rating: 4.00 stars)
Loading...

FDIC Insured Certificates of Deposit can pay 1 or 2% more than savings bonds when held for a similar length of time. See top CD Rates Below:

No comments yet.

Comments Closed

June 1, 2010

After six years, over 400 posts, 3,680 real comments, and over 90,000 spam comments (thank you, Akismet, for making managing a blog with comments possible), I am closing public comments on Savings-Bond-Advisor.com. I will contine to update the main articles on this site, but not the comments.

Virtually every question about Savings Bonds has been asked and answered on this site multiple times. Use the search feature (see the box in the gray area near the top of this page) or the detailed menu on the lower part of the home page to find the information you're looking for. If you have a copy of Savings Bond Advisor, you can ask me a question here.

Tom Adams

Savings Bond Calculator



Help

Savings Bond
Questions

Get an answer to your questions from the Treasury's Savings Bonds team.

Click below to ask a question.

Ask the Treasury

TreasuryDirect

Invest online in Savings Bonds or
marketable Treasury securities.

Deal directly with the U.S. Treasury.

More info

Enroll

Log in