What's the lender's incentive to do that? Their goal is to extract as much profit as possible from the borrower (even when we're talking about the government as lender).

I would say morality, but I realize that's an invalid argument. It seems like the government shouldn't be allowed to profit from issuing student loans (especially bad ones).

That's better, but what you will end up with is colleges pricing their "good" degrees higher and higher until they have captured almost all of the wage surplus that workers get from going to college.

Then people will stop getting that degree, and the competitive salary for that degree will get higher.

If the NPV of the wage premium of becoming a botanist is $400K, colleges will charge $360K.

What, don't you want to become a botanist???