A senator said 3 decades ago the student-loan system was broken. Everything has gotten worse since.

College graduate sitting outside. Sean de Burca/Getty Images
Three decades ago, former Senator Samuel Nunn suggested that the student-loan program might be broken.

Josh Mitchell's "The Debt Trap", a new book, explains how student loan companies continue to make money at the expense of borrowers.

Even though Democrats enforce stricter oversight, the student-debt crisis has never been worse.

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A senator pointed out in 1991 the deeply-rooted flaws of the student loan system, which caused borrowers to take on debt they couldn't repay. He suggested that the loan programs might be unsalvable. Three decades later, the flaws he cited are worse.

The Wall Street Journal's Josh Mitchell has published "The Debt Trap", a new book that details how former Democratic Senator Samuel Nunn's liaison lawyer compiled a report detailing abuses of student-loans and for-profit schools in the early 1990s.

Eleanor Hill, the counsel, discovered that the Education Dept. Only three employees were assigned to oversee hundreds of for-profit schools across the country and student lenders. This left "hundreds of thousands of students without any training, no jobs and large debts they can't repay," Hill's report stated.

This was less than 20 years since the creation of the student-loan program. Mitchell explained that President Lyndon B. Johnson created this system to address income and racial inequality as part his "war against poverty," but it turned out to be the exact opposite of what he had hoped for.

Sallie Mae, now Navient, was a student loan service provider. Mitchell said that Navient prioritized making "enormous profits" from lending to borrowers and "often left borrowers in the lurch."

Nunn published the report's findings in 1991. He also stated in a related hearing, that he had not seen any evidence that the student-loan program was working effectively and efficiently.

He said, "The testimony has been such a discouragement that one must wonder if even urgent and concentrated reforms can at this late date salvage these programs."

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Conflict of interest and a "vicious circle"

Hill discovered a conflict of interest in how student loans were managed: Schools were the largest beneficiaries of the system that they were regulating. The schools continued to recruit students. Banks lent money to these students and made a profit by selling the loans to servicers. The government would pay the servicer. The borrowers weren't prioritized.

Mitchell described this "vicious circle" as only getting worse. The US student debt load currently stands at $1.7 trillion. A borrower in 1990 would have a debt load of $6,700. This average debt load is now close to $37,000. With interest rates on student loans and college tuition continuing to rise, student debt will continue to grow unless there is debt forgiveness.

Massachusetts Senator Elizabeth Warren, for example, has been a prominent advocate for reforming student debt. In a 60 Minutes interview, she mentioned Sallie Mae (now known as Navient) for its abuses in the student-loan program.

In April, she held a hearing during which she told Navient CEO that he should lose his job for misleading borrowers. She also told Insider last month that "the world is changing for student-loan debt servicers."

She said, "They cannot sign a contract, do lousy work, cost borrowers tons, and still get their contracts renewals."

While oversight of student loan companies has increased over the years but borrowers are still saddled with student loans they cannot repay - a problem lawmakers were aware of 30+ years ago.

Business Insider has the original article.