Here's a little back ground on where we might be headed in your case.
There is a tax “loop hole” available to claim an education credit, for the parents of students on scholarship. The student reports all his scholarship, up to the amount needed to claim the American Opportunity Credit (AOC), as income on his return. That way, the parents (or himself, if he is not a dependent) can claim the tuition credit on their return. They can do this because that much tuition was no longer paid by "tax free" scholarship. You cannot do this if the conditions of the grant are that it be used to pay for qualified expenses.
Using an example: Student has $10,000 in box 5 of the 1098-T and $8000 in box 1. At first glance he/she has $2000 of taxable income and nobody can claim the American opportunity credit. But if she reports $6000 as income on her return, the parents can claim $4000 of qualified expenses on their return.
Books and computers are also qualifying expenses for the AOC. So, extending the example, the student had another $1000 in expenses for those course materials, paid out of pocket. She would only need to report $5000 of taxable scholarship income, instead of $6000.
Earlier you said "Some of her scholarship can be used towards room and board ($4600) and the rest is just for tuition". I took that to mean that $9100 [13700 - 4600 = 9100] of the scholarship was restricted to being used for tuition. If that's not the case, you can use $4000 of tuition for the tax credit, instead of just $1192. She'll have to report more than $4600, as income, but the family comes out ahead (and she may still pay no tax, depending on her other income, if any).
Q. Why would I leave box 5 empty?
A. I'm just suggesting short cuts, for entering all this in TurboTax (TT). Theoretically TT can handle it, by entering the full 1098-T (on both your return and her's) and answering all the follow up questions correctly. But, it can get messy. The modified 1098-T that you enter in TT is not sent to the IRS.
