Yes, I agree. The quoted language from Pub 970 Chapter 1 refers only to federal need-based aid, but it seems logical to treat institutional need-based aid the same way. Note that Chapter 1 has to do with the taxability of scholarships (to include need-based aid), but because the chapter on 529s says nothing about a distinction between merit and need-based aid when the 10% penalty exception is discussed, it makes sense to apply the exception rule to all types of aid.
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