Yep, it's confusing and TurboTax does always do a good job. That's why I gave you the short cut . On the student's return, at the 1098-T, enter 0 in box 1 and the taxable amount in box 5.
You say "I'm confused on why we would have a taxable income of the $5617". That's why I showed you the calculations (repeated below). . Don't get hung up on the room & board number and student loan amounts. Those are irrelevant.
See if you can follow the math:
$14,406 in box 1 Tuition & fees Qualified educational expenses (QEE)
+ 600 Books etc (also QEE)
= 15,006 Total QEE
- 4,000 used for the credit on your return
= 11,006 QEE left over
$16,623 Scholarship
- 11,006 adjusted QEE used to keep that much of the scholarship tax free
= 5,617 Of the scholarship is taxable income (because we're all out of QEE)
