I guess that's a fair point. However, I do think there should be some limitations. There's limited money, and the governments job should be to spend it in ways that create the best outcomes (if it's a good government working for the people). If they're throwing it away in ways that aren't beneficial then there's an opportunity cost where it could be better spent on something else.

As for if it's legal, I have no idea on how your government works, but the government creates the laws, including the one providing the loans, so they could presumably create a law saying a certain portion must be spent on certain things (transportation, school materials, classes, etc.).