Why is nursing scholarship taxed so greatly?

My girlfriend recently received a nursing scholarship in exchange for an employment agreement to work for a hospital for a year after she graduates. I understand that the scholarship must be taxed, because it is received in return for her services rendered — i.e. employment agreement with the hospital. The scholarship money has been heavily taxed before she received it in her bank account. (she paid about 1/3 of scholarship in tax!) It seems to me that she could treat the scholarship as income and possible write it off on her taxes at the end of the year. Being a full-time student, her income bracket is not in the 33% range. Why is this money taxed so greatly and why can she not include the tax in her income and handle it on her income tax?

Best answer:

Answer by Found-1
Income is taxed when you work to earn it, and when you do your tax forms any overpayment is refunded to you. This year, if her income bracket is not at 33% she might get a big income tax return refund.

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