How is it unfair if the loan came with higher interest rates to account for that?

That’s exactly the point of how debt markets are supposed to work. Higher risk borrowers are more likely to default, so pay higher interest rates to cover the % that do. If as a borrower you’re willing to pay more for your debt to give you that option (and quite frankly, all debt should be this way. There’s no debt an LLC can’t write off, why is there debt individuals can’t write off?), why is this bad?

One "unfair" thing is generally when there's a mass "loan forgiveness" program (like there was for Mortgage Debt in 2008) borrowers are exempted from considering forgiven debt as income. That's unfair to the rest of us taxpayers.