Bad debt is a good point, and it comes down to the loan provider agreeing on what they will and will not pay for. In below references to the Australian system you'll find that the load provider (the government) will at times stop providing funding for industries, or limit the number of funded positions (you still have the option to go at as a full-fee paying student) when there is less of a need.

A great example of this would be teachers, there are limited positions as there are a lot already and new positions do not open up as rapidly as universities can train teachers. A great way to control this and push people in other directions is to simply not fund that degree to the same extend as say various engineering courses.

Don't be afraid of it just because the government is involved. It can, and has worked. There is a lot to gain from having an educated society.