Here are the info notes about tax exempt for education:
Education Tax Exclusion
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.
Additional Requirements to Qualify
Qualified higher education expenses must be incurred during the same tax year in which the bonds are redeemed.
You must be at least 24 years old on the first day of the month in which you bought the bond(s).
When using bonds for your child's education, the bonds must be registered in your name and/or your spouse's name. Your child can be listed as a beneficiary on the bond, but not as a co-owner.
When using bonds for your own education, the bonds must be registered in your name.
If you're married, you must file a joint return to qualify for the exclusion.
You must meet certain income requirements.
Your post-secondary institution must qualify for the program by being a college, university, or vocational school that meets the standards for federal assistance (such as guaranteed student loan programs).
Qualified Expenses
Qualified educational expenses include:
Tuition and fees (such as lab fees and other required course expenses).
Expenses that benefit you, your spouse, or a dependent for whom you claim an exemption.
Expenses paid for any course required as part of a degree or certificate-granting program.
Expenses paid for sports, games, or hobbies qualify only if part of a degree or certificate program.
Note: The costs of books or room and board are not qualified expenses.
The amount of qualified expenses is reduced by the amount of any scholarships, fellowships, employer-provided educational assistance, and other forms of tuition reduction.
You must use both the principal and interest from the bonds to pay qualified expenses to exclude the interest from your gross income. If the amount of eligible bonds you've cashed during the year exceeds the amount of qualified educational expenses paid during the year, the amount of excludable interest is reduced pro rata.
Example: Assuming bond proceeds equal $10,000 ($8,000 principal and $2,000 interest) and the qualified educational expenses are $8,000, you could exclude 80 percent of the interest earned, which would equal $1,600. (.8 x 2000 = $1,600)
The red part is what my MIL can't understand.
