This is the Kato Daily Podcast for Monday, August 24, 2009. I'm Caleb Brown.

A piece of legislation aimed at saving taxpayers money on student lending will instead cost some

40 billion dollars.

Neom McCluskey is associate director of the Cato Institute's Center for Educational Freedom

and author of the book Feds in the classroom, he comments.

The nucleus of the Student Aid and Fiscal Responsibility Act is really based on things that President Obama was campaigning for, wanted,

a campaign for, and has been pushing for. The main part of that is to eliminate

what's called the federal federal well it's the family

federal education loan program but it's basically where the federal government

guarantees loans from ostensibly private companies in other words the private companies get money in private capital markets but if a student

defaults the government pays back all the money or almost all the money to the

lender they also get various subsidies, things like that. We said

let's get rid of that and let's have the federal government lend all this

money directly to students. There's already a direct loan program but it was

pretty small relative to guaranteed lending.

And that was a major thing that he campaigned for, saying, we'll save lots of money if we go to this,

you know, cut out the middleman, basically.

Then President Obama then candidate Obama also said

we'll take a lot of this savings and will increase Pell Grants in fact

we'll set the rate of increase of Pell Grants at the rate of inflation plus one point every year.

And he wanted to make it all mandatory spending.

So this bill does more or less that.

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