Scholarships are not reported on a 1099-Misc, particularly in box 7. Box 3 of a 1099-Misc would be more appropriate, but still technically incorrect.
What were the circumstances of her getting this "scholarship" and 1099-misc?
The IRS considers anything in box 7 of 1099-MISC to be self employment income and subject self employment tax (social security & Medicare), in addition to income tax. If you try reporting box 7 income as anything else, you chances of hearing from the IRS are high.
It cannot go on your return. If it goes anywhere, it goes on her return.
