He probably singed a contract for the scholarship and the details will be in there it probably says if you don't meet certain conditions that it's a loan - or maybe it says it's a loan UNLESS you meet certain conditions - like completing the coursework with an acceptable grade.

But also sometimes the portion of a private student loan that wasn't tuition can be discharged.(Think housing and food costs.)

But also even federal loans can be discharged in some specific cases.

They made it a lot harder in 2003, but it can still be possible.

You need to talk to a lawyer.