Since it's nearly impossible now to discharge student loans in bankruptcy, lenders have 0 incentive to do any due diligence on borrowers. Quite the opposite, their only incentive is to get students to take out heaps of loans that will keep them in debt servitude for a lifetime. This is why you have cooking schools, where most jobs barely pay more than minimum wage, charging many 10s of thousands of dollars but all students can get loans.
If bankruptcy was a possibility lenders would be much more cautious about tuition rates and potential for a borrower to actually pay it back.
I guess I forgot the human element when thinking about it, that banks will readily pounce on loans with guaranteed repayment and that people will sign up for them.
Under bankruptcy, you don’t necessarily get everything wiped clean and a fresh start. A court will determine how much you can pay and to whom and assets will include a percentage of your future income. On top of that, your ability to get credit will be severely impacted for at least seven years meaning good luck getting a car loan at non-usurious rates, credit cards, etc. You may even find that getting something like a simple checking account becomes rather difficult (I had to sell my first house in a short sale in the 90s and even though the consequences were less dramatic than bankruptcy,¹ it still impacted my financial prospects for a long time afterwards).
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1. I went to a credit counseling agency in the midst of that financial distress and the counselors all insisted that I didn’t want to go through bankruptcy although in retrospect, that was exactly what I should have done. What I didn’t know then was that the credit counseling agencies are all run by the credit card companies.
In the US context there are already provisions for this, abusive debtors can be forced from a schedule 7 to a schedule 13 bankruptcy, and in any case if the creditor protections aren't sufficient there are ways to bolster those protections without just allowing the creditors to have debt slaves.
For instance, you can disallow discharging debts for a period of years after the education ends. The status quo is pretty corrupt.
Declaring bankruptcy immediately after graduation was last legal in 1976, when private school tuition could be paid for with 20 hours/week of minimum wage labor. Even for an amoral profit optimizer, explicitly planning to have zero assets and maximum debt at graduation and immediately declaring bankruptcy was not yet a particularly compelling idea.
I don't think it'd really be a thing today either, but the circumstances are clearly very different.
Private school tuition at about $1600/year? Public university tuition was well under that, but my recollection is that private university tuition was about double that.
Despite this being true, it's probably bad in the long term to build a society where being honest and trying to do the right thing is a losing strategy.
If bankruptcy was a possibility lenders would be much more cautious about tuition rates and potential for a borrower to actually pay it back.