Exactly, it just becomes a deferred tax. There are also laws that cap how much a person's wages can get taken specifically with student loans. It maxes out at around 10%.
Again, I do not agree with it. But to pretend the sky is falling is false. That's also why, as you've noticed, laws have been adjusted in the wake of the abuses of the for profit university industry. As well as accreditation crack down on the organizations that accredited these for profit universities.
I'm not saying it's right or just. I'm only saying it's intentional and not some giant debt bomb surprise that the government is not expecting.
It's just kind of how the US tries to do things. By having loans they are trying to apply market forces. The idea is that students will do a better job as a whole deciding what schools and programs continue. And again again, I'm not saying I agree. Just relaying that there is an actual design behind it.
For the European model to work in the states, many schools need to be shut down, so as to reduce the freedom of picking whatever major at some school.
European here as well, but best I'm aware what you're saying is not how it works.
The US government is the student loan lender at the end of the day when you work through the insurance chain. And in contrast with mortgages, car loans, credit cards, etc. where you can declare bankruptcy to make the debt go away and start anew, you can't default on the US government.
The real story here is that an increasingly large number of US citizens are having or stand to have their wages garnished by the US government. Debt bondage comes to mind...