If a low income student gets a full ride that covers all COA they will also get an allowance for travel and personal expenses most likely (refunded to them). They will need to save some of that money for taxes.
Yes, not all of the net unearned income from taxable scholarships is taxed at 37%, it gradually goes up depending on amount.
I don’t agree with taxable scholarships being taxed like other unearned income of children. But it is what it is. At least there is a much higher standard deduction now. And paying a portion of the scholarship in taxes is still better than not having the scholarship that enables many low income students to attend college.