The combination of government backing and preferential treatment for student loans vis-a-vis all other forms of credit in e.g. bankruptcy means that it is one of the few credit markets which has not catastrophically contracted in the current crisis. That is the system functioning as designed: the intent was to make it artificially appealing to lend money to students who, by nature, have no jobs, no assets, and no immediate prospects of repayment, all strikes against them for any other sort of consumer credit.
What wasn't anticipated was that the combination of the social prestige attached to a degree plus the extraordinary amount of credit available would remove any pricing pressure from colleges.
There are also some pricing transparency issues caused by this, much like insurance causes pricing transparency issues in health care. We've got a young crowd here, right? Many of you went to expensive colleges, right? Can you identify the total price of your college education within $1,000?
crickets chirp
Funny how that works. Nobody forgets what the price of their house was, or how much the angels invested, but when it comes college our best answer is "Hmm, good question. I think I got a scholarship or something? Maybe somewhere in the low $100,000 range?"
(Full disclosure: I'm as guilty about this as anyone else. I can tell you what the sticker price for WashU is and what my student loans ended up being but I can't reliably account for the hundred thousand dollar difference between those two numbers.)