Who is "they" ("they are saying she has to file "), the school or did you get a letter from the IRS or?
Typically the taxable portion of a grant is the difference between box 5 and box 1 (or box 2), if the amount in box 5 is the larger amount.
How did you "use her 1098-T"? Normally you can only claim a credit if box 1 is larger than box 5.
