My daughter's tuition is less than her scholarship, so her scholarship balance is considered income and she is being taxed on it. Is this correct?

She did not receive the scholarship money herself, it was paid directly to the school.  She still had to pay $$ to the school even, but because they bill in November, and scholarship $ is paid in January it makes it appear she received the balance when she owed over $15,000.  This only happened senior year.