Series EE savings bonds and paying for college

Terry,
I have $4,000 in qualified series EE savings bonds, with an issue price of $1,000 and accrued interest of $3,000 currently earning 4% interest. My question is, should I hold on to them with that type of interest being paid, or use them for the tax free interest benefit of paying for my son’s college tuition? Thank you.
Mike

SAVAGE SAYS: Well, first, you should go to TreasuryDirect.gov, click on Individual, then click on the section on Savings Bonds. There you can determine the current value AND the current rate of return on your savings bonds. It looks like you’ve already done that — and that your bonds are more “valuable” than the current ones, since they have a variable rate and a high floor. You’d have a tough time matching that rate of return on another safe investment such as a CD.

You don’t say what the alternatives are for financing college. Stafford loans (and starting July 1 even subsidized Stafford loans) accrue interest at a 6.8 percent rate!! It looks like an easy math computation to say you should cash the bonds in — but there’s something to be said for having some savings in reserve, earning a nice rate of return.

Of course if your savings bonds qualify, you won’t pay interest on the gains if they are used for? college education. Here’s the official wording:

The savings bond education tax exclusion permits qualified taxpayers to exclude from their gross income all?????????? or part of the interest paid upon the redemption of eligible Series EE and I Bonds issued after 1989, when?????????? the bond owner pays qualified higher education expenses at an eligible institution.

And here’s a link to the page at Treasury Direct for more information: https://www.treasurydirect.gov/indiv/planning/plan_education.htm

And now, I guess the choice is up to you!