The above-the-line deduction for tuition and fees for higher education can be claimed by a taxpayer only for him/herself, spouse, or dependent. If your grandchild is your dependent, then you qualify for the deduction. For gift tax purposes, payments of tuition directly to an educational institution are exempt from gift tax, regardless of amount.
In 2007, up to $85,700 of foreign earned income is exempt from tax if a foreign residence or physical presence test is met.