Oddly enough, the educational institution sets the rules.  AOTC grew out of the old Hope Credit.  When Congress expanded the Hope credit from 2 years to 4 years, the IRS never bothered to update the regulations so there's something of a leap of faith involved.  1.25A-3(d)(1)(iii) is the best we have to go on:

https://www.law.cornell.edu/cfr/text/26/1.25A-3

Year of study requirement. As of the beginning of the taxable year, the student has not completed the first two years of postsecondary education at an eligible educational institution. Whether a student has completed the first two years of postsecondary education at an eligible educational institution as of the beginning of a taxable year is determined based on whether the institution in which the student is enrolled in a degree program (as described in paragraph (d)(1)(i) of this section) awards the student two years of academic credit at that institution for postsecondary course work completed by the student prior to the beginning of the taxable year. Any academic credit awarded by the eligible educational institution solely on the basis of the student's performance on proficiency examinations is disregarded in determining whether the student has completed two years of postsecondary education

So the old Hope rules were "does the school consider you a Freshman or Sophomore?"  When expanded to 4 years, that changed the translation into "does the school consider you a Freshman, Sophomore, Junior or Senior?"  Also keep in mind this particular rule is by exception.  You ARE qualified UNLESS you have "completed" 4 years of undergraduate study.  If someone is taking a couple night classes, it may take them 6 or 8 years to complete the course work required for an undergraduate degree.  All of those years would count for this condition.  Then you would run into the other "4 year" rule which I refer to as the "4 tax returns" rule.  The credit can be claimed for the eligible student in years 1, 2, 3, and 4.  Or in years 3, 4, 5, and 6.  Or whatever makes sense based on the amount of expenses paid, AGI, etc.

Rick