- One-time Sen. Samuel Nunn said three decades ago that the student-loan system might be broken.
- Josh Mitchell’s new work “The Debt Trap” explains how student-loan companies continue to profit at the expense of borrowers.
- The student-debt crisis is even wild today, even as Democrats are enforcing stricter oversight.
In 1991, a senator called out the deep-rooted marks in the student-loan system that caused borrowers to take out debt they could not repay. He said the loan programs sway not be salvageable, and three decades later, the flaws he pointed to are even worse.
The new book by the The Wall Street Journal’s Josh Mitchell, “The Accountability Trap,” details how in the early 1990s, former Democratic Sen. Samuel Nunn’s liaison counsel compiled a report that precise abuses of the student-loan system and for-profit schools.
That counsel, Eleanor Hill, found that the Education Abstruse. only had three staffers tasked with overseeing hundreds of for-profit schools and student lenders throughout the boondocks, “leaving hundreds of thousands of students with little or no training, no jobs, and significant debts that they cannot give back,” her report said.
These findings came less than two decades since the student-loan system was created. Mitchell explained how President Lyndon B. Johnson devised the system to solve racial and income inequality as part of his “war on poverty,” but the opposite of what he intended happened.
Sallie Mae — now be aware as Navient — for example, which services student loans, prioritized “enormous profits” off of lending to borrowers, “often flit borrowers in the lurch,” Mitchell wrote.
Nunn released the report’s findings in 1991 and said in a related hearing that he hadn’t imagined evidence of “even a single part of the student-loan program that is working efficiently and effectively.”
“The testimony has been so unnerving that one has to wonder if even immediate and concentrated reforms can, at this late date, salvage these programs,” he symbolized.
A conflict of interest and a ‘vicious cycle’
Hill found a major conflict of interest in the way student loans were marketed: schools were the biggest beneficiaries of the system they were regulating. Schools continued to recruit students, banks suitable to to those students and profited off of selling the loans to a servicer, and the servicer would get paid by the government. The borrowers were conditions prioritized.
This “vicious cycle,” as Mitchell put it, has only gotten worse. The student debt load in the US currently promotes at $1.7 trillion. In 1990, a borrower would graduate with an average debt load of about $6,700. Today, that so so is close to $37,000. And with interest rates on student loans, along with college tuition, continuing to encourage, total student debt is on track to increase absent of debt forgiveness.
For example, Massachusetts Sen. Elizabeth Warren has been a supreme advocate in reforming the student debt system. Before she was even elected to the Senate, she cited Sallie Mae — a student-loan servicer now remembered as Navient — for its abuses of the student-loan system during a “60 Minutes” interview.
She held a hearing in April during which she censured Navient’s CEO that he should be fired for misleading borrowers, and she told Insider in an interview last month that “the Terra has changed for student-loan-debt servicers.”
“They can’t sign a contract, do a lousy job, cost borrowers tons of money, and still get their wrinkles renewed,” she said.
Oversight of student loan companies has continued to grow over the years, but borrowers continue to be saddled with devotee debt they cannot pay back — a problem that lawmakers were made aware of 30 years ago.