Ron Paul wants to get rid of the federal student loan program, and I fully support him on this.
Student loans might work out for some, but many students find they enslave them in debt before the student even knows what they are doing or how these loans will effect their futures. It is my belief that colleges base their tuition rates on how much students can pay, so as the government grants and loans more money to students, the tuition increases proportionally and the students are harmed more and more and led further into a life of perpetual debt, the colleges benefit and the students are harmed by this cycle. Debt is indentured servitude as far as I am concerned, and should be avoided as best as you can, it restricts your choices and worsens your standard of living in the long run.
Recently Steve Jobs died, he dropped out of college, but imagine if he had not dropped out and had graduated with massive debt, he would not have been able to start apple, he would have been forced to get a job at a corporation in order to have the steady high income job he would have needed to repay the loans. By not having that debt burden over his head, he was able to be more entrepreneurial.
One big problem with these loans is that the amount of money someone needs to live on while going to college, has no bearing on what they will be able earn once out of college, so a person getting an engineering degree where they have a good chance of being able to pay the loans back, is able to borrow the same amount as the person getting a degree in art history, where the jobs are few and the pay is virtually non-existent. This creates a situation where people are leaving college extremely in debt and unable to find work that pays enough to repay their loans. I think without the government interference banks would be much more careful in who they loaned to and for how much. I don't think student loans would disappear in a free market, but I do think they would be lessened and those people who qualify for them would be in serious degrees with a high probability of good job prospects in the future.
[Side tangent] One thing that is curious to me about this whole debate over student loans is that I have had many friends and co-workers who have vocally complained about the credit card companies sending their kids a credit card while their kid is in college, even when that kid has no job! They think this is completely irresponsible behavior on the part of the credit card company (and I agree), but at the same time almost all of those kids are going tens of thousands of dollars into debt on student loans, which is much more irresponsible than a thousand dollars in credit card debt. [/Side Tangent]