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Did anybody, probably parents, claim an education credit? If so, it is very likely grandparents have income. If you fill out the worksheets, correctly, you will have your answer. But you will need the exact info the parents used to claim the credit, assuming they did it properly. Remember, more expenses count for Q purposes than for education credit purposes.
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Look at the 1099Q worksheet, you can choose "someone else" to be the beneficiary that isnt on the tax return....theres a Quickzoom button at the bottom of the 1099Q worksheet to input the grandchild's (someone else) info.
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This is what you need to do to avoid grandparents having to pay tax in future years. Instead of grandparents taking money out to either pay school or reimburse whoever did pay school, have the 529 send the money directly to the school. If you do it this way, while you won't avoid tax, you will avoid tax on the grandparents. If the money is sent directly to the school, any tax attributable to the Q will be taxable to the student.