The risk that the increased supply of money lowers the value of that money. Not that this is the straw that's gonna break the camels back, but it's not like there aren't consequences to the taxpayer for allowing the government to allocate funds in a sub optimal manner.

I think the main risk would be a deterioration in the government's finances since the government is expecting to get paid back and is factoring in those payments to the financial outlook. That could in turn lead to an increase in the government's borrowing costs, which could affect lots of other things negatively.

Classic case of moral hazard.

That's what banks do to manage their credit risk, they look at defaults rates "through the cycle", i.e. including the last downturn. But for new asset classes, like subprime in their time and like student loans now (if you look at chart in the article in term of growth), people have to make their own assumptions in term of how it will behave in a downturn. And that's where the credit markets can be really dangerous. These assumptions are what banks and rating agencies got wrong last time. And I think it is fair to assume that people under financial hardship will probably default on their student loan before they default on their mortgage (roof over their head) or their car.