In general, the corrosion that results in these types of dramatic water pipeline failures is due to external corrosion, so any health concerns would be due to loss of water to anyone downstream of the failure rather than the presence of corrosion products in the water.  In the instances where corrosion is at fault (rather than soil movement that ruptures the pipe or an inept construction worker damaging a buried pipe), the pipe is going to be carbon steel.  If the corrosion of this pipe were internal, it would result in somewhat elevated iron levels, what are more cause complaints of discolored water well before they would create any health problems.

Therefore, the major concern in this area is one of the reliability of the distribution system due to the aging steel or cast iron materials if they are allowed to experience external corrosion.  The concerns would center more upon the loss of water downstream of any pipeline breaks, damage to the area around these breaks and the overall cost of repairs not only at the break but of the surrounding pipe because it may also be nearing the point of failure.  Much of this aging pipe is now in developed areas, so it will usually be very inconvenient and very expensive to start to replacing large sections of the line.

can you think of using PVC pipes?

for transportation use concrete pipes

First let's start with the statement that iron in the water poses a "health risk to the human".  According to the WHO document "Iron in Drinking Water", the only issues with increased dissolved iron content in drinking water are the impact upon taste and rust staining of laundry and plumbing fixtures.  Suspended iron oxides (in the form of hematite and magnetite) cause turbidity but are minimally available for adsorption by the body.  Significant concentrations of dissolved iron are also frequently contained in well water.

As for corrosivity, water by itself is not a corrosive.  In the experiments that you conduct with your students, the water is quite probably exposed to air.  It is the dissolved oxygen in the water that causes the corrosion.  Changing the chemistry of the water can vary the solubility of O2 in the water, changes that increase the pH can produced an iron oxy(hydroxide) barrier layer that limits the rate of corrosion or the other dissolve species can increase the conductivity of the water, which alters the kinetics of the corrosion reaction.

It is common practice within a number of industries that handle water to control corrosion simply by removing oxygen or preventing it from contacting the water in the first place.  Oil companies have built massive facilities throughout the world to remove oxygen from seawater so that the deoxygenated water can be safely transferred with steel pipe to wells for injection into the earth.  As long as the oxygen concentration is kept below 20ppb, experience as well as corrosion monitoring has repeatedly demonstrated that corrosion is not an issue.  There is similar experience in the potable water handling industry and municipal water treating organizations that use both steel and iron pipe.  Water that comes directly from a well and that has not been exposed to air does not produce a corrosion problem.

As for your experiment with the gauze, there are several potential sources for any suspended iron oxides that might appear in your experiment.  The first is that many faucets have aerators installed to oxygenate the water to improve the taste because deoxygenated water tastes flat.  If there are any dissolved iron species in the deaerated water that comes to the tap, this iron will immediately precipitate as an iron oxide.  The type of iron oxide that precipitates (hematite or magnetite) will depend upon the dissolved iron concentration, the flow rate and the efficiency of the aerator.  The second explanation is that the suspended iron particles came from the source of the water.  Both surface water reservoirs and water from wells can contain suspended iron oxide fines.  If you collect enough of them on the gauze, the iron particles will become quite visible.  Only the third explanation involves corrosion of the iron pipe.  Any oxygen above about 20ppb that is allowed into the piping system will rapidly react with any exposed steel surface to produce either hematite or magnetite.  Hematite requires large concentrations of O2 (say ppm level) to form where magnetite will form at lower O2 concentrations.  The catch here is that magnetite tends to adhere quite strongly to the metal surface and acts as a barrier to further corrosion.  It is hematite that is responsible for the orange color that has the potential for causing rust staining (magnetite is black). This can only endanger the pipe after many years of exposure and only applies in the areas where the O2 levels exceed 20ppb.  Since the O2 is scavenged by the pipe nearest the source of the oxygenated water, it is unlikely to cause much problem except for the piping nearest a well or water treatment facility that is allowing O2 ingress.

Finally, steel and cast iron piping have been used by the municipal water industry for water distribution systems for many years.  If external corrosion is controlled, this piping can be expected to last for many decades.  Yes, it will eventually succumb to corrosion and leak, but there are failure mechanisms that cause failures to concrete and plastic piping systems that can come into play over much shorter periods of time.  Most engineering professionals would be thrilled with a design whose useful life is measured in many decades or perhaps even a century.

It is interesting to see research observations. Thanks for contributions.

Water management and research establishments normally explore contaminants that originate at the ground source and pollutants discharged into the main water bodies. They ignore the contaminants that come through corrosion of materials used for water distribution. Present regulations and standards available for infrastructure design, water quality monitoring, operation of aged distribution assets and most importantly, hygienic aspects do not provide any encouragement to control corrosion. High level of Iron contaminant cases reported in many leakage incidents clearly explain the alarming situation of corrosion issue.

Our country uses mixed bag of old and new pipelines with major proposition of iron based materials to transport huge volume of water and distribute to numerous household connections. Contamination proliferates when water with original contaminants is transported through distribution system that uses a variety of unproven materials of construction and uncontrolled disinfectant process.

When iron contamination occurs, our immediate focus is on physical treatment like filtration to remove the unaccepted iron count or getting clinical based antidotes. Our water management agencies do not attempt to find the main causes for this problem and resolve it through proper operation and maintenance of supply network. Corrosivity of water will change from place to place based on the composition. Proper materials of construction have to be selected to suit the specific corrosive situation based on the life cycle analysis executed for the entire network.