The program is handling the information you entered correctly. The 1098T must be corrected by the school. It is wrong! 

From what you said box 1 should be the total of the scholarship plus the 575. If AOC eligible, your client should get 575 plus books and course related fees.

MAKE THEM FIX THE 1098T.  So far this year, I have sent 2 students back to the bursars office and they are both being corrected. 

FWIW, There are plenty of situations where scholarship money exceeds tuition and the excess money is given to the student to pay living expenses, buy a car, or whatever.  That money is taxable income and is the reason PS is handling it the way it is.