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I hope you know that you are not limited in 529 plan choices to just what your home state offers. Of course, state tax incentives may play a role in what your best choices are.
Generally, you can withdraw 529 money for any reason you want. The sricking point is whether or not earnings will be taxed and possibly assessed a 10% additional tax (“penalty”). One of the exceptions to when the 10% additional tax is assessed on the earnings portion of a non-qualified distribution is when the student has used tax-free scholarship money to pay for expenses. Whoever receives the non-qualified distribution in this case will still be assessed income tax on the earnings portion.
Read Chapter 8 of IRS pub 970; you should find it helpful.