What is a Scholarship?
A scholarship generally is an amount paid for the benefit of a student at an educational institution to aid in the pursuit of studies. The student may be in either a graduate or an undergraduate program.
The IRS has stated that if you are a candidate for a degree, you generally can exclude from income that part of the grant used for:
1. Tuition and fees required for enrollment or attendance, or
2. Fees, books, supplies, and equipment required for your courses.
But, a taxpayer cannot exclude from income any part of the grant used for other purposes, such as room and board. Thus, it appears the amount your daughter has received as a scholarship can generally be all excluded from income provided that your daughter uses the scholarship money for qualified education purposes as mentioned above 1) and 2).