Actually, you just report it as income per my above so it's not treated like business income. Then it's taxability will be offset by the qualified education expenses claimed in the education section. Remember, a scholarship is "initially" reported as taxable income, with it's taxability offset by the qualified education expenses it's used for. Then anything left over is automatically reported on line 21 by the program as taxable income with the annotation of "SCH" next to it.
