Advantages
Backed by the full faith and credit of the United States government, the interest from these bonds is tax free if used for qualified higher education expenses. Also, interest on Series EE and I savings bonds is usually exempt from state and local taxes.
Disadvantages
The full interest exclusion in 20081 is only available to married couples filing jointly with modified adjusted gross income of less than $98,400, and for single filers with modified adjusted gross income of less than $65,600 in 2007. The interest exclusion is phased out if your modified adjusted gross income is between $98,400 and $128,400 for joint filers, and between $65,600 and $80,600 for single taxpayers. Regardless of your income, married couples filing separately cannot take advantage of this savings bond program. You can learn more about the Educational Savings Bond Program in IRS Publication 970: Tax Benefits for Education.
The rules for using savings bonds for education can be complicated. To learn more about using savings bonds for educational expenses, you should read the Bureau of Public Debt's information on education and savings bonds or you can call the Federal Reserve at (866) 388-1776. You can call the Bureau of Public Debt toll-free at (800) 487-2663 for information on the latest rates for Series EE and Series I savings bonds or at (800) 722-2678 to learn how to buy savings bonds directly from the federal government. The Bureau of Public Debt's Web site also provides information on the latest rates for Series EE and Series I savings bonds and how to buy saving bonds directly from the federal government.
