<p>If my parents cash in US Savings Bonds using the tax exemption for my tuition this year, will the interest that is tax-exempt affect next year's Fafsa?</p>
<p>Tax-exempt income is still income.</p>
<p>^^^^Agreed. Under current FAFSA rules it would be reported on FAFSA as untaxed income. (Who knows what changes will be in the new “simplified” (shudder) FAFSA, if it comes about.)</p>
<p>To complicate matters, if the bond is in the student’s name it does not fall under the “tax-exempt if used for higher education” category. Only bonds in the parents’ names can be redeemed as exempt from taxes. In addition, there’s a MAGI limit at which the exemption phases out. Finally, if the interest was reported annually (as accrued) rather than lump sump on redemption, then the interest income in the final year might be relatively minor.</p>