If the student is not your dependent, you don't enter the 1098-T at all.
At the 1099-Q interview, you indicate that the "student is someone not listed here" rather than "the distribution was not used to pay any education expenses".
That will eventually get you to a screen to enter the expenses. Enter $3500 for Tuition and $3500 for Tax free assistance (the scholarship). That tells TurboTax that scholarship covered the expenses, so the 529 distribution is taxable, but the scholarship penalty exception applies.
