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Is a car an appropriate (legal) item to be bought with student loans? Can it be considered an educational expense?

Have any of you known someone to do this?

You can do it but they won't increase your budget for it, so you'd just have less to live off.

It's legal to spend your loan money on anything you want. But, it's not a budgeted-for expense, nor is it an educational expense, so they won't lend you money for that purpose. You could, however, decide not to have an apartment, for example, and buy a car instead.

Your loans are to be used for whatever living expenses you find necessary. If you can budget car payments into your loan disbursement and still afford things like an apartment and clothes, then go for it.