Besides lowering their costs, universities need to be put on the hook for at least part of the risk of student debt default. Right now, that risk has been shifted to government. It’s no different from the subprime mortgage debacle, which also spread from the obviously most risky borrowers to apparently less risky “prime” borrowers.
Watch out: the Fed will be pressured into buying student loan ABS issued by Sallie Mae, as part of a broad bailout of higher ed. The real problems — exploding costs, the absurd expectation that everyone should go to college, and the misguided notion that we need as many colleges as we have — will be left unaddressed.
Even better, why not make universities that want to participate in the student loan program have to forgive the tuition they got that is forgiven to the student? (As opposed to having the US government have to pay for it.) That would focus their attention on the problem.