Why do government grants exist?

I am a college student - a senior at San Jose State University - and have been granted $13,000 for this academic year - a Pell Grant of $5500 and a Cal Grant (California) of $7500. They are both based mostly on financial need and have very minimal academic requirements, something like 2.0 or 2.4 GPA. This more than covers my tuition, and I have also accepted a government loan of $5,500. I accepted this loan because it was offered at an absurdly low interest rate of 3.4%; I would borrow an infinite amount of money at this rate because it is trivial to earn a higher return through low-risk private investment and therefore make a profit.

In my opinion I am getting far too good a deal for someone in my financial position. More reasonable would be to extend either a loan at a slightly better rate than the market rate offered by private lenders. There is no need to undercut the private sector to such a great degree as is currently the case because students borrowing money have essentially no leverage - they need to borrow if they want to go to college. Replacing existing financial aid with moderate-interest loans would greatly reduce or even eliminate the cost to taxpayers (or maybe even show a profit) while still allowing just as many people to go to college. The difference would be that students would owe more money upon graduating, discouraging them from taking on $100,000+ in loans to pursue a $30,000/year job/career, or if they were concerned about the possibility of not finishing college and facing significant debt. They would respond by either choose a more lucrative major, a more affordable university, junior college (followed by a transfer or an AA degree), a trade school, or to supplement their loans with part time employment, or some combination of those options. Less students attending four-year universities will lower tuition costs and drive student loans down further.

It is great that many students such as myself have an opportunity to attend higher education despite being unable to pay for it out of pocket. But there is no logic to handing out money to students who have a reasonable expectation of being able to pay it back later. and have no other option if they want to attend college.