Belated Insight

"FEDERAL STUDENT aid is crying out for reform. The system is redundant, it's byzantine and it's broken." That was Education Secretary Margaret Spellings testifying before a House committee this month. It's encouraging that she recognizes the weight of the problems that have plagued federally funded student loan programs, particularly since New York Attorney General Andrew M. Cuomo (D) enterprisingly detailed the misdeeds that some loan companies have perpetrated. But just how "broken" is the system, and what has Ms. Spellings done to fix it?

Mr. Cuomo recently publicized a raft of abuses that the Education Department should have been working to eliminate many years ago -- such as profit-sharing between loan companies and universities that put them on "preferred lender lists," or preferential stock deals for financial aid officers. But the Education Department, Ms. Spellings claimed, does not have the power to do much more than investigate, which it did vigilantly, she said. Further, she said, the unethical practices of some private lenders are only one problem with the student loan system. A department spokeswoman points out that Ms. Spellings convened a commission to examine higher education shortly after starting as secretary and has long been concerned with issues such as the complexity of the paperwork and procedures students must endure to get loans.

Ms. Spellings and the Education Department, however, could have better investigated and publicized the manner and scale of the collusion that some lenders were engaged in. And why wasn't there a greater sense of urgency when she was an adviser at the White House drafting education policy? Ms. Spellings is right, though, that the system needs a lot of work beyond tightening ethics rules. Student loans have long needed a fundamental reexamination -- and that means doing more than just streamlining "byzantine" procedure.

Why, for example, should taxpayers continue to fund hefty subsidies to private loan companies when the Congressional Budget Office and the Office of Management and Budget have both concluded that the federal government's direct loan program can do the same job at a smaller cost to the federal treasury? Recent misbehavior only bolsters the arguments for lowering or eliminating the subsidies that prop up a public-private arrangement seemingly engineered to waste money.