The federal government is still chasing $2.1bn debt from more than 150,000 low-income tertiary students who traded away their rights to welfare under a 1990s-era loan scheme axed for its unfairness.

The student financial supplement scheme, which operated for a decade from 1993, enticed students to take out “low-cost” loans by trading in their entitlements to youth allowance, Austudy or pensioner education supplement.

Every dollar of welfare a student gave up entitled them to $2 in loan.

The scheme was roundly criticised for pushing the lowest-paid students to give up their social security entitlements and take on debts that would stay with them for the rest of their lives. Minors were also able to take out loans.

The Howard government dumped the scheme at the end of 2003, acknowledging it was saddling students with high levels of debt, was “administratively cumbersome and poorly targeted” and effectively hit debtors with hidden interest rates through foregone social security.

It also conceded that many of the students would struggle to ever pay the money back. That concern is now being realised.

Figures supplied to Guardian Australia show 174,500 people were still paying back $2.138bn in debts by mid-last year.

When the scheme was axed, the government actuary estimated about 50% of the loans would be recovered. Its last estimate found roughly one-fifth, or $411m, of the $2.138bn is retrievable.

James Fry, a Sydney-based author, took out a loan when he was just 17, without the consent of his parents. He had enrolled in a Tafe course but was not studying, and was using much of his welfare to drink and party.

“When I heard about this student financial supplement scheme, on the surface it sounded brilliant – they’d give me twice as much money,” Fry told Guardian Australia. “Long story short, that extra money, around that time I was just hitting the pubs and that money certainly didn’t help in terms of education or anything like that.

“I accept personal responsibility to a degree but, at the same time, I think that’s exactly why you don’t let 17-year-olds take out loans.”

Now in his 30s, the $4,000 debt is still hanging over him. Its compounded by a Sydney mortgage, his Hecs debt and the cost of raising a family. He has only managed to reduce it by a couple of hundred dollars.

“In terms of people who were signed up as children, I would like to see the debts actually wiped,” he said. “It’s something we wouldn’t tolerate in any other capacity, to have children basically sign themselves into future debt.”

The debts are largely being recovered through the tax system or through voluntary payments. Currently, repayments only begin when an individual begins earning above $55,873.

The level of total nominal debt has been reducing slowly. It has been paid off at a rate of about $21m a year since 2014. If that rate held constant, it would take until 2118 for the total debt pool to be paid off.

The Australian Council of Social Service (Acoss) director of policy and advocacy, Edwina MacDonald, said the inadequacy of student payments had forced many to take out the loans.

“This was a scheme that pushed students on extremely low incomes further into debt,” MacDonald said. “We obviously hold concerns about the fairness of any debt recovery action taken by the federal government considering the considerable harm continuing to be caused by the flawed robo-debt program.”

MacDonald said the inadequacy of student payments was still an issue. She said youth allowance, at a rate of $31 per day, was lower than unemployment payments.

“If you cannot supplement your income sufficiently with paid work, you end up living well below the poverty line,” she said. “Students have the same costs as any other person yet they are being penalised for choosing to study.”