It would have been "More" correct for the college to have issued a W-2 for the value of the R&B, because it is "in fact" earned income. If it's included in box 5 of the 1098-T, then you can treat it like any other scholarship and you'll be fine. Just understand that if the total of all scholarships/grants received exceed the total of qualified education expenses (tuition, books, and lab fees) then the student will report the 1098-T and other education stuff on the student's tax return, and the student will pay taxes on the excess - not the parent.
The room and board is not a qualified education expense. But by including the value of the R&B in box 5, the collage is allowing you to apply the cost of that R&B to those *qualified* education expenses, with any excess being taxable income to the student.
