That seems fine to me. Banks are in the business of calculating risk on loans, they can work out under what conditions they're willing to loan money to students who have little to lose by declaring bankruptcy.

If they basically shut down all student funding, that doesn't seem like a huge problem either - it's a fairly bad model and I think society would benefit for from the pressure to find a better way to educate people.

It's a difficult question, it would have a lot of unpredictable knock-on effects. But subjecting the industry to market pressures seems a move in the right direction.

  Banks [...] can work out under what conditions they're
  willing to loan money to students [...] If they 
  basically shut down all student funding, that doesn't
  seem like a huge problem either 

The problem arises if they decide "We'll only loan money with a wealthy co-signer" and that locks out working class kids from college and the class mobility opportunities education provides.

I considered that briefly, but honestly I disagree. Class mobility is a pleasant fiction we tell ourselves about, but the data suggest that it is nothing more. Since 1980, the prime time of our current every-goes-to-college education paradigm, social mobility has fallen off a cliff.[1] And frankly, it was never a major feature of society.

For deeper socioeconomic reasons, pretty much everyone in the truly lucrative fields like law and medicine is already quite well-off, and people who graduate from other degrees generally either end up in poorly-paying fields like academia, or else in careers that half a century ago didn't require tertiary education at all.

[1] http://jhr.uwpress.org/content/43/1/139.refs

Whilst absolutely a concern the cost of a college education is hugely inflated by the guaranteed loan money.

That would cause a crazy economic implosion in the education sector. Anything like that would need to be done very gradually or else there would be massive layoffs at every university all at once.

I agree but we must also realise the amount of struggle and suffering the current system causes to graduates.

In general it's a lot easier to see the flaws of a new proposal than take notice of the problems with the status quo.

So doing things really gradually also has a cost.

Short term the costs to those you describe as suffering will be significant too...such as no options.

The clear result of this would be parents that can afford to send their kids to college will send their kids to college by just paying for tuition. Interest rates will go up significantly, which makes the math on taking out a loan worse for anyone that doesn't need one. It would be a death spiral for loans.

I'm not convinced the politics of subsidizing education get better after that. There's a very high risk that a large and powerful swath of the country reacts to it with "I worked my ass off to pay for my kids to go to college, why should I subsidize yours?" The resulting increase in inequality is bad for society as a whole, but honestly it's a feature for most upper income parents.

It would probably put some pricing pressure on college, but the predictable knock-on effects are really really bad.