Why doesn't the college issue a 1099 for taxable scholarship income?

Scholarships received are disregarded when determining whether or not a student is a dependent for tax purposes.

From IRS pub. 501, pg. 15:

A scholarship received by a child who is a student is not taken into account in determining whether the child provided more than half of his or her own support.

http://www.irs.gov/pub/irs-pdf/p501.pdf