Q. I thought that you got back 100% of the first $2,000?
A. Yes, but normally not when box 5 is more than box 1.
But, as I mentioned, there is a way to get it.
There is a tax “loop hole” available to claim an education credit, for the parents of students on scholarship. The student reports all his scholarship, up to the amount needed to claim the American Opportunity Credit (AOC), 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 conditions of the grant are that it be used to pay for qualified expenses.
Using your numbers as an example: Student has $5203 in box 5 of the 1098-T and $3011 in box 1. At first glance he/she has $2192 of taxable income and nobody can claim the American opportunity credit. But if she reports $5203 as income on her return, the parents can claim $3011 of qualified expenses on their return.
If that $5203 is his only income, he will not pay any tax.
