I reported it as "SCH" on line 7 1040 per IRS pub 970. Turbotax then generated form 8615 kiddie tax which would tax this at the parents' rate. Doesn't seem right. It's not investment income.
The kiddie tax applies to all unearned income of dependents, not just investment income. See below for an explanation.
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The kiddie tax only applies to amounts over $2,100. The FAQ below explains how to report it.
While form 8615 Instructions define unearned income to include "taxable scholarship and fellowship grants not reported on Form W-2," Publication 17, in discussing standard deduction for dependents, says that for purposes of standard deduction, earned income includes any part of a taxable scholarship or fellowship grant. So the grant/stipend can be counted as earned income for that purpose, allowing the dependent to claim the higher standard deduction amount.
The portion of your investment income that is greater than $1050 but less than $2100 is taxed at your individual tax rate. It gets included with your earned income to determine what your standard deduction is. Table 20-3 of Pub 17 is used to calculate the standard deduction. That doesn't mean that scholarship income is considered to be "earned income." For instance, you won't have to pay payroll taxes on that amount, which you would have to do if it were earned income.