It sounds like Form 1099-Q is entered into TurboTax for her but no education expenses are also entered to offset it, which is why it looks like taxable income to TurboTax.
Since you know that she had more than enough qualifying expenses to offset the distribution, the easiest and best way to handle this is to remove Form 1099-Q from TurboTax. The IRS does not require that this form be entered on any tax return unless there is a taxable distribution to report.
For her Form W-2 she may not be required to file depending on the amount of her total income, but since she is getting a refund she should file so that the money is returned to her.
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