I'm puzzled by the basic premise here. Having a bank as an intermediary or not doesn't seem relevant to the incentives. It was still the student picking which u

I'm puzzled by the basic premise here. Having a bank as an intermediary or not doesn't seem relevant to the incentives. It was still the student picking which university they wanted to attend. The reason for eliminating the banks as middle men was just to save money. They weren't taking on any of the risk, or doing anything particularly useful for the government. I'd agree with the more general premise that easily obtainable loans should push prices upward.