I edited my last reply to account for the scholarship, if needed. The key to all this is that you are allowed to allocate your expenses to where it gets you the most tax benefits: the AOTC, the scholarship, the ESA distribution or the 529 distribution. One caveat; if the scholarship is restricted (unusual), that is , it must be applied to tuition, then you will have to allocate $1750 of tuition to the scholarship.
