@Hal_Al upon re-reading the original post, I now think they received a grant to use for paying off or paying down the loan, not a grant for qualified education expenses. If so, that makes the entire amount of the grant taxable income because it was not used for qualified education expenses. The only deductible amount would be the interest portion included on the 1098-E. But since that's a SCH A deduction it will probably make no difference to their tax liability.
