To sum it all up:
Since your daughter *qualifies* to be claimed as your dependent, she has no choice but to select the option to indicate that she "can" be claimed as a dependent on someone else's return. The key word here is "qualify". It does not matter if you actually claim her as your dependent or not. Since she qualifies as your dependent, she has no choice and must indicate that she "can" be claimed as a dependent, weather you actually claim her or not.
There's two things to understand about excess scholarship/grant/529 funds that are not used for qualified education expenses.
1. When you have this situation, it is generally the student that will report all the education stuff on their own tax return. Excess education funds not used for qualified/allowed expenses are then taxable income "to the student", not the parent. You don't have a choice there really. (though depending on exactly what type of funding was received and the amount of that funding, the "loophole" trick works just fine and is perfectly legal.)
2. The excess money that the student will pay taxes on is taxed at the parent's higher tax rate. That's why the student is required to provide on their own tax return, information from your (the parent's) tax return. It's so the correct amount of tax can be figured at the higher tax rate.
