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.