We know that students and parents value degrees irrationally. We also know lenders have a lesser propensity to make the same mistake.

By introducing market forces on the lender's side we are side-stepping educating high school students and their parents about the returns on education and instead making the lenders be the bad cop who says "no, you're not walking out with $200k debt and an art history degree".

This should, in theory, reduce demand for university degrees in preference of community college or trade school certification, a system that has shown its merits in Deutschland.

It may also be useful for schools to own a portion of the credit risk of its students. The stick approach to this would be having schools buy a tranche of the loans each semester. The carrot would be the lender offering the school a small payment each year after graduation that the loan is paid on time, or alternatively, a larger payment if the loan hasn't defaulted in 6 and 10 years.

Schools will happily agree to 20% of an engineer's future output, guaranteed enforcement by the government under threat of imprisonment.

You know what would be better? Go back a few decades and make student loans dischargeable in bankruptcy. No one will lend students $150,000 that they can discharge immediately after graduation. The school will realize that crazy debt levels will backfire on them.

The price pressure used to be state-subsidized public universities with tuitions deliberately kept very low. As in, $600/semester low, or even zero-tuition low.