My daughter received a scholarship for law school The loan and scholarship all went to tuition. Why is it counting as income on her taxes

The usual reason is TurboTax (TT) has diverted (allocated) some of the tuition (usually $10K) to the Lifetime Learning Credit (LLC), whether she is  eligible or not.  If she is a dependent, TT will assume the parent is claiming the credit.  

The 1098-T is only an informational document. The numbers on it are not required to be entered onto your tax return. However receipt of a 1098-T frequently means you are either eligible for a tuition credit or possibly your student has taxable scholarship income.  If you're not claiming either, just don't enter the 1098-T.

If the student has both loans and scholarship, it's unlikely that any of the scholarship is taxable.

Provide the following info for more specific help:

• Is the  student  the parent's dependent.
• Box 1 of the 1098-T
• box 5 of the 1098-T
• Any other scholarships not shown in box 5
• How much taxable income does the student have, from what sources
• Is the student trying to claim the tuition credit 
• Is the parent trying to claim the tuition credit 

The LLC is a non refundable credit, equal to 20% of tuition paid up to $10K. The income limit is $180K, phase out at $160K.  Grad students are not eligible for the more generous AOTC.