Market Failure

Dusting off my economist hat for a second and jumping in to expand on a point raised by the mysterious Ms. Goodrich, the government isn't just in the business of subsidizing student loans as a means of lifting up poor people, it's in the business of subsidizing student loans because otherwise there wouldn't be much of a market for them. As we lack indentured servitude (a good thing), and there's no physical asset associated with education (a mortgage lender can take your house if you default, a student loan broker can't appropriate your brain), student loans aren't backed by anything.

To the extent that investment in education has decent rates of return, but credit constraints due to a lack of a well-functioning market for student loans prevent people from making those investments, there will be much less education than is efficient.

Loan programs are directed at poorer students because it's presumed wealthier ones have access to "credit" from their parents.

Or, as Goodrich wrote:

Financial markets are incomplete in the sense that a student cannot acquire a loan against the collateral of future earning power (except with the help of the government and the rules and regulations to ensure such help).