I agree that the government loans are inflating the cost of education. The supply (number of universities) is staying the same, while the demand (people who can afford university) is going up. Markets will naturally raise prices to cope - it's effectively a subsidy that profits the university. This is effectively the same argument concerning health insurance, a subsidy inflating medical costs.
But on the other hand, I probably couldn't have afforded my education if I didn't have federal loans to help . . .
There might be another solution, such as using the loan money to instead increase the number of universities - ie increase the supply.