ROTC Scholarship Student Questions On Filing Independently

Hi, my step-son is on a full tuition ROTC scholarship and we have been covering all his R&B and he lived with us over the summer so we filed him as a dependent on our return last year. His school and ROTC financial advisers have told him he is a contractor for the government now and advised him to file a return independently and to ask us to amend our return taking him off our return as a dependent. He was told this was because it will allow him to file an independent zero income FAFSA and allowing him to get more funding to help cover the cost of his schooling. The questions I have are as follows:

 

1) Is this allowed? I have not been able to find any supporting documentation on it or anyone else asking this question on this forum.

2) Would there be any penalty from the IRS with him filing so late since he didn't originally really need to file.

3) How much could he gain and for what purpose if he was able to file this FAFSA?

 

Thanks for your help!