I am really glad this issue was raised. Clearly each school is different, but there are certainly cases where the outside scholarship does not really help the student in the end. Suggestions to provide a computer or other in-kind gift are good ones (not sure how that works on taxes or FAFSA- anyone?). And yes, even if a scholarship is paid directly to the student, it needs to be reported on the FAFSA and CS.
(Just want to say that not all first gen students are low income, and not all low income students are first gen!)