in my opinion It creates inflation (dont know how much) because

1. The students now have more money for consumption increasing demand for goods and services
2. Students could also take on new debt and use that for consumption unless they are specifically prohibited from borrowing money again for a while which i doubt
3. As you mention, where did the money to repay the loans come from? Its most likely created out of thin air which is a privilege the government has had for a while.

so yea, inflation all the way, sad :)