We have the Virginia 529 plan (not the prepaid tuition plan, although VA has one of those, too).
Scholarships at sons school were deducted from his total bill. As long as he lives on campus, tuition, room, and board is totaled up and the scholarship is deducted.....but not specified. So, you can probably do what we did at tax time, and have the scholarship part "go to" room and board and the 529 go to tuition. Keep good notes in your tax file.
My son lived off campus the next year. Scholarship amounts over the cost of tuition were refunded as a check, which we used to help pay for room and board. Note, the check doesn't come until after school starts so you need to have reserve funds to pay for rent and utilities and such.
As we are nearing the end of tuition payments and there may be a possibility of having more in our 529 plan than we need, (again, we don't have the prepaid tuition plan, but our funds can go to rent and food and books), I have read in several different places that you can withdraw the amount up to the scholarship amount each year and not pay the 10% tax penalty. You WILL have to pay tax only on the earnings you receive, but not on the principal.
My hairdresser's daughter is on a non-athletic full ride at her school (1st generation, Asian, female, aerospace engineering). Mom had the prepaid tuition and gets a check back each semester equal to the tuition.
I am not sure about Texas, but I don't think the coaches know about your finances unless they ask. The college financial aid office will know based on your FAFSA and the CSS Profile you may have to fill out, and possibly the coaches could wander over and ask? What the coaches WILL want to know is if your player is a good student and qualifies for merit aid, which allows them to apply scholarship money elsewhere. Son was offered his scholarship the summer before sophomore and junior year, so we had not filled out any forms at all at that point.
What threw a kink in our planning that I didn't know about ahead of time....was that there are federal tax credits, up to $2500 on $4000 paid for tuition, but that $4000 has to come from outside 529, prepaid plans, savings bonds, etc. and there are some income limits. Of course, I wanted to take advantage of the tax credits so I paid $4000 of tuition each year from other funds, which left a surplus in our 529 plan. I figured the tax CREDIT was better than paying tax on earnings only of the same amount.
If there is a surplus in your plan, check and see if it can be transferred over to another child. I did that to finish out child #1.
