Is it possible for something to be ethical but immoral at the same time?

Like most people, my students—to whom I ask this question every semester—don’t believe so, because they use the words interchangeably. That is, until my query inspires them to think about it on a deeper level.

An action is ethical if it is both legally permissible and a generally accepted practice. That same action is moral as long as it’s consistent with one’s personal set of values.

The individual meanings of the two words are often conflated because we’re inclined to believe that the two philosophical concepts are compatible: if it’s not against the law and everyone is doing it, it must be OK.

Not necessarily, as the federal student loan program illustrates.

Consider the credit underwriting process—or, rather, the absence of one. Although lending without regard for a borrower’s financial ability to repay his or her loan may be a legal and generally accepted practice (because that’s the way the student loan program was established long ago, and certain other financial products are similarly structured as well), one may also argue that it’s immoral too because that disregard has the potential to entrap as easily as it entices.

The program’s fundamental pricing methodology is equally at odds with itself.

When Congress passed the Bipartisan Student Loan Certainty Act of 2013, it pegged a hierarchy of interest rate markups for the various student loan programs (e.g., Federal Direct and PLUS) to a particular financial instrument (10-year Treasury Notes, in this instance). Yet the government funds its program with much lower-cost, shorter-term Treasury Notes—perhaps as short as one and three months in duration—and pockets the difference. And Congress widened that disparity by mandating an added hierarchy of upfront fees, whose values are a multiple of the cost of originating and administering these loans.

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Mitchell D. Weiss