The Times profiles Jon Oberg, the Dept. of Ed official (now retired) who blew the whistle on the 9.5 % loophole.
I interviewed Mr. Oberg last month. He has a slew of great reform ideas of how to introduce competition back into the loan program. He is one of the few reformers to address the problem of private student loans. He suggests removing all direct and indirect subsidies from private loans such as bankruptcy protection, tax exemption, and the ability to securitize them together with federal student loans--except for private loans that followed most of the standards of federal student loans: " cost of attendance limitations, forbearances, deferments, discharge standards, non-discrimination, illegal inducements, and the like."
These private loans would be quasi public, administered by states and nonprofits.
In one way, you could look at this idea as eliminating private loans as we know them. The idea adheres to the fundamental principle that Department of Education subsidies should be directed toward students, not lenders.