It's not a choice. In Canada at least you are disqualified from financial aid (including loans) based on your parents' tax returns. The law expects you to pay for your kids' school if you earn a middle class income or more.
Same in the US; I had a friend who was estranged from her parents, and so they refused to sign a FAFSA form, which made her unable to qualify for pretty much all financial aid. The college president had to step in to have an exception made for her, since all need-based scholarships provided by that college (and most others) are based upon FAFSA.
Ok, I can see it from that perspective -- we have similar financial aid limits in the U.S. I still think it's a choice, even if it's one that's structurally difficult for many people to make.
However, this is mostly orthogonal to the issue that most university students are adults, and the university has no business sharing their personal information on their behalf (without their explicit consent of course).