Student housing loan to buy a house?

[Brian Hayden]

**Asking for a friend**

        In theory, a friend of mine has elected to have additional student loan withdraws for housing. They are receiving ~$30k per year for a housing allowance. They are currently living with parents and intent on continuing to do so. This financing is stretched out over an extended period and is at a relatively low-interest rate backed by the fed. They originally wanted to apply this extra money to pay down previous private loans with a higher interest rate, but they are now considering options. They have found a house for sale in a great rental market within Michigan. They are wanting to apply about $15k down and the seller is willing to land contract the rest over a 5 year period with the intent to pay off early with the loan disbursements. 

        The student and I realize there is ethical complications here, but we are more so worried about the legality. With the young investor/student being in grad school, they will not qualify for most typical loans due to little to no income. This seems like the only way for them to begin their investing career and the cashflow/appreciation of the house will pay out much more significantly than simply paying off other loans. 

        Can anyone else with similar experience weigh into this as an option?