[huherto]

"How about a third option,..."

Here in Mexico the Tec of Monterrey (which is one of the best private Universities) does that. They give you a loan/scholarship based on a combination of good grades and socio-economic status. The students get 90%, 80%, 60%. If they get 80%, that means they have to pay 20% when they are in school, 40% is a scholarship and 40% is a loan.

One of the consequences of this is that most loans/scholarships are given to the engineering students. The fact that the school has a stake on the future success of the student makes them more careful on who to give the loan/scholarship to. I always assumed this was the way done in the U.S. but after reading the article and the comments here, it seems like it is not.