This is my first reply on reddit so sorry its long but not only are you NTA but you're being too nice about the situation.

Your daughter is 16 and needs a serious reality check her entitlement is so disgusting. As someone who was raised pretty privileged myself I am forever grateful my parents never allowed me to grow up without understanding consequences. I hope this behaviour isn't normal for her although considering her mother's reaction it is and as such she needs a reality check. That being said Paying for the dress is not enough because she was malicious and has victim complex. You need to sit her down and make sure she understands not only is she not the victim but a major AH and if her entire family doesn't despise her behaviour already they more than likely will in the future if she continues with such entitlement and plays victim.

Might be the unpopular opinion but even if that was her college fund you're NTA and no offense but you're going to have to come to terms with the fact you raised a spoilt brat, it happens so swallow that pill and start trying to combat it. Good luck