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The issue is caused because you did not work through the education section in the order it is designed and intended to be done. You need to start at the beginning of the education section and work it through in order. Only then will you be asked for room and board expenses that any excess 529 funds would be applied to.
Scholarships/grants are applied to *qualified* education expenses ONLY. Those qualified expenses are tuition, books and lab fees. That's it. (though the definition of lab fees is rather broad). After that, any excess scholarship money is taxable income to the student. Grants/scholarships can NOT be used for room and board. (Do not confuse this with employer provided assistance)
Next, 529 funds reported on the 1099-Q are applied. First to any tuition not covered by scholarships. Then it's applied to the unquailed but "allowed" expense of room and board. Then if there is any 529 money left over, it's taxable income to the student.
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