When federal policymakers killed banks' ability to make government-backed student loans, David Bergeron should have been celebrating. A career official at the U.S. Department of Education, he had favored the move for years; it would save the government money, he reasoned, and make it better able to help distressed student borrowers.

But when it actually happened in 2010, he wasn't so sure. With the move, his agency instantly became the nation's biggest lender to college students. And in his decades of federal service, he'd arrived at the view that when the government gets the chance to profit from something, it takes maximum advantage. It was only a matter of time, he feared, before that happened to student loans.

Seven years later—with more than 1 million former students defaulting on government-backed loans every year and with his former agency pulling the plug on a partnership with the consumer bureau tasked with protecting them—his fears could soon be realized.