That is correct. the amount of scholarships, grants and 529 funds that exceed the qualified expenses are taxable income to the student. Not only does the student pay taxes on the excess, but that taxes on that excess is paid at the parent's tax rate if the parents are in a higher tax bracket. The higher tax rate only applies to excess funds. It does not apply to other income the student may have earned. But here's where it can get tricky.
If all taxable income (key word "taxable") from all sources does not exceed the student's $12K standard deduction, then the student does not have to file a tax return at all and pays taxes on nothing. In such a case where all the student's taxable income is less than $12K, the only reason the student would file a return, is if any taxes were withheld on any of that income, so the student could get the withheld taxes refunded to them.
Do note however that under no circumstances is Medicare and Social Security ever refunded. Only the federal income tax (shown in box 2 of a W-2) would be refunded.
