I believe you make a good point. So the question then is, should for-profit schools exist? Surely there should be a mechanism to prevent these scenarios from occurring.

The plot twist is that there already is in the form of accreditation. Anyone can trivially look-up whether or not any school is accredited or not.

So the question remains, if someone chooses to go to an unaccredited school and they get burned should the government foot the bill?