Federal student loans are disbursed first to the financial aid office, and once loan proceeds have been applied to any mandatory expenses, any remaining funds are disbursed to students. While no one can dictate how those loan proceeds are used, they're usually a very small portion (if any exist at all) of the original loan amount. No federal student loan is simply cut as a check to a student because of concerns about fraud and misuse.
If you suspect that funding is being misused, you can contact the school's financial aid officer. If you suspect that fraud is being committed, you are encouraged to report fraud to the Department of Education's Office of the Inspector General. The OIG takes all claims of fraud, waste, and abuse very seriously and will prosecute to the maximum extent permitted by law.
Department of Education OIG:http://www.ed.gov/about/offices/list/oig/index.html
Christopher S. Penn
Financial aid expert and managing editor, FAFSA Onlinehttp://www.FAFSAonline.com