It's a pyramid scheme. We try to keep attracting a bunch of pilots to keep our flight schools in business and our instructors employed, but there's a problem, the problem is you can't take 10 instructors and 100 students and then turn those 100 students into instructors, then they'd have to train 1000 students. The reality is that those 10 instructors may eventually go on to jobs, but that only leaves 10 open positions. The other 90 students have to find "other jobs". These other jobs simply don't exist anymore. Unless you are training mainly foreign students, it's a pyramid scheme that keeps collapsing every once and a while. When it does, people go in different directions, get out of aviation, etc. Or the industry picks up a bunch of pilots real fast, only to furlough them a few months down the road. This doesn't have much to do with the 1500 rule in terms of safety, it just has to do with reality.
The 1500 rule thing is due to economics. If you are an insurance company, would you rather that the airline increase the minimum to 1500 if the quality is better, or let the 250 wonders in if they meet certain standards? As the person applying, you'd probably like the latter option. Problem is, it takes money to put more comprehensive tests in there, evaluate someone in multiple situations, assess someone fairly. If you can get a higher overall quality with less money spent, then that's where it's going to go. That's where 1500 comes from. It's no guarantee, it's not even going to be a better pilot in some cases, but it's going to waste less time and resources trying to find the adequate pilots, because there are likely more of them at the 1500 level than the 250.
Lastly, if you're only making 23K as a flight instructor, what are you doing about it? Are you being paid fairly? Have you brought this up? Are you charging for your time correctly? If you're there with the student, you should be paid. Does the doctor only charge for the time he is doing something physically, or the entire time he spends with you? If you are there with the student, you are responsible for their safety. Your prebrief + preflight inspection (coming out when he is nearly done) should be at least half an hour. Shutdown and post-brief should also be around half an hour, if you are providing quality instruction at all. If your student doesn't show up with an assignment completed that you told them to complete, you sit there and complete it on their time, and charge them for it. You NEVER overcharge students, but you also compensate yourself fairly. If your preflight was wasted because a discrepancy was found and you had to get another aircraft, your ground time you are going to charge for will likely be more for that flight. You might help them with preflight on the 2nd airplane to be a nice guy, but inevitably the ground charge will be higher due to the longer time spent preflighting overall. You need to build these ideas of fair compensation in yourself and your student. Your students will respect you when you uphold these standards and act fair. You do NOT give them a break in the TIME if you actually spent the TIME. If it's better to make a decision to cancel the flight and do it another day because by the time you get into the air, it will be a waste of time, that's the right call and that's what you do. When you teach XCs you will likely have to go through two entire XCs with them, and then a third one at least partially. With some people they take less, with some they take more. Motivated students can do stuff much faster, and you give them the keys to minimize their cost if they are motivated, but time is time and you never shortchange yourself for what you work. I hope this helps. Through the years when I used to flight instruct I noticed many people "giving the student a break". That's noble on some levels, but it's futile and it only shoots you in the foot. If you want to really do the right thing, charge fairly and make sure you are putting real value in what you teach. Give them keys to study on their own. Make sure they know the PTS and how to study for it. If they waste your time, you charge for the time it takes to teach them what is necessary. If they finish fast because they are motivated, you can get another student that much faster.