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Your argument is unacceptable for the following reasons:
1. It ignores the possibility that the borrower may be under pressure from social, economic, or violent coercion.
If I'm a lender, I don't care what the borrower's story is. I only care about one thing: Will he pay the money back? Now, if the lender is the federal government and it wishes to engineer social policy, I can think of other, more efficient ways to do this. Personally, I think we're turning out too many psych and marketing majors and not enough engineers and yet the Department of Education treats each graduate the same regarding his or her ability to repay the debt. Meanwhile, private investors are more than happy to offer better terms to lower-risk prospects.
2. It ignores that borrowers may have been subjected to deceptive lending practices.
I'm old school: Caveat emptor. Besides, we have consumer lending laws that are designed to protect the public, but if the the Department of Education is engaging in deceptive lending practices then we really have a problem. Can you describe these, please? Because my guess is the bigger problem is people simply don't read and understand what it is they're signing.
3. It ignores the fact that monopolies have substantial power to set rates and erode the principles of freedom that are supposed to be associated with free markets.
In this case, the federal government is the entity swinging its balls around by offering subsidized rates. If a private entity tried to do what Uncle Sam is doing (say, not charging any interest on subsidized loans while the student is in school and charging a below-market rate once the grace period ends) it would be charged with predatory pricing.
As such, because it thus renders the concepts justice and fairness sterile, it should be rejected to the pile of useless, rubbish ideas by the discerning mind.
Now you're engaging in opinion. "Fairness" and "justice" are two-sided coins. For example, what's fair when a borrower promises to repay a loan but stiffs the lender, even if he has the ability to repay the loan?