"A better question may be, why do "federally-guaranteed loans" need to exist in the first place..."
Exactly. If the question is "Why is higher education so expensive," that is the answer.
Don't be ridiculous. The loans don't exist because school is prohibitively expensive. I finished school just with the current group of "I can't pay my student loan" cry babies. I paid for all of my education, and have been supporting myself since I was 16 years old. My student loan total for 3.5 years (I graduated early) was $12,000. That included tuition, books, and my apartment minus the costs I paid myself by working throughout school. I received $1000 total in scholarships and did not qualify for grant money. I went to a school that I could afford. A state university program. Without the federally subsidized student loan, I would have been forced to work more, and would have had to spend more time on my degree.
At the time I started school, my girlfriend wanted me to attend the same private school she went to. I applied and was accepted but passed on the program because the tuition alone would have cost me over $30,000 a year. With decreased funding, my state university now charges double what it did when I attended, but your 4 year tuition is still less than 0.75 years at a private university. I have about as much sympathy for those crying about student loan repayment as I have for those people who took out a 5 year ARM on property back in 2008.