Student allowance rates vary. For a single person aged under 24 who lives away from their parents, the rate is $175 after tax.
Allowing Study Link to receive earnings information direct from Inland Revenue would catch out more people who were incorrectly claiming an allowance.
"Through the proposed information sharing agreement, individuals who are wrongly claiming allowances are more likely to be identified," a spokeswoman for Revenue Minister Michael Woodhouse said.
The agreement will provide the ability for MSD to verify information provided by both the student and the parent, against information held by Inland Revenue.
Currently students have to provide evidence of income such as a letter or contract from an employer, payslips or a declaration in writing from parents of their estimated weekly income from self-employment.
Another aspect of the information sharing proposal is to allow MSD to work out who qualifies for social housing support through Inland Revenue information, rather than having to talk to employers as is currently the case.
Submissions on a discussion document covering the changes close on December 16.