The problem is that the economic theory results that produce good outcomes for market systems have a number of major assumptions, assumptions that are entirely violated in this situation.
One of those assumptions is perfect information. For-profit schools are very good at deceiving their students with a variety of wild promises, and as new students don't usually have good access to the people who would be making decisions about hiring them later, those students just aren't adept at separating the truth from the lies.
Another issue is that these market arguments rely upon the concept of individual utility maximization. But education is one of those things that doesn't just benefit a single person in isolation: a more highly-educated populace is better for everybody, not just for those receiving the education. By ignoring overall utility, these simple macroeconomic arguments are maximizing the wrong thing.
Finally, the simple macroeconomic case here assumes that everybody has the same capacity to spend, even if they have differing desire to spend. In reality, making student loans less available will do nothing but price poor students out of college, which will exacerbate intergenerational income inequality (that is, it will serve to help keep the poor poorer and the rich richer). If we want a society where everybody has a chance to succeed based upon their own merits and work, then we need to have free education for all. Period.