> They have no financial risk if the students drop out.

I like this and would love to see more commentary on it. Taking one step back, the system is broken because we removed the primary safeguard: Bankruptcy. If we could declare bankruptcy to discharge loans, it puts the burdens on banks to only make loans they evaluate as having a reasonable rate of repayment on. We've removed that check. In turn, we have a completely predictable outcome. So, as far as I know the only alternative is to provide another, equally robust counter (like your suggestions, or just "free" tuition) to balance.