While technically there is a provision that allows your student-dependent to claim a federal tuition credit, from a practical matter it seldom works out. As you already know, most students are not eligible for the refundable portion of the American Opportunity Credit (AOTC).
If the student actually has a tax liability, there is a provision to allow him to claim a non-refundable tuition credit. But then the parent must forgo claiming the student as a dependent, and the $500 other dependent credit. The student must still indicate that he can be claimed as a dependent, on his return. But this can still be the more generous AOTC, rather than the Lifetime Learning Credit. The AOTC shifts to all non refundable. So, the student can still get an up to $2500 using only $4000 (or less) of tuition.
