I am very strict at this. There's just no way playing like that, and I use to explain to them why. I say that in this position all the tendons, muscles, nerves and everything else that has to move inside the arm needs to go around the edge and causes friction and that they will damage their hands this way. Usually they understand, I use to illustrate that as clearly as possible. Then of course I need to repeat 100 times "make your hands free" but after a while it works. If not, there might be actually a sort of psychological war going on, which I hope is not the case here. But if it is the case, she wants to test you and you are in the "wonderful" situation to prove your authority.