If TurboTax (TT) allocated the entire $10,000 of tuition to the tuition credit (it takes $10,000 of expenses to get the maximum Lifetime Learning Credit [LLC]), it will then treat the $8500 Scholarship as taxable. You can not double dip; claim the tuition for the credit and also claim the tuition makes the scholarship tax free.
Check the Student Information Worksheet. In particular, Line 17, of Part VI, (amount) "Used for Credit"
