1. If the parent claims the student only the parent can claim the education credit. The parent can choose what amount of the scholarship was used for tuition and books and what part was used for non qualifying expenses. The non qualifying amount flows to line 1 of the 1040 as income. That income is earned income for the student to decide if the student has a filing requirement but if the student has a filing requirement that income magically becomes unearned income for consideration of the kiddie tax. (Strange, I know). The parent, if otherwise qualified by income level, is eligible to receive the refundable portion of the credit.
2. If the student is not claimed as a dependent, the student can now claim the education credit and is free to manipulate the scholarship amount between qualified and non qualifying expenses as above. BUT the student cannot receive the refundable portion of the credit if the student has a living parent supporting that student.
