The program is allocating part of the expenses towards and education credit.
Usually the credit for the parent is worth more than the tax for the student.
If you are getting the American Opportunity Tax Credit, that credit maxes out with 4,000 expenses, so claiming more in expenses than that is silly.
If you are getting the Lifetime Leaning Credit, it maxes out with 10,000 expenses.
You have a couple options.
1. If expenses are equal to or less than distributions/scholarships, and you don't want the credit, just delete the 1098-T and 1099-Q.
2. If you do want the credit, and the credit is the American Opportunity Tax Credit, go back through the Education interview until you FINALLY reach the allocation page and change the amount of expenses to use for the credit to 4,000. If this results in 3,000 taxable income (because of your 1,000 out-of-pocket) the student claims that.
ADDITIONALLY be sure to enter additional expenses not listed on the 1098-T, particularly Room and Board expense. A distribution used to pay Room and Board is a non-taxable event. If at least 3,000 of distribution can be allocated to Room and Board, and with your 1,000 out-of-pocket, you would have the 4,000 needed for the credit and there would be no taxable income for the student to claim.
IRS PUB 970
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