Update: just talked to a UW fin aid specialist, who told me that basically you can’t get money in excess of full COA, and any excess merit-based scholarship (from outside or inside) will simply decrease both the UW general scholarship and the UW Tuition Exemption (and possibly other aid) because these are need-based.
She told me the cash-out of excess for his UW Engineering scholarship basically means any amount above tuition. True, this excess would go to his bank account, but he would simply have to apply this money to COA expenses over and above tuition, for example housing expenses (which would have been covered by the aid in our case anyway). So I guess they figure any excess is NOT going to help my son beef up his personal bank account! (Darnit!) But really, we can’t complain. Other than a modest EFC that my wife and I will pay, he does indeed have his college fully funded.
The fin aid specialist also pointed out that because at least a couple of the UW in-house scholarships only pay out more in the first couple years of attendance, his additional scholarships that pay out the same every year will likely benefit us later, in the Junior and Senior year.