From: https://www.irs.gov/credits-deductions/individuals/qualified-ed-expenses

Expenses Cannot Be Paid with Tax-Free Funds

You cannot claim a credit for education expenses paid with tax-free funds. You must reduce the amount of expenses paid with tax-free grants, scholarships and fellowships and other tax-free education help.

From: https://www.irs.gov/help/ita/am-i-eligible-to-claim-an-education-credit

Tax exempt funds include:

• The tax-free parts of scholarships and fellowships applied to qualified expenses
• The tax-free parts of a Pell grants applied to qualified expenses
• Employer-provided educational assistance
• Veterans' educational assistance
• Any other nontaxable (tax-free) payments (other than gifts, inheritances or CARES Act grants) received as educational assistance.