Education

Box 5 is scholarships and Box 1 is tuition.

If tuition paid was 60,000 and the student received over 86,000 in scholarships, there would be no education credit.

If you wanted to claim 4,000 for a credit, the student would need to claim 30,019. 

86,749 - 60,730 = 26,019 + 4,000 = 30,019.

If he did not supply more than half his own support, he cannot file as a non-dependent.

1. As a non-dependent, he can only claim the non-refundable portion of the credit. The non-refundable portion can lower tax liability but the remaining amount is not added to a refund. 

If he is a non-dependent, he could try to claim the credit, but he received more in scholarships than what he paid in expenses. 

2. No one gets to decide if the student is a dependent or not, only the IRS decides that. If the student did not supply more than half their support (and scholarships don't count) they are a dependent. If they did, they are a non-dependent. 

The only thing you can decide is if you want to claim the student (if you supplied more than half their support) or not. If you can claim the student, but decide not to, no one claims the student. The dependent student can still file, but only as a dependent. 

3. Only if the student supplied more than half their own support. Here is an IRS worksheet you can use to figure support.

4. Credits work off claiming expenses reported in Box 1 on the 1098-T, not Box 5.

Education expenses such as Tuition, fees, books and supplies are QUALIFYING EXPENSES and can be used for a credit OR to offset otherwise taxable scholarships. 

Room and Board are NONQUALIFYING EXPENSES which can be used to claim scholarships as income if it frees up expenses for a credit. 

With the numbers you provided, if the student has 30,019 in nonqualifying expenses (or additional qualifying expenses not listed on the 1098-T such as books and supplies) the student could claim that much as income and you could allocate 4,000 towards a credit if you claim him as a dependent. 

Whether the tax the student pays would be less than the credit you would receive depends on your tax situation. 

IRS Pub 970 

"Coordination with Pell grants and other scholarships. You may be able to increase your American opportunity credit when the student (you, your spouse, or your dependent) includes certain scholarships or fellowship grants in the student's gross income. Your credit may increase only if the amount of the student's qualified education expenses minus the total amount of scholarships and fellowship grants is less than $4,000. If this situation applies, consider including some or all of the scholarship or fellowship grant in the student's income in order to treat the included amount as paying nonqualified expenses instead of qualified education expenses. Nonqualified expenses are expenses such as room and board that aren't qualified education expenses such as tuition and related fees"