Long and short of this situation ...
If the amount in box 5 of the 1098-T is more than the box 1 tuition + out of pocket costs for fees & Books required to be paid to the school then that portion is taxable and is added to line 1 of the return with the letters SCH and the amount in the margin. If the RA fees were reported in this way then the student must claim them as wages and they may be taxable depending on the student's other income. (by doing it this way the student and the school avoid FICA taxes and usually the student doesn't even pay federal/state taxes if they are below the $12K filing requirement).
The scholarship box 5 amount MUST pay off the box 1 amount first UNLESS you choose to report some or all of the tuition as taxable so that the parent can claim an education credit. (usually up to $4000 of the tuition expenses are claimed as income on the students return so the max AOC can be taken on the parents return ... this is a little known / hardly used trick that is actually in the IRS pub).
