Yes as @Hal_Al states, there are several working parts to the Education section.
The distribution for Daughter 1 is not taxable.
According to your numbers, she had over 94,000 expenses.
Even with 15,000 scholarship, there is more than enough expenses to cover the distribution.
There would also be enough left in expenses to apply towards an Education Credit, unless you are not eligible because of some other requirement, such as income level.
Daughter 2 has 33600 in tuition, less 20,062 in scholarships leaving 13,538 towards the distribution.
If 20,062 goes straight to the school, and neither you nor the student gets a refund, I would assume the entire distribution is used for additional education expenses, such as Room and Board.
This distribution should also be tax-free.
@kbr25
PERHAPS you are confused as to "NON-QUALIFIED" expenses.
For example, take Room and Board expense-
You may be allowed to allocate Scholarships to that expense, in which case the scholarship may be taxable income that the student must claim,
HOWEVER
a distribution used for Room and Board is NOT taxable.
The expenses are handled differently (if taxable or tax-free) depending on the type of assistance used.
[Edited 2/23/22 I 3:42pm PST]
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