Makes economic sense to me. If the government puts in incentives without monitoring that are that perverse, somebody's gonna figure them out and take advantage of them.
I remember people talking about this when I was in high-school.
Well-to-do parents would set their kids up in an apartment and let them file their FASFA form as an independent. They qualified for a lot more in grants and aid that way.
The Reagan Administration changed the rules to clamp down on this practice. I guess the lawyers eventually found a way around that.