The student has to be a dependent on the taxes to take the AOTC. I think that’s even if one divorced parent is claiming the student but the other parents pays the tuition.
This family should decide whether they want to give the grandmother the tax deduction as a qualifying relative but then the OP loses all possible tax deduction and credits.
For the FAFSA, I think the issue is more clear. Grandparents are not parents for FAFSA purposes unless a formal adoption has occurred (where they’d be parents). Nothing can be changed.