Yes, if you leave box 1 empty then the scholarship funds would be considered income. You have to have an amount in Box 1 to get the credit. Also, in order to claim an education credit, the IRS requires the filer's federal identification number from the 1098-T. You can't amend your return to add this info later, so be sure to enter it before filing. What this means, is you have to have the EIN of the college or university that she attends.
Tuition paid less scholarships determines the amount available for the credit. The tuition paid must be more than the scholarships to even qualify for the credit. You have to pay tuition to get a credit.
If the scholarship amount is more than the tuition paid, the excess scholarship funds becomes income and is taxable.
