There is a tax break available, even when the student has a full scholarship. The student reports all his scholarship, up to the amount needed to claim the American opportunity credit, as income on his return. That way, the parents (or himself, if he is not a dependent) can claim the tuition credit on their return. They can do this because that much tuition was no longer paid by "tax free" scholarship. You cannot do this if the school’s billing statement specifically shows the scholarships being applied to tuition or if the conditions of the grant are that it be used to pay for qualified expenses.
Using an example: Student has $20,000 in box 5 of the 1098-T and $13,000 in box 1. At first glance he/she has $7000 (reduced by any book or other qualified expenses) of taxable income and nobody can claim the American opportunity credit. But if she reports $11,000 (reduced by any book or other qualified expenses) as income on her return, the parents can claim $4000 of qualified expenses on their return.
You can both use the 1098-T to enter the expenses, adjusting the amounts as needed. If you claim the tuition credit, you do need to report that you got one (the TurboTax interview will handle this) Your student should use the 1098-T because it makes entering scholarship income go smoother.
This is allowed. From the 2018 form 1040 instructions (pg 100): “You may be able to increase an education credit if the student chooses to include all or part of a Pell grant or certain other scholarships or fellowships in income. For more information, see Pub. 970, the instructions for Form 1040, line 17c, and IRS.gov/EdCredit. Page 16 of PUB 970 (2019) actually has examples of how to do this.
