If I Cash In Savings Bonds Can I Pay My Wife's Student Loans Off And Get A Tax Credit?

By Increase Savings | Published: December 20, 2009

I have a bond worth $12,000(10,000 face) and she has $12,000 in student loans from tuition from 2004. I know that you can avoid paying taxes on the interest you make on bonds if you use it to pay tuition for secondary schooling. Does it still apply for loans that are a couple years old? We are filing a joint return

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2 Comments

  1. the tax lady
    Posted December 20, 2009 at 7:34 am | Permalink

    You will have $2000 of taxable interest income.
    Only the interest on those student loans is deductible.
    Too bad you didn’t cash them in during 2004–assuming the bonds met the very strict education exclusion requirements.

  2. Judy
    Posted December 20, 2009 at 11:47 am | Permalink

    There are a number of rules for exempting interest on savings bonds cashed to pay tuition – so many that it’s very unlikely that you would be able to – among other things, it’s for current expenses, not for paying off student loans. Check the rules carefully before you even consider this, since it’s pretty unlikely to work for you. It’s not as simple as “I used the money to pay tuition so I don’t have to pay tax on the interest”.

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