As I understand it (and I've not re-read pub 970 recently) if the amount of scholarships, grants and/or 529 funds exceed the qualified education expenses, (regardless of parent's income) then while the parents still qualify to claim the student as a dependent, it is the student who reports the education stuff on their return. The parents' claim the student if they qualify, but the parents' don't report any of the education stuff. The student does.
