I can relate to you my son's experience, but it is several years old and the procedure may have changed. The Academy will provide guidance if your cadet is in this situation.
If the scholarship has ANY stipulations on what it can be used for, it will be rejected by the Academy. There is no tuition, room and board, or fees like at other schools so they will not deal with it. Out of my son's scholarships, there was only one that had no stipulations on what it could be used for so it was the only one that he got to keep. It was a $1000/yr. scholarship from my employer, paid out once a year. The check came to him made out to USAFA and my son, and he took it to the financial office at USAFA and they took the check. (I have heard that who the check is to be made out to has changed, but I cannot remember exactly what it is now. They will be able to tell your kid.)
The first year the check went to pay down his loan balance. (I believe the initial loan amount was $6800 then, it will be more now). The second year it also went to pay down the balance, and it actually paid the loan off, so my son started getting his full paycheck well before any of his classmates. The third and fourth year they took the check and the amount was added to my son's next paycheck so he more or less got the money directly.
Things may have changed a bit, but that was the general procedure. The staff at USAFA will help, like I said, but the biggest thing is that the scholarship contract can have no limits on how the money can be used.
Stealth_81