It is true that you can allocate an unrestricted (not ear-marked for anything in particular) scholarship to expenses other than tuition and use the freed-up expenses towards a credit, but the other expenses must be education related.
Education expenses, such as tuition, fees, books, and supplies can be used towards a credit.
Other education expenses include Room and Board.
If you allocate the scholarships to the tuition, the scholarships are tax-free.
If you allocate the scholarships to the room and board, the scholarships become taxable income for the student.
This could be beneficial if it freed up expenses for the credit, HOWEVER in your case, the 529 distribution is allocated to the room and board.
The student can't "Just Decide" to claim the scholarships as income. The funds must be allocated to SOMETHING related to education, whether taxable or not.
Depending on when you received the refund, it could be re-deposited back into the 529 account.
If the Room and Board refund was because the student needed to attend school online, you can add the room and board expense incurred while she was at home. You still had to pay for a roof over her head, internet access and meals I assume.
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