I ran across the following article titled 'Why Top Colleges Squeeze You Dry' :
Here's a key entry which indicates how colleges set tuition prices :
But at the beginning of my tenure as an elite school's chief financial officer, I was surprised to learn from my colleagues that tuition and fees were not set by analyzing budget projections. Instead they were set by looking at a chart of the prior year's tuition charges at comparable schools and then trying to predict their increases for the next year.
The goal was to maintain the college's position in the pecking order of total charges. I learned that the most prestigious and desirable institutions have a good deal of information about the shape of the demand curve for the families seeking to obtain elite higher education for their offspring.
These schools have the capacity to estimate with some precision how many applicants will go elsewhere for each additional dollar they charge in tuition and fees. Each sets its tuition so as to produce a targeted "yield"—the percentage of accepted students who actually enroll there.
If in any year we over- or under-estimated the price changes made by the other schools, and we had moved up or down in rank, we corrected the following year by raising or lowering tuition by more or less to compensate. We essentially followed the price leadership of the wealthiest, most prestigious institutions.
In other words, they charge what they can, rather than what they should based on their costs.
Unfortunately, this trend may continue. With the government giving away subsidized loans and poor K-12 education, the demand for college may continue to grow. Also, I've met plenty of foreigners who are more than willing to pay to attend an American college, so demand may continue to outstrip supply.
How to fight back? For my boys I'm looking at foreign colleges (in China) -- cheaper, maybe better, and a great way to learn about the world. Or better yet, just skip college. Use the money to start your own business.
If you need to learn anything, just learn it yourself. With so many great courses available for free online (ex. http://ocw.mit.edu) who needs to pay? Sure, the interaction of a class is a plus, but if you "make your own free degree" you can cut out half the stuff that isn't relevant to you. Your own motivation, not a teacher's syllabus, is the key.
Here's a good video and post which aligns with much of my thinking on this :