I'll have a go at this!
Before I ramble on though - because loans are a 'thing' then of course we have to use the system the same as everyone else. As you correctly say, it allows clubs lower down the food chain to have players in the team that they would never be able to afford otherwise. Not to take advantage of it would be to put the club at a significant disadvantage. So any criticism I make is of the whole loans system rather than OUFCs use of it.
The system encourages clubs at the top of the league structure to sign a ridiculous amount of young players. If they can loan the players out elsewhere (and potentially get some of their wages paid) then they can hoover up young talent and get other clubs to develop them / test them out. The amount that good young (especially English) players are potentially worth should they come good makes that a pretty good bet. The corollary of that is that the young players are of course likely to sign for those top clubs - they will be paid a very handsome wage for the period of their contracts and will probably get some senior football under their belts. So, overall, is that a bad thing? Well I would argue that it is. One of the ways that clubs down the divisions can make money is to sign, develop and sell young players - if not only the most promising but also those not so obviously outstanding are on the books of a Prem club, then that's out of the window.
I am also not sure it does many of the young players much good either - certainly some loanees we have seen at our club develop a very entitled attitude, thinking they are too good for #clubslikeoxford, when in fact making it as a professional footballer in this country is in itself a success. It is as if even being signed by a top club means they have made it, when in fact that is very far from the truth.
But let's assume the loan system is here to stay - I would still say that allowing 5 loan players in a matchday squad is far too many. Because that many are allowed, many clubs will have up to the maximum. Even discounting the Prem, that is 72 clubs x 5 places = 360 loan players in matchday squads in the EFL, plus maybe more in the registered squads (because some are young enough not to count towards the limit) plus loans to the Conference, other Prem teams, overseas teams etc.
Finally, it restricts proper squad building for the clubs borrowing the players. In our case (as an example) Lankshear is looking really good. I don't know whether he could be recalled in January to go to a different team, but the chances of him being with us next season are very small indeed - even if he were for sale, you'd imaging bigger fish would snap him up at no financial advantage to us (because he is a loanee). So then we have to go through the same rigmarole again and again and again to look for a player in that position.
I suspect my problem is really with the 'loan system' more than any specific 'loan deals'.