Regarding the Student Loan Legislation in our new Health Care Bill.....?

....my question is; when student loans are government backed and cannot be wiped out in bankruptcy (thus essentially guaranteeing repayment) why has market capitalism not seen a bank step up and offer low (1% or 2%) interest instead of this gouging-even at 7% or more? I mean, wouldn't students flock to such a bank. I mean WTF, they sure stepped up to offer toxic sub-primes!