If the American government is going to print money so people can go to college, why not print money for everything? The idea is much worse than an income tax because with money printing nobody knows who is losing out. We know by raw balance equations that someone who would have gotten something real now isn't but there is no way to identify who or what.
That level of confusion can't possibly be a good idea. "Just print money and solve the problem" is a dangerous approach and really better dropped from the conversation. Playing word & number games to pretend something real didn't happen is a bad direction to take politics.
Hypothetically, there's no reason the US government couldn't structure its loan program thusly:
(A) Originate loans for existing fiscal year, (B) bundle multiple loans together / blind desired loan details (e.g. lendee race, etc), (C) auction off loans on the open market, (D) require budgeting for next fiscal year loan program on the basis of previous year's auction.
You'd get the benefit of price / cost discovery while controlling for unfairness as desired?
There'd need to be some legal papering to deal with the outcome lag, but it seems more responsive than the tossing money down a well we do now.
Firstly, leverage. A lack of rules and enforcement allowed unreasonable amounts of capital to amass around mortgage bets. Without the crazy leverage via derivatives, the mortgage crisis would have been "A lot of loans go bad and some people get fired." Limit via regulation.
Secondly, capital requirements. My understanding is that mortgage-backed securities are treated preferentially in terms of where a bank legally can allocate capital. Consequently, as they had to find returns somewhere, they constantly needed to plow huge amounts of money into the market. Inflows of money >> smart money meant that price discovery broke down: those who cared were drowned out. You'd need to avoid structuring taxes, etc to artificially force capital into this scheme.
They aren't, particularly; they are low risk to those buying the loans, not to the issuer (even with the difficulty on discharging them) who is, after all, the guarantor.
Well, except in the sense that the issuer can literally just fiat dollars into existence whenever it chooses, so essentially all dollar- denominated debt is zero-risk.