The parents can claim an educational credit (if they otherwise qualify), but it will make more of the 529 plan taxable.  The earnings on the 529 plan are fairly low so I suspect that allocating $4000 to the American Opportunity Credit will have the best result (assuming the parents qualify for the credit).

The taxable portion will be on the student's return.

Find out the cost of room and board for the 529 plan - (1) actual costs and (2) the amount from the college's financial aid office for the "cost of attendance" for financial aid.