My daughter got a refund from her FA. As @thumper1 said, she lived off campus so used her student loan to pay rent. Her school took all her FA and combined it and then paid all the items due (tuition, fees, insurance, and in her case the meal plan) and she got what was left over. Usually what she got back was the loan, but there were a few merit aid things that she could (possibly) get refunded to her (SEOG, Pell). There were also some scholarships or grants that could only be used for tuition, or only for meals, or only for direct billed items by the school, so those couldn’t be refunded.
You can’t just assume the amount refunded is taxable. For D, it was almost all loan money so not taxable. Her meal plan was paid with scholarship money so that was taxable to her. But then she paid for her books with her money so could offset some of the meal money… You just have to keep a chart of what money was used for what, but loans are not taxable and can be refundable.