More than four years ago in early 2010 U.S. Secretary of Education Arne Duncan was pleading for a federal takeover of college student lending by blasting banks for making a profit under the old guaranteed lending scheme.

Just two years later after the feds took over it was revealed that gross public debt was more than 6 percentage points higher than it would have been under direct federal lending.

To be sure, neither approach makes sense. Banks are in the business in the first place to make a profit, and a big part of how they do that in a free-market system is sensible lending based on solid risk assessments and avoiding default. There’s little incentive to put those commonsense safeguards in place once the feds tell banks that taxpayers will subsidize bad loans.

Direct lending doesn’t make things better. And, for all Duncan’s talk of “eliminating the middleman,” the feds still rely on the big bad banks to handle student lending under its so-called “direct lending.”

Now The Huffington Post’s Shahien Nasiripour reports:

An outgoing Senate Democrat wants to take federal money from low-income college students to pay student loan contractors, whose tactics toward borrowers have been criticized by consumer advocates, federal regulators and the U.S. Department of the Treasury.

Sen. Tom Harkin (D-Iowa), chairman of the Senate education committee and the appropriations subcommittee in charge of federal education expenditures, has proposed taking $303 million from the Pell grant program to increase revenues for some of the nation’s biggest student loan specialists, according to a July 24 version of a 2015 fiscal year spending bill now being negotiated by congressional leaders. …

The Education Department, which owns or guarantees nearly 90 percent of the more than $1 trillion in outstanding student loans, outsources the work of interacting with borrowers to companies such as Navient Corp., the former servicing unit of student loan giant Sallie Mae, and Nelnet Inc. The department spent $678 million on loan servicing in the fiscal year that ended in September 2013, budget documents show. …

Harkin has largely avoided criticizing the Education Department.

Rather than investigate allegations of wrongdoing or punish instances of documented misdeeds — actions the Education Department has largely declined to take — the Obama administration decided this year to increase loan servicers’ pay in the hopes that the promise of more money would lead them to improve their treatment of borrowers.

This latest government lending debacle shouldn’t surprise any of us. After all, the feds raid Social Security all the time to “pay for” its lavish spending elsewhere.

A better approach would be to get the feds out of the college lending biz altogether. Funding should remain with taxpayers and they should devise plans in their respective states to invest in students directly.

Any public funding for students with true financial need should be directed to them in the form of performance grants. Students successfully complete their degree programs, and they don’t have to pay the money back. For those who do not, their grants would revert to loans that students would have to pay back.

Businesses should also be encouraged to enter into human capital contracts with students. Under such contracts, businesses would agree to pay students’ tuition and students would agree to work for those businesses for a specified number of years after completing their degrees.

Apparently, far too many people in the federal government view our tax dollars as monopoly money. A better approach would be to get the feds—the biggest middle man of all—out of the way and invest in students directly.