Who exactly designed the system that way? Banks (aka capitalists) were not very keen on doing this exact thing for the risk reasons, and now the government ended up backing most of the educational debt for some reason (aka socialism).
And I'm sorry, the moment you use "socialism" to describe the government backing private loans from institutions that are privately held you lost me. This is not even close to a semblance of socialism, this is your government trying to live by the ideology of "free market everything" and patching the holes created by this ideology with a more expensive (and dumber) solution.
If higher education was free for every citizen, subsidised by taxes, you could call it a socialist-ish policy. Having to pay "market price" for your education through government-backed loans to private banks is far, very far from socialism.
I'm not an ardent capitalist, but I think education is an area that would have been better off without government tampering, or perhaps with less-clever tampering. The good bit about our student loan program is that it normalized higher education (perhaps too much to the extent that many would have been happier and more successful in the trades). The bad bit is that government put all risk on the students, allowing for students to elect into programs that wouldn't have a good return on investment--something that virtually no bankers would have signed off on. As a result, two things happened: 1. millions of students annually opt into careers with poor job prospects on the other side and 2. the price of higher education inflated (something like tenfold) to meet the availability of student loan money (and without any corresponding increase in value) because the system isn't steering students (and their loan money) toward programs that deliver. I think if we allowed students to default on their loans, we would see loan prices fall 80% or more ($8K instead of $40K).
No, I am sorry. When government forces financial institutions to give loans to everyone applying without risk analysis it IS socialism, aka “democratic control over the enterprise”. No capitalist in their right mind would give hundreds of thousands of dollars to pay for underwater basket weaving degrees and expect to see the money back.
No one has a degree in underwater basket weaving.