Sounds ideal in principle (principal?), but low interest/risk on student loans is what allowed tuition to inflate well beyond general inflation in the last several decades.

It was probably a mistake for the government to provide the funds and low interest rates and for private banks to reap the profits.

And of course universities continue to raise tuition and fees with complete impunity.

Which is why they need to allow bankruptcy. If the answer is "students will just declare bankruptcy after graduation" then at least the moral hazard is on the other foot.