That is called regulation, and once you start putting in regulations, then everyone starts screaming about big government and over-regulation. There is no winning, put in protections and you are some big government commie bastard, don't put in protections and you are heartless and ineffectual.
And, I dare say, banks even in other areas where they could lose money (2008 real-estate), are just as eager to reel people in and ignore bad loans.
The government offering loans in the first place is regulation, and choosing not to do underwriting is part of that regulation.
I.e. the government regulated that they would lend tens of thousands of dollars to any student, so student A can no longer bargain with the school for a lower price because student B, C, and D are lined up to pay whatever is asked.
Because the government is not doing its due diligence as a lender, because current voters and government employees have no problem soaking future taxpayers. And crippling uninformed 18 year olds’ futures.