One thing a school can do (but is not required to do) is remove the IRA income from the AGI. They will most likely put that amount into assets, rather than into income. Sometimes they might even decide to exclude it from assets (although they are not required to do so), if there is evidence that the money is no longer there & if the money was used for a purpose the aid office feels was a use that would allow them to exclude the money from assets.
Talk to the aid office about the situation.