I really like the response that they don't handle it, the daughter does. (If the daughter was writing the letter, I might have a different response.) But to the parents, my advice is: Make it very clear to both the grandparents and the daughter that you are taking the daughter's side, unconditionally, no matter what she decides, and if she decides to cut them off, that might mean you will also be cutting them off; that you don't agree with anything the grandparents are doing, including asking for the money back; and make sure the daughter knows that if she needs financial help going forward, you are there for her instead (as much as you can be.)

By no means pay it back on her behalf. (If she decides to pay it back and needs help from you in the future as a result, well, that's different. And not anything the grandparents need to ever know about.)