The right thing to do, on a human level, is to give him a scholarship.
Thats what running a classy program is all about. Little stuff like that.
However, Smith is a bit of an unusual case. Most, if not all, of the other guys on the team would not have been admitted to NU without the basketball credential. Blake Smith got in on his own. He chose NU for the college diploma and campus life. His parents are paying his tuition, or part of it. My guess is they paid full tuition and housing, but maybe they got some financial aid. (Parents seem successful)
So it is possible that the parents are wealthy saints and that the tuition money means nothing to them. I doubt it. Its $320,000 or so for 4 years.
My guess is that any kind of financial offset would be appreciated. It is definitely deserved. And thats where you have to be careful, or risk alienating the parents (and the player).