I don't think it's nonsense.
The OP will not be using the loans for the cost of living while in school. He's using it to cover previous debts incurred before school. This is highly likely to be against the terms of his loan. Even if no one ever really reads all that fine print and there is a low risk of getting caught, it's still not advisable to do what the OP is considering.
I do accept the chance that I may be wrong. I understand that perhaps you can argue that the interest on his debt is an expense that is part of the cost of living while in school and so therefore it is okay to use it for such. But unless the OP reads the fine print on his specific loans to find out, then we'll never know for sure, and I'm a bit shocked that you would be so dismissive towards my concerns as "nonsense."
I have no idea what the "slightly different rules of med school loans" are. As far as I understand, they are considered graduate student loans. And I think milski is right on point.