First of all, it is not OK to favor students from the same institution (all student applications for a project must be considered). The official GSOC rules state: “UNIVERSITIES: If you are a university, we expect you to select students outside of your program. Selecting students from your university is okay (1 student tops) but if you accept more than 1 student from your university you likely won’t be accepted into GSoC again. You should be bringing new students into your project.” Therefore, for R project to be accepted as an organization in future editions of GSOC, accepting students from the same institution as their mentor needs to be an exception (not the rule).
However in the past we have accepted students from the same institution as their mentor, as long as there is another co-mentor from another institution — the idea is to encourage students to join the wider R package development community, and to make sure the project is beneficial to the wider useR community. Please keep in mind that the point of GSOC is to bring new students into the free/open-source software development, and not to finance the summer research projects of university students.