Ah -- the Law of Unintended Consequences strikes again!
This is exactly what classical, supply-and-demand economics would predict.
Most of us understand why the government can't just print more money. The price of everything would just go up.
This is exactly the same scenario. The only difference is that in this case, the government is printing a special kind of money -- money that can only be used for one thing. It is no surprise when then price of that thing just goes up accordingly.
Subsidies (i.e., cheap loans) increase demand. Increased demand causes the price to rise.
* The US massively subsidizes education. The price of education rises far beyond the rate of inflation.
* The US massively subsidizes housing. The price of housing rises far beyond the rate of education.
* The US massively subsidizes health care. The price of health care rises far beyond the rate of inflation. (Except, of course, the kinds of health care -- like cosmetic surgery -- that do not typically get subsidized. Costs in these areas have plummeted.)
I don't pretend to have an answer to this dilemma. The only really clear thing is that the laws of supply and demand aren't *statutory* laws, that can just be altered with a pen and a lot of hand-waving. They are fundamental natural laws, and well-intentioned attempts to manipulate markets (from student loans to price-control regimes) almost always trigger equal and opposite consequences.
The real shame is that important issues like these are so easily demagogued. Even though the system is clearly broken, no politician in his right mind would ever propose changing it. "Look!" people would scream. "He hates education! And poor people!"