Purdue University President Mitchell E. Daniels, Jr. joins Yahoo Finance Live to discuss President Biden's student loan forgiveness plan, the high cost of college, and falling enrollments.

Video Transcript

AKIKO FUJITA: And Joe Biden's student loan relief decision sparking criticism on both sides of the aisle, with some saying it goes too far, others saying it doesn't go far enough. There certainly seems to be some agreement, though. The most recent round of loan forgiveness is a Band-Aid over a wound as a one-off that doesn't necessarily address underlying issues. And the cost of college is growing increasingly expensive.

Let's bring in Mitch Daniels, Purdue University president. It's good to talk to you today. You have been quite critical of this plan. You recently penned an op-ed in the Wall Street Journal, saying there will be a reckoning on the back of this. What's your biggest concern?

MITCH DANIELS: My biggest concern, I suppose, is the gross unfairness of what's been done. Your previous guest spoke to that. All these other features, it's fiscal recklessness. It's-- frankly, it's illegality or unconstitutionality.

It's very contemptuous of the Article 1 power of Congress to spend money. The moral hazard it will create, it'll likely only encourage colleges to continue charging more and students to borrow more, believing that they may well be excused from that obligation later. So it's a little hard, really, to rank my concerns about this.

But I will say, I guess, beyond them all, the inequity of rewarding the currently wealthy or those who are destined to be wealthy. Half of this debt is in graduate education. So think doctors and lawyers, whatever they're earning now, what they're going to earn, and it'll be subsidized by those who didn't get that chance and never will.

AKIKO FUJITA: Is there a way to go about forgiveness in a more fair way? I mean, if the concern is that those who can afford to pay are getting the relief, and that this isn't necessarily targeting things. Is it, for example, a much better option to, let's say, target the interest that comes with the loans, which some would argue is really what inflates it?

MITCH DANIELS: I suppose for those who have put themselves in the position in which they can't or decline to pay now, some sort of a workout one by one would be preferable, as opposed to blanket forgiveness of the kind we've just seen. I've always thought that the real solution to this or preferable approach would be to put schools like ours at least partial risk.

So some of the recovery here could be coming from colleges and universities who, the data has shown for a long time, have pocketed something like 2/3 of all the new subsidies the federal government has provided. That'd be one place to go for some recovery of funds beyond those that the borrower has taken on beyond their ability to pay.

AKIKO FUJITA: There's the other side of the argument, which is something you've already highlighted, that this doesn't do anything to really address the cost of a college education. We've heard increasingly that a lot of Americans are potentially opting to go straight into the workforce because there is more of a return there, as opposed to paying upfront for college, and not necessarily seeing the benefit on the other end. How do we address the cost issue?

MITCH DANIELS: One way would be the way I just suggested, by placing the college at least at partial risk for non-payments. I think it would absolutely lead to more caution in increasing the cost they imposed. It probably would lead to a little more attention to what they're teaching, to make it more likely that the students are studying things that give them the market assets to pay back what they borrowed from their fellow taxpayers.

But you're absolutely right. There's no-- this not only won't make it better. It is likely to exacerbate the problem, as prior infusions of subsidies have, this time, overlaid with the moral hazard of saying to future borrowers, you know, you've got a good chance of get off the hook like the last cohort did.

AKIKO FUJITA: You've already started your fall semester there at Purdue. We've gotten several reports out of a number of universities, small liberal arts colleges, who've said that enrollment is down significantly because of that very issue we pointed to, potentially because of the opportunities in the labor market, others who are saying that there's not necessarily a good investment to be had in going to college. What are you seeing at Purdue in what's the solution on the other end?

MITCH DANIELS: First of all, enrollment has been dropping in American colleges and universities every year for the last decade. It's taken a big step function down. You're quite correct in the last year or two. And I think with perfectly good reason. Many students, especially looking at today's cost, are deciding that there are better paths forward, either other forms of post-secondary education, trade schools or coding academies or places where they can acquire valuable skills or going straight to work.

And here at Purdue, as it happens, we've grown 30%, where we've grown again this year. We're the biggest we have ever been. I don't think it's coincidental our data tell us and our students tell us that a reputation for affordability and being a place where they're less likely to be rudely surprised by a big increase each year is one attraction, along with our academic quality.

AKIKO FUJITA: Beyond Purdue, when you think about those enrolling-- declining enrollment that you just pointed to, what does that mean for future revenue streams? Are we going to continue to see more consolidation among some of these smaller universities as a result?

MITCH DANIELS: I think it's inevitable. Both the smaller private schools, and in some cases, we've already seen public universities, especially regional campuses, being consolidated. Some of this probably always would have made sense. I think we may lose here and there some fine institutions. That'll be a shame.

But in some cases, that will have been self-inflicted by raising tuition year after year because they could and because people didn't have-- haven't had a reliable quality measure. So that too many people in the past associated a higher price with higher quality. Now more and more folks have come to question that, and hence the declining enrollments.

AKIKO FUJITA: Yeah, so many shifts happening on that front. Mitch Daniels, it's good to get your perspective today. Purdue University president joining us there.