Occasionally a dependent student will claim to pay rent to his or her parents, in an attempt to qualify for additional aid or a higher student budget. Such students are usually considered to be still living with their parents.

To the extent that a student pays rent to his or her parents, the net cost to the family is zero since the payment and income cancel each other. In other similar situations, such as cash support from a dependent student's parents to the student, Department guidance has been to ignore the "internal" transfer. It is not the intent of the law to allow families to artificially increase costs for need analysis purposes by recognizing a cost without recognizing the corresponding income. So the financial aid administrator should not increase the student's budget.

It is, however, possible that the parents could own an apartment building and rent an apartment to the student. In such a situation the financial aid administrator should require the following:

• The apartment have a different postal delivery address than the parents and have separate utilities. This will often help distinguish renting out a room in the house from a separate apartment with its own entrance.
• The parents should supply documentation indicating that they paid taxes on the rental income.
• The parents should supply documentation indicating that they also rent to people who are unrelated to them. This will ensure that the transaction is "at arms length".
• The rent should represent fair market rental value for the area.