Washington Wednesday: Wiping out student loan debt

MARY REICHARD, HOST: It’s Wednesday, August the 31st, 2022.

You’re listening to The World and Everything in It and we’re so glad you are! Good morning, I’m Mary Reichard.

NICK EICHER, HOST: And I’m Nick Eicher. Time now for Washington Wednesday.

Today: wiping out federal student loans.

BIDEN: Using the authority Congress granted the Department of Education, we will forgive $10,000 in outstanding federal student loans. In addition, students who come from low income families, which allowed them to qualify to receive a Pell Grant will have their debt reduced to $20,000.

President Biden’s plan as he says to “forgive” student loans will transfer the burden of paying back those loans from borrower to taxpayer.

The debt of millions of individuals will be reduced or completely wiped out. It’s an unprecedented transfer of wealth that could top $1 trillion when all is said and done.

Joining us to talk about it is Erik Hoekstra. He is president of Dordt University. That’s a private evangelical Christian university in Sioux Center, Iowa.

REICHARD: President Hoekstra, good morning!

ERIK HOEKSTRA, GUEST: Good morning.

REICHARD: I understand you are in Washington, DC today?

HOEKSTRA: I am on the board of the CCCU and I was in town for a meeting. And so you're catching me here.

REICHARD: The CCCU is Council for Christian Colleges and Universities. President Hoeskstra, what is your response to the federal government wiping out this debt for the students who borrowed the money?

HOEKSTRA: Well, I would say my first response is it’s good to finally have a proposal on the table. We've been hearing about this for so many months, long before even the last presidential election, various people saying we should do this and we should do that. And just living in that uncertainty time, I know for Dordt alumni who are borrowers or alumni who are in the middle of paying back their student loans to the coronavirus, all that uncertainty just wasn't good for anyone, but I'm very pessimistic about the actual situation that we are in in terms of student loans across the United States. And also this particular proposal. I don't think– I've written a piece on it encouraging our alumni to avail themselves of it. I don't think there's anything scripturally or biblically that would say if this is available to you, you shouldn't on principle, not avail yourself of it. But I really don't think it's helpful long term.

REICHARD: Well, what you’re talking about there is moral hazard, I think. That’s the larger question and that is always “what is the lesson learned here?” The risk of moral hazard exists in that going forward people will naturally assume another round of “forgiveness” will arrive and let them off the hook for obligations they agreed to meet. How do you see this and how will it affect colleges like yours in the future?

HOEKSTRA: I don't imagine that this will automatically sort of put a spending spree on colleges and universities, but certainly that hazard is there if there is easy money to be had, yeah, we tend to be more easy with it. But I don't think that's going to be automatic. I do think that the higher education landscape is called highly competitive right now. There are more opportunities for students to get degrees than there are, you know, so it is a buyers market. So I don't think that it'll automatically go up and up and up. But that certainly is part of the moral hazard.

REICHARD: I’ve read that one of the big reasons for college costs going up is just massive administrative costs. Now this may not be the case with Dordt University. I doubt that it is. But I think of legions of for example equity and diversity personnel hired at quite high salaries. In some schools there’re fewer professors than managers. Speak to that if you would?

HOEKSTRA: To run a college or university today does require compliance with, I would say, an overburdensome state and federal government, which is driving up costs, right? We’re often the villain in the “colleges just make it go up.” Well, there are multiple villains, but parents want to be involved in the lives of their students, so they expect a lot of communication. I've got staffers probably three times the amount of staff today that we had 20 years ago, just in terms of communicating with alumni and parents. That's also part of our cost going up. So we shouldn't unduly vilify the federal government, although, I would say the federal government is a tremendous amount of regulatory expenses come into our staff at institutions like Dordt.

REICHARD: Can you give concrete examples of that? What I hear you saying is that it’s not all the government’s fault but there is some government culpability in creating the high cost of college education in the first place.

HOEKSTRA: Yeah, well, let's just talk about student loans. I mean, there are multiple audits and paperwork. I mean, I get a couple of emails a year that remind my staff to be able to submit this for we have a Veterans Program, right, where we have certain grants and loans for veterans or Pell grants or student loans, tremendous amount of complying to participate in the process. But overall, we've been very happy to participate since our founding in 1955 with the federal government on both Pell grants as well as student loans. And up and to this point, I think it has been something without a tremendous amount of moral hazard because our students have taken it seriously. Our loan default rate is less than 2% and that's wildly different than what you will see across higher education generally. I would be willing to take an equity position. If our students don't perform on their student loans to a certain level, I'd be willing to pay that back to the federal coffers because I believe in what we're doing at a Dordt and institutions like Dordt. I'd be willing to stand with a state university or community college or anybody else and see if they'd be willing to take that pledge as well.

REICHARD: So, President Hoekstra, when did the problem begin to escalate?

HOEKSTRA: Well, the student loan program goes back to 1958. And I think was well started with good intentions, and for a long time was used in a good partnership between students’ institutions and the federal government. When you look at the growth of the student loan balances, up until 2005 it grew to a certain level and at a certain sort of trajectory. In 2005, the federal government got more involved and went to what's called direct student lending. And if you look at the pitch of the line at that point, that's when we saw the tremendous, tremendous growth. I'm going to just quote you general terms, and if I'm a little wrong, I think it was about $400 billion, if I'm not mistaken, sitting at about 2005. Since then, it's grown to $1.7 trillion. So from 1958 to 2005, we grew from a zero balance to $400 billion, then, by about 2012, I think it had grown to around a trillion and since 2012 to today, now it's $1.7 trillion. So, the I would say the federal government stepped on the gas pedal in 2005 by going to direct student lending and now is trying to, I would say, fix a problem that in my opinion, they inordinately created by virtue of direct student lending rather than the old program.

REICHARD: Final question President Hoekstra: I’ve seen trade school graduates looking at all of this and saying, how is this fair? I made a choice that I could pay for myself and yet here I’m being asked to pay the debts of people earning way more income than I am in many cases. Comment?

HOEKSTRA: Trade schools get student loans or Pell grants as well. And Dordt has always had two year degrees and we just started some two year degrees in the trades—manufacturing and in farm operations management in the last couple of years because we do believe not everyone needs a four year degree to thrive in the U.S. economy, or quite frankly, from a Christian worldview, be an effective Kingdom citizen. But student loans are all over the map. I think those who have never gone to college, or in our case, we have a tremendous number of Dordt graduates whose families have scraped and saved or have given private loans to their children to go to college and they're not going to be able to avail themselves of it. I do think that this message will change some of that, from that moral hazard standpoint, where people might think twice about scraping and saving so much. And I do think that that's something that probably hasn't adequately been wrestled with across from the White House over to Congress.

REICHARD: Eric Hoekstra is president of Dordt University. President Hoekstra, thank you so much for talking with us today.

HOEKSTRA: Thanks for your work on this as well. Have a great day.

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