You want to maximize your credit, so you really want at least $4,000 in qualified expenses, not $3,000. Your books and supplies may make up the additional $1,000. You should definitely send up to $1,000 to the student for income. That would be a minimal or no tax depending on work done. Your goal is to maximize your refund, not reduce income. It seems backwards, but in this case, that is what actually works out better. I recommend you look at another of my answers for help.
See also:
IRS Q & A about education credits.
What expenses qualify for the American Opportunity Tax Credit and which ones do not?
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