Generally, interest on U.S. Savings bonds are not excluded from Federal Income Taxes. Most states exclude the interest from State Income taxes.
Having said that, there are some some exclusions for interest used for education. There are rules etc., that have to be followed. See IRS Publication 550
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Ok, thanks for the info @LudwigVan_fan. It looks like we can exclude about $1786 since we used $5000 towards education expenses that are qualified and redeemed a total of $7000 in bonds. Only accrued $2500 interest on it. Math makes me despise tax time even more.