<p>Please stop trying to scare me. haha</p>
<p>The key is “tax-free” scholarship funds in Figure 4-1. The scholarship monies that are used for room and board are not tax-free. Your child reports the taxable portion (including that used for room and board) of the scholarships on his taxes and likely pays relatively little fed tax for it and not much state tax, if any, depending on your state; you claim on your return the Lifetime Learning credit, which can be $2,000+ and pay your kids fed and state tax out of the credit money and probably still come out way ahead. You are not ripping off your kid, because dependents can’t claim the Lifetime learning credit or Hope credit. </p>
<p>You can also claim room and board for a tax credit in midwestern disaster areas for the tax year 2008.</p>