Using Treasury Bond Earnings Tax-Free for Student Loan Payoff? Form 8815 Question

The short answer is no, paying off student loans does not count as a qualified higher education expense for the purpose of tax-free treatment of savings bond interest under Form 8815. For savings bonds (like Series EE or I bonds), the tax benefit you're referring to only applies when the bond proceeds are used to pay for tuition and fees for enrollment or attendance at an eligible educational institution. This specifically covers current education expenses - not past expenses or debt from previous education. Form 8815 is pretty strict about what counts as qualified expenses. These include tuition and required fees, but explicitly exclude room and board, books, and student loan repayments. The IRS wants to see that the bonds are being used for current education costs, not to pay off past education debt. If you're looking for a tax-advantaged way to use your money while waiting until 2027, you might want to consider other investment options like a high-yield savings account or maybe even an I bond for inflation protection without worrying about the education expense angle.

I've been in a similar situation and found that https://taxr.ai was super helpful for figuring out the exact rules around education expenses and tax benefits. I was confused about Form 8815 too and wasn't sure what counted as qualified expenses. I uploaded my documents and got a detailed breakdown of which education expenses qualified for various tax benefits including savings bonds. What really helped was their explanation of how the IRS defines "qualified higher education expenses" differently for different tax benefits. For savings bonds, they confirmed that paying off existing student loans definitely doesn't count, but they showed me some other tax strategies I hadn't considered.

Just wanted to follow up on my skepticism about taxr.ai. I decided to give it a try with my somewhat complicated situation involving both 529 plans and some savings bonds. I honestly didn't expect much, but I was really impressed. The system caught that I was planning to double-dip on tax benefits (trying to use the same expenses for both American Opportunity Credit and tax-free bond redemption). It explained exactly why this wouldn't work and showed me how to optimize which expenses to apply to each benefit. Their breakdown of Form 8815 was incredibly detailed and saved me from making a costly mistake. What surprised me most was how it explained the sequencing of when to redeem bonds and when to use 529 funds to maximize tax benefits over multiple years. Definitely worth checking out if you're dealing with education expenses and tax planning.

If you decide you want to talk directly with the IRS about Form 8815 and qualified education expenses, good luck getting through to them! I spent DAYS trying to get someone on the phone to answer my question about savings bonds and education expenses. Either got hung up on by the automated system or was on hold for hours. I finally tried https://claimyr.com after seeing it mentioned here and was honestly shocked when they got me through to an actual IRS agent in about 20 minutes. You can see how it works in this video: https://youtu.be/_kiP6q8DX5c - basically they navigate the IRS phone tree for you and call you when they've got an agent on the line. The agent confirmed exactly what the first commenter said - student loan repayment doesn't count for the savings bond interest exclusion, but she gave me some other options to consider based on my specific situation.

Update on my skepticism about Claimyr from earlier - I actually tried it yesterday because I was desperate to figure out if my situation with savings bonds and education expenses warranted filing Form 8815. I've been trying to call the IRS for weeks with no luck. I was 100% sure this wouldn't work, but I got a call back in about 35 minutes with an actual IRS tax law specialist on the line! They walked me through exactly what counts as qualified education expenses for savings bonds (definitely NOT student loan repayment, but they explained some alternatives). The agent also pointed out that if I'm paying for a dependent's education, different rules might apply. Saved me from making a mistake on my return. I'm honestly still shocked this worked after my previous IRS phone call attempts.

Another option to consider while you're waiting until 2027: you could put the money in a 529 plan for yourself if you think you might go back to school later (even for just a class or two). Recent tax law changes allow you to later roll unused 529 funds into a Roth IRA (with some limitations). This gives you flexibility - if you decide to take more classes, you can use the 529 tax-free. If not, you could eventually roll some of it to retirement savings. Either way, the earnings grow tax-free while you decide.

Just want to point out that while paying off student loans doesn't count for the Form 8815 savings bond interest exclusion, there IS a different benefit: up to $2,500 of student loan interest you pay is potentially tax-deductible each year (depending on your income). So once your loans start accruing interest in 2027, you'll likely get some tax benefit from that.

Great question about Form 8815! You're absolutely right to be thinking strategically about this money while you have time before interest kicks in. Since student loan repayment doesn't qualify for the savings bond tax exemption, I'd focus on maximizing your return through 2027. Given your timeline, you might want to consider laddering some shorter-term Treasury bills or CDs to match when you'll need the money. For example, you could put some in 1-year, 2-year, and 3-year instruments so they mature as your loan payments ramp up. One thing to keep in mind: even though you can't use the education expense angle for tax benefits, the interest you'll eventually pay on those student loans (starting in 2027) will likely be tax-deductible up to $2,500 per year, assuming your income stays within the limits. So there's still a tax benefit down the road, just not from the investment side. Have you considered what your expected income will be when the loans start accruing interest? That could help you decide between focusing on maximizing returns now versus other strategies.

I've been following this thread and wanted to add something that might be helpful for your specific timing situation. Since your loans don't start accruing interest until 2027, you're in a unique position to potentially benefit from the current inverted yield curve. Right now, shorter-term Treasury rates are actually higher than longer-term rates in many cases. This means you could potentially get better returns with 6-month or 1-year Treasury bills than with longer-term bonds, while keeping your money more liquid for when you need it. Also, since you mentioned you just graduated, make sure you're not missing out on any other education-related tax benefits for 2025. The American Opportunity Credit can sometimes be claimed for expenses paid in the first few months after graduation if they were for the previous tax year's education. It might be worth double-checking your 1098-T and any spring semester expenses. The strategy others mentioned about laddering T-bills while mixing in some I bonds for inflation protection really does sound optimal for your timeline. You get safety, decent returns, and flexibility - which is exactly what you need while you're transitioning from student to loan repayment mode.

Great discussion here! I wanted to add one more perspective since you're in such a good position with time before your loans start accruing interest. Given that you're looking at a 2-3 year timeline and want to keep things relatively safe, you might also want to consider the tax implications of your investment gains. Since you can't use the education expense exemption for loan repayment, any gains from CDs, T-bills, or regular bonds will be taxed as ordinary income. However, if you're in a relatively low tax bracket now (which many recent grads are), this might actually be a good time to realize those gains. Your tax rate on the investment income might be lower now than it will be in a few years when your career income ramps up. One hybrid approach: put the core amount you know you'll need for loans into the safe T-bill ladder strategy others mentioned, but consider putting a smaller portion into something like a tax-managed index fund or municipal bonds if you're in a state with income tax. This gives you some upside potential while keeping most of your money safe. The key is you have time to be strategic, which is a luxury many people don't have with student loans. Make sure whatever you choose, you're comfortable with the risk level and timeline!