The 2,000 Lifetime Learning Credit requires 10,000 expenses (the credit is 20% of the expenses up to 10,000 expenses)
If he is getting 2,000 credit, there would need to be 10,000 expenses that the student is claiming.
If part of the expenses he is claiming were expenses attributed to the 529 distribution, someone would need to claim taxable income in relation to that distribution.
If you took the distribution, and the 1099-Q was issued in your name, you would be responsible for that additional tax liability.
These are not easy questions to answer because a distribution can be allocated to Room and Board expense, but Room and Board expense cannot be used for an education credit.
Without knowing all the numbers (Tuition & Fees on the 1098-T, additional books and supplies not on Form 1098-T, Scholarships, Distributions, room and board expense) we can't tell you how much, if any, needs to be claimed.
Allocate ALL the room and board to the distribution first.
If there is still distribution left to offset, determine how much education expense over scholarships there is.
If there is more than 10,000 expenses in excess of scholarships, allocate the amount over 10,000 to the distribution since the credit only needs 10,000.
Does this offset scholarships and distributions and also give the full credit?
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