I think the economic phrase that you are referring to is "moral hazard".

https://en.wikipedia.org/wiki/Moral_hazard

It's one way that an economy can break down...

What sort of belief should I start from to be able to decide that people taking a loan they can't afford bear no responsibility? I imagine it's the same sort of thinking that leads to calling a property they never actually paid for theirs but I am not sure and when I am not sure, I ask.

They both bear responsibility, but only one party got the bailout.

I hear what you're saying, but bankruptcy is most certainly a bailout relative to debtors prison.

That's an interesting perspective, but the U.S.A. does not have debtors' prison. Only bad loans that are not repaid.

the U.S.A. does not have debtors' prison

While true in theory, this may not be true in practice. There are several loopholes, one main one being that failure to pay fees and penalties assessed by the justice system itself can be a criminal offense. In some states a significant percentage (as high as 20%) of current prisoners are being held for failing to pay these LFO's (Legal Financial Obligations).

Here are a couple ACLU reports about the practice:

  In for a Penny: 
  The Rise of America’s New Debtors’ Prisons

https://www.aclu.org/files/assets/InForAPenny_web.pdf

  Modern Day Debtors Prisons: 
  The Ways Court-Imposed Debts Punish
  People for Being Poor

https://aclu-wa.org/sites/default/files/attachments/Modern%2...

> failure to pay fees and penalties assessed by the justice system itself can be a criminal offense

Which doesn't have much of anything to do with the real estate market, right?

Correct. I hoped from context that it was clear that I was responding only to the line that I quoted (which said that the US "does not have debtors' prison") and not to the main thrust of the argument.

Yeah. Historically society has sent people to prison for failing to pay. Today we allow for bankruptcy, which is relatively better.

Conversely, why should a bank should be protected from their stupid decision to make that loan? That's supposed to be why loans charge interest. It's to cover the risk of default. But they didn't even consider what would happen.

Without help from the government, those loans would have never happened at those rates.

If you don't like FAFSA loans, you are perfectly willing to go to any bank (or maybe a rich uncle) and get another loan (or convince your rich uncle to bankroll you). But for the vast majority of people, FAFSA is the only way to pay for college.

And taking out 8% or 9%+ loans from NON-FAFSA institutions is a lot worse than taking a 6% to 7% FAFSA loan. I think funding the loans and keeping interest rates lower is a good thing.

It is an artificial government subsidy, used to fund "non-profit" real estate development.