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Pete Hoesktra, Michigan Senate Candidate, Wants To 'Kill Federal Student Loans'

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WASHINGTON -- A video of Republican Senate candidate Pete Hoekstra vowing to end all federal student loan programs has surfaced on YouTube, putting the Michigan conservative on the radical fringe of a hot-button 2012 campaign issue.

Speaking before a Tea Party audience in January, the newly surfaced video shows Hoekstra falsely claiming that President Barack Obama "federalized all the student loan programs," and boasting that, "I tried to kill federal student loans for 18 years. Loans are something that can be done by the private sector."

Watch the video, taken by a Democratic source:

Hoekstra's remarks referred to a student loan reform billthat Obama signed in March 2010 as part of his administration's health-care reform legislation. The student loan initiatives that Hoekstra attacks have always been "federal" -- insofar as they have been backed by federal government guarantees for as long as the programs have existed.

Obama's reform, however, cut out an expensive middleman -- companies like Sallie Mae and NelNet that exploited government subsidies to pay lucrative shareholder dividends and executive bonuses. Sallie Mae CEO Albert Lord, for instance, took home over $46 million in 2008 alone. Eliminating the middleman saved taxpayers about $60 billion over the course of an ordinary 10-year federal budget window. Hoekstra declined to comment for this article.

But can the student loan market function effectively without the government? There is, in fact, an existing private sector student loan market that does not make direct government subsidies. And the interest rates on these private loans are much higher than the existing 3.4 percent rate on the government's Stafford Loans. Private loans, by contrast, bear interest rates well into the double-digits, akin to credit card rates.

"Federal loans are cheaper, they have fixed [interest] rates as opposed to variable rates and they're more easily available" than private student loans, FinaAid publisher Mark Kantrowitz told Forbes.

Hoekstra also spoke out in opposition to the student loan reform bill before its passage. "You have the private market today controlling about 75 to 80 percent of the student loans that are going out there, and for some reason President Obama in his budget believes that there is a magical federal bureaucrat out there that can run this program more effectively, more efficiently than what the private sector is," Hoekstra said in a Fox Business interview, predicting that the bill would lead to more red tape.

The benefit, of course, is not magical bureaucratic thinking, but the willingness and ability of the federal government to forgo profits and absorb losses if students default. By eliminating the government's expenses for companies like Sallie Mae, the Obama administration actually increased the government's ability to absorb those losses.

Sen. Debbie Stabenow (D-Mich.), whom Hoekstra hopes to challenge in November, is an advocate of federal student loans. She co-sponsored a bill to prevent interest rates on federal Stafford Loans from doubling and calls the issues "absolutely critical," The Detroit News reports.

In April, the Obama administration renewed its focus on student lending, hitting Republicans for obstructing a plan to prevent interest rates on new student loans from doubling to 6.8 percent. Although the actual monthly increase in debt payments for students would only be about $7, Obama used the issue to draw a contrast with his Republican opponents.

Republicans responded by characterizing Obama's deficit-reducing loan reform as a "pay-for" on his health-care reform bill. While it's true that the student loan overhaul saves the government money, and can thus be thought of as something that reduced the overall cost of the health-care reform bill, the student loan reform only saves the government about $12 billion. The overall health-care reform package, however, includes about $1.1 trillion in new spending, offset by more than $1.1 trillion in savings.

Hoekstra's comments in the January video, however, came well before the Republican Party began using similar talking points to a national audience.

Zach Carter contributed reporting.

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