Legit operators not living off the loans will carry on without a blip in income
Really? Name a few. The only "operators" I know of which are not doing so are aero clubs and they are really struggling.
As for accepting students who are unlikely to make the grade, I would make two comments. Firstly I agree that a value judgement can often be made on day one as to an individuals chances of success. I have said to some that I think that they will stuggle but its water off a ducks back to most of them. Secondly though, is it an instructors place to tell someone that they are wasting their money? These are big boys and girls. For those aged over 20, our magnificent ministry of education says that, where loans etc are available, everyone is entitled to an oportunity to fail. Selection procedures are not allowed it seems so a lot of money is wasted in aviation training in this country.