It's the same reason why Health Care costs will rise now that Health Insurance is federally subsidized. The government is viewed as this undeniable source of income.. if they say they will pay for it, people will believe them. After all, they're the ones with the printer! [this isn't true, this is simply the general perception!!]
So when the government tells a university, offer these loans to students at this rate. We will front the cash, you'll get your bases covered, and then we'll handle the collection when it's over with. The school now, more or less, has a guarenteed source of income; regardless of the students coming in. The government will pay for it, and it's all good. Tuition will be raised, and the government will continue it's promise 'offer these loans, we'll get the interest, and you get your students'.
The "student loan bubble" is the debt the government is putting itself in by students who are unable to pay back their loans in a timely fassion, due to no employment. The universities won't suffer any consequences until the government realizes this hole they're digging (probably too late) and elects to stop subsidizing these loans. Suddenly, students won't be able to afford the inflated costs of the schools and you'll see various colleges and universities cutting back or closing down.
Hospitals will see the same things happen. Subsidized health insurance means they can charge a greater rate for their services. When the government program collapses under it's own debt and the insurance program is terminated, hospitals will be left with many many unpaid bills.
If you ever want something to be destroyed, let the government take care of it.
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