I'm filing for my nephew who is a college student. he received a 1098T. Box 1 is 17732.78 and Box 5 is 20948. Why did his refund jump to over $3k? Is something wrong?

Your box 5 is larger than box 1 which means you have choices in claiming how the scholarship income was used.

There are way too many people that fail to realize the the box 5 scholarships can be applied to room and board and other expenses of college that are not tuition, books, and required materials. If you choose to include that scholarship in your income, you have the education expenses from box 1 left to claim the education credits.

That would explain a big jump in the refund.

Also, there may have been other expenses that wiped out the difference between the scholarship and the tuition.

There is tax loop hole available to students  (more usually to their parents), by paying tax on $4000 of additional income (about $400), a $2500 tuition credit can be claimed.

Check line 3 of Schedule 3 and line  18c on form 1040.  Details will be on form 8863. 

He is not eligible for these credits, if he can be claimed as a dependent by someone else (usually his parents, but could be another relative, e.g. aunt or uncle).

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There is a tax “loophole” available. The student reports all his scholarship, up to the amount needed to claim the American opportunity credit, 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 school’s billing statement specifically shows the scholarships being applied to tuition or if the conditions of the grant are that it be used to pay for qualified expenses.

Using an example: Student has $21,000 in box 5 of the 1098-T and $18000 in box 1. At first glance he/she has $3000 of taxable income and nobody can claim the American opportunity credit. But if she reports $7000 as income on her return, the parents can claim $4000 of qualified expenses on their return.