That was never the theory. The theory was that we decided we needed everyone to go to college. We realized that not everyone cold afford to go to college. Giving students loans is cheaper than paying tuition directly, because you'll get most of the money back, so the government flooded the market with no-credit-check student loans. Nobody involved was ever trying to create a functioning market, even an artificial market.

I also don't think it's true that "giving students loans is cheaper than paying tuition directly". Governments are in a unique position to capture broad societal gains through taxation. So I think the cheaper option is just to fund education, especially the sorts we think increase economic productivity, and then tax the resulting income.

That might well be the case. In my experience, people in countries where university is free frequently complain about life-long students ... people who enjoy being a student so much they basically never leave and live off of public subsidies forever, racking up pointless qualifications. I've met such people too. Countries where taking a course requires gaining a lot of debt don't seem to have that problem, or at least not to anywhere near the same extent.