It's exactly the same moral hazard as with home loans. There, the bank repossesses and sells the underlying asset so the only time they can ever lose is if housing prices crash.
... are you arguing against secured loans?
... are you arguing against secured loans?
Destroying 'collateral would be quite drastic. I'm pointing out that it is equivalent to making student loans non-secured, regardless that one arises out of contracts and the other from more recent lobbying.
Simpler would be to eliminate banks conjuring money from thin air, or perhaps to just raise interest rates to the point that essentially interest-only loans once again become untenable.
That said, we cannot continue to fund the system we have which according to R. Arum's Academically Adrift, leaves many students with a mountain of debt and few marketable skills. As the authors of "Paying for the Party" note, these students had a great time but learned little. Both books (and Arum's follow up book tracking graduates) are sobering reads...