If the scholarship is tax free, then you will not be penalized for withdrawing the proceeds. Otherwise, earnings are subject to a penalty in addition to income taxes.
It may be best to have the proceeds paid to the beneficiary, as your grandchild may pay taxes at a lower rate than you, but you would have to do some tax planning to see what is best.
[Edit 1/28/21 5:35 PM PST] @gramps529
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