Are my student loans being disbursed legally?

My school has always and still does take all of my subsidized loans, grant money and unsubsidized loan disbursements and apply them first to my tuition and books, then waits for the second disbursement before applying to my account as a credit. I was told this is illegal. Shouldn't they wait for the second disbursement for the tuition, after all they know it's coming? I didn't apply for excess funding to pay the school for tuition that the subsidized loans and grants were meant to pay, or to have to wait and get it in two installments instead of one. Is this an illegal practice?