Qualified savings bonds cashed in the same year as educational expenses were paid can have the interest on those bonds excluded fro taxation. Qualified savings bonds are those in the parent's name (not the student's). After entering the 1099-INT for the interest, the TurboTax (TT) interview will ask the right questions to see if the bonds qualify.
"I'm assuming I can't deduct the part paid by the bond, but can I?" Yes you can, but you can not double dip.
If you didn't pay enough tuition and other qualified expenses to claim both the savings bond interest exclusion and the tuition credit, you will have to choose how to divide up the expenses. The tuition credit is almost always more generous.
