The dust might be settling in the first scuffle over William Weld’s relationship with the now-defunct Decker College, but expect more skirmishes as the gubernatorial campaign heats up. Also expect this kerfuffle to miss the real scandal in higher education – the federal student loan program itself. It is a program that is actually exacerbating the problem New Yorkers face when they struggle to put their children through college.

For it turns out that in trying to make higher education more affordable, government aid programs also make it more expensive. This paradox is illuminated by an economics professor at Ohio University, Richard Vedder, in his book “Going Broke By Degree,” which has been brought out by the American Enterprise Institute. By making it easier for more students to afford college, Mr. Vedder notes, federal tuition assistance increases the total number of students. This rightward shift in the demand curve leads to increased prices – tuition – for the product – a degree.

Meanwhile, “third-party providers” of financial aid – anyone other than a university or student’s family involved in paying for the education – have the effect of further insulating both universities and students from the costs. “When guaranteed student loans are readily available or a scholarship grant is provided to reduce the amount of tuition the student must pay,” Mr. Vedder writes, “universities can raise their tuition more aggressively than would be the case in a private market environment, without much loss of students.”

Not that this game is entirely without cost. Students are left saddled with growing heaps of debt after they graduate, even if that doesn’t discourage them from taking out the loans. And then there are the taxpayers, who also bear a burden. For the 2006 fiscal year, the final budget just for the category of federal aid that includes Pell grants and Perkins loans is $19.25 billion, up from $14.27 billion the year before. Federal student aid administrative costs alone will eat up nearly $119 million. All this amounts to a back-door federal subsidy on high-priced colleges and universities.

A “vicious cycle” is how Mr. Vedder describes it. “In year 1, tuition goes up fairly substantially. Political pressures build to ‘do something’ about the increases. Congress expands guaranteed student loan program to make education more affordable, in turn increasing the demand for education and allowing universities in year 2 to raise prices further. The result is a further expansion of student loan programs, state scholarship efforts, and other third-party funding.”

Precisely how to stop the cycle is not obvious at all. In an era when college education is increasingly a requirement for economic success of both individuals and the nation, cutting off all aid for poor students isn’t a feasible answer. A Republican congressman from California, Buck McKeon, has proposed cutting off aid eligibility for students at universities that fail to explain themselves if they raise tuition more than double the rate of inflation two years in a row. Since half of all college students received some form of federal aid for the 2003-04 school year, colleges would feel the pressure to control costs.

Right now, colleges either control costs out of the goodness of their hearts or because smaller schools feel pressures approximating market forces. But there is nothing in the system to force universities as a whole to spend their resources wisely. If anything, the federal government rewards profligacy with even more subsidized borrowing. That, more than any issue involving a vocational college in Kentucky, is what we’d like to hear politicians talking about this election season, particularly politicians running for governor of a state with such enormous higher education programs and costs as New York.