Well, I did my and my son's taxes. I must admit that I didn't fully understand the tax implications and this was an eye-opening experience. I might not have played this as well as I could have, and I wanted to give some details in case it might help someone else.
As I explained above, my son's scholarships exceeded QTRE by $1900, and using $4K for AOTC resulted in $5900 of unearned income for my son. If it were just this, he would still be under the standard deduction and we would be fine.
However, he had $4100 in earned income last summer, for a total of $10K.
The first $2K of AOTC resulted in a tax credit to me of $2K, but a tax liability to my son of $324, for a net savings of $1676. That was a good use of out-of-pocket money, even if we didn't get the entire $2K.
The second $2K of AOTC resulted in a tax credit to me of $500, but a tax liability to my son of $387, for a net savings of $113. This was not a good use of out-of-pocket money.
We have not yet told my son that he will be paying $711 in taxes so that his parents can save $2500. My wife and I think that this is fair.
What could I have done differently? I probably should have limited the AOTC to $2K. The second $2K did almost nothing for us (when considering both our credit and our son's taxes), and I could have used $2K of 529 money instead of cash.
I also might have considered skipping the AOTC for 2017. The AOTC can be used for four years, but four years of college represent five calendar years. As tuition rises and some of his short-term scholarships expire, his unearned income will be reduced. He may not get as lucrative of a summer job, either. It might have been better to use the AOTC in 2018-2021. Of course, this is just a guess.
As dcandmc said, I did need the 8615 and TurboTax took care of that. This unearned income is taxed at my rate. It appears that his earned income is on the "bottom" and the unearned income is on the "top", meaning that his lower-rate earned income is buried under the standard deduction, and the higher-rate unearned income is what is actually taxed.
Overall, our net savings for using the AOTC was about $1800, which is a pretty nice break. But we could have received about $1700 of that with half the cash outlay, and might have been able to get the whole $2500 by waiting until a later year.