Student loan Bob Pardue/Getty Images

EAST LANSING, Mich. — Josh Tolbert graduated from Michigan State University three years ago with an engineering degree, a souped-up Dodge Cummins truck, memories of spring breaks in Panama, Hawaii and Mexico -- and $110,000 in debt. Tolbert, now 25, hardly lived student life on the cheap. One year he even lived in an off-campus housing development with sprawling, neatly tended grounds that featured free tanning services, three swimming pools, hot tubs and a hockey rink. While he worked summers to help support his lifestyle, there was another key factor at play: taking out loans from banks and credit card companies eager to shower him with easy cash. "I knew that I could borrow the money I needed to live," said Tolbert, who kept a credit card nearly maxed at $3,500 during his senior year. "I planned it this way," he said. He now has a solid job as a project manager at an engineering firm outside Lansing, making $50,000 a year. His loan payments total $1,200 a month. Few would deny that student-loan debt in the US is a huge and growing problem. The cost of education has jumped 585 percent since 1985, while enrollment in degree-granting schools increased 37 percent from 2000 to 2010. A report released last month by the Consumer Financial Protection Bureau showed that federal-backed student-loan debt is now over $1 trillion. While much of the money borrowed by students goes directly to universities and colleges to cover tuition, the cash is also filling some other coffers. In a rarely reported development, the vast student-loan sector is helping prop up retail stores and travel companies in a bubble of spending around college towns across the country. Even housing developers have gotten in on the deal, as some free-spending students are eager to spend borrowed funds on expensive housing -- fueling a property boom as new construction goes up near college campuses. Some multilevel luxury spaces aimed at students can rent for more than $1,000 a bed each month. At the University of Texas at Austin, student properties near campus go for an average of $907 a month this year, according to apartment market researcher Axiometrics. "We never had companies that only do off-campus housing until the mid-'90s," said Jay Denton, head of research at Axiometrics. "Off-campus housing didn't cater to the students. But as on-campus housing began to fill up, there was this pent-up need for off-campus apartments, and the developers began to try and one-up each other to get that market." The money to pay for this increased push for luxury came "either from getting that loan or from parents with money," Denton said.

Business strategy

Yamila Gottig, a 21-year-old senior at the University of Florida, uses her student-loan money to live with a roommate in a two-bedroom place in Gainesville that features granite countertops, upscale appliances, private parking and a short walk to campus. "Yes, it is luxe," said Gottig, who pays $525 in rent to live in Lion's Gate, a condo development where most two-bedroom rentals go for $1,300 to $1,400 a month. She gets a deal on a two-bedroom at $1,100. "I'm giving my parents a break on paying my expenses by taking out loans to live." The image of the starving college student is being challenged by that of the well-heeled or loan-dependent student who subsidizes the college experience with borrowed money that goes into the hands of developers, retailers and travel providers. Some brands, such as American Apparel and Urban Outfitters, often play for students by renting costly storefronts on student drags rather than malls in outlying suburbs. "There’s been a big trend in growing relevant retail into college towns, in the vicinity of the campus," said Antony Karabus, founder of Karabus Management, a retail advisory firm. "The kids aren't starving anymore. Kids are taking out large student loans, and they have fun money for clothes, electronics, whatever they want." It's part of a strategy for American Apparel, where spokesman Ryan Holiday acknowledged in an email that "at least 90 of our 250-plus stores are near college campuses or schools of some kind." But marketing aggressively to students -- especially those who might be spending borrowed resources -- is fraught with controversy. In the 2009 Credit CARD (Card Accountability Responsibility and Disclosure) Act, banks' actions earned them a provision in the legislation prohibiting them from issuing a credit card to anyone under the age of 21 unless that person has proof of a way to pay debts. That, however, does not stop some determined students who are keen to tap into the easy money being offered them. There are many tricks they can use to dodge the regulations. "The intriguing part of that is that student loans allowed access to a kid's financial situation, so (companies) can cross-market the credit cards," said Robert Manning, president of the Responsible Debt Relief Research Institute. "Once they get a loan, the credit card companies know that they could afford to make the minimum payments." Added Mark Kantrowitz, founder of FinAid.org, a website about college finances, “Students have told me they didn't need a cosigner for credit cards because their student aid counts as income."

Hoping for a bailout