Yes, you can use money from federal subsidized student loans for living expenses. You can use student loan money for any expenses reated to the cost of attending college.
Yes; you can take out the maximum amount for a loan and then attend a relatively cheap community college. You can either live in a dormitory or private housing.
Once a person receives federal funds and the cash is in their hands, they can spend it. It should go for the purpose intended, but not everyone does that.
Students who get student loans can use the loan proceeds for rent. Student loan funds can go for anything needed for a student's education, including living expenses.