Federal is less of a loan, but more a subsidy that you have to repay at later date if you can. There is no market mechanism involved, government sets the terms and rules. Overall if you have your shit together(push paperwork on time), it is nearly impossible to default on that type of a loan. So for all intense and purposes, those loans are just another hidden tax.

The benefits of this system is arguable, but for America where people hate to pay taxes and government needs to put people through college, this is not a bad option.

But... There are two massive problems in the system, private loans and the way colleges charge for education. First a lot of colleges are free to set fees any way they like, as a result in many cases federal loans are not enough and people are forced to take private loans. The problem with private loans, that they are completely market driven(higher, fees, higher costs, depends on your assets etc), but you can't get rid off them via bankruptcy which is absolutely nuts.

Overall the whole system regardless of country is very unfair and regressive in nature(poor people pay more then rich) and represents an example of broken social contract between government and its citizens. As student debt skyrockets, it also impacts the broader economy and forces people to go into debt to pay day to day expenses.

But maybe it is all by design. It is much easier to control people if they are in debt very early on in live vs debt free.