So... your prediction is wrong.
There are way too many factors that cannot be ignored, but that you choose to ignore. You need to look at the interest rate environment (which determines the cost of capital), banking regulations (which have changed dramatically in the past several years), the unemployment rate (you might have noticed we're in the slowest "recovery" since the Great Depression) and inflation-adjusted wage growth (hint: there basically is none), amongst other things.
Finally, you fail to note that the federal government was a participant in the student loan market well before 1996, so you cannot look at the history of private student loans without understanding that the government has influenced the market to varying degrees for some time.
If you want to assume that private lenders would rush to provide student loans at low rates at the same pace the federal government has in this economic environment and without the discharge restrictions currently in place, I'd love to introduce you to someone looking to sell you his 100 year J.C. Penney bonds. They yield over 11% and you can buy them at ~70 cents on the dollar - a great deal!
Good.
Then people will stop lending students tens or hundreds of thousands of dollars. Then schools will lower their prices.
Let's make your comment a little more accurate:
Then the federal government, which is responsible for ~85% of the student loan market, will have to stop lending students tens or hundreds of thousands of dollars, and there will be no end to the cries that millions of young Americans are being denied a college education by well-to-do politicians who are out-of-touch with the economic realities of the average American.
You don't make society's huge education bills go away just because the government is paying for them.
We're in a lose-lose situation here. If student loans are plentiful, tuition costs rise and the debt must be secured by laws preventing discharge in bankruptcy, which leads to complaints about the cost of an education and debt levels. If student loans become less plentiful, the complaints will shift to focus on lack of access to education. Even if costs decrease substantially from today's levels, there is sadly a sizable market of would-be students who simply don't have the funds to go to college. Telling them they can't go to college and major in [insert wacky subject here] is political suicide for politicians.
I'm not convinced it would happen as you say, since the crippling burden of college loan debt described in this article is increasingly familiar to many Americans. Once it begins affecting us personally, it becomes significantly harder to sweep these things under the rug.
No doubt, they would try their best, perhaps suggesting that reduced loans will result in higher taxes for average Americans and will shift the financial burden onto the older generations. That would be much easier (and more desirable, to special interests) than attempting to tackle the underlying issues that have resulted in hyperinflated tuition costs.
If only there were a way to broadcast the views of an intelligent, non-partison, and informed demographic to the average American household. Though I'm not sure anybody would tune in, as people find Fox News' fear-mongering and political divisiveness so entertaining.
What, don't you want to become a botanist???
As I noted in another comment, one in five federal student loans outstanding is already in default or delayed default, and that number does obviously not include the number of loans that are in deferral still accumulating interest. Put simply, there are a lot of people out there who likely could and would consider filing for bankruptcy if it allowed them to discharge this debt.
We can't have it both ways: if you want everybody who wants a college education to be able to obtain one, the federal government has to be in the lending business and it has to be all but impossible for borrowers to discharge their debt.
Not only will this necessarily force lenders to increase the cost of these loans to borrowers, a lot of folks apparently don't understand that the biggest lender in this market is the federal government. Of the more than $1 trillion in student loans outstanding, about 85% have been provided by the federal government. Just over one in five federal student loans is already in default or delayed default. If the law is changed to permit discharge of these loans in bankruptcy, Student Loan Debt will become Mortgage Market 2.0.
if loans are able to be discharged the federal government wouldn't be handing them out like free candy to anyone that wants it.
It's exactly that there is no downside for the government that the situation is the way it is.
But the problem is bigger than the trillion dollars in debt you and I are already on the hook for. A lot of people like free candy, and if you take it away here, we'll go from "Tuition costs are too high, and I have too much debt!" to "Washington politicians are denying me an education!" The education lobby is strong and too many people are dependent on federal student loans for this to be "fixed" in a logical fashion. Everybody has been sold the idea that a college degree is a prerequisite for access to the middle class, and government-subsidized student loans are practically seen as an entitlement.
As much as one can hope for a better system, it isn't likely to come. We're well beyond the point of no return.
Well, in so far as the people (and our government) who are already in debt, I can't disagree. We're in bad shape.
However, I do have hope. The online instruction revolution is still in its infancy, and I have much hope that quality education will be spread far and wide (at low cost). And that anyone with a reasonable amount of motivation can learn and grow and become more productive and wealthy as a result.