I think the main issue with your point of view is that "the cost of education" is not fixed. If you make it possible for students to pay more for education, colleges _will_ charge more. Some of that money will go towards the actual education (e.g. professor salaries, labs, lecture halls) and some will go toward nicer dorms, better gyms, more extracurricular options, higher administrator salaries, more administrators, fancier food in dining halls, etc. And even the money spent on labs and lecture halls can be well-spent or ill-spent.

This is pretty much equivalent to how increasing the amount of investment in any area can lead to both productive investment (e.g. better roads where they're really needed) and unproductive investment (the stereotypical "bridge to nowhere", though usually it's a bit more subtle than that).

There are two actual empirical questions here:

1) Are there ways that universities can spend extra money productively, from the point of view of society?

2) Are they actually doing it?

I don't know of good studies on the former, offhand. For the latter, as far as I can tell, the answer is "no": increased funding in the recent past has almost entirely funneled into making the lives of college students ritzier and increasing the number and salaries of administrative staff at all levels. And this matches my understanding of the incentive structures involved. As a simple example, parents and students who feel like they're paying a large amount of money demand better service for it (nicer dorms, better food, etc)....

I believe that increasing government investment in education without implementing any brake on the tendency to simply misuse the investment on the part of the colleges is not going to improve actual outcomes for students much in general. It may (or may not, depending on how the money gets used) improve things on the margin a bit for poor people. It will _definitely_ increase the price tab for taxpayers (including those same poor people). Weighing the overall societal benefits is hard to judge. As in many cases, people agree that there is a point of diminishing, or vanishing returns, but disagree on where that point is.

But in general, if we agree there is such a point, we should be trying to figure out whether we've reached it or not. We should also be trying to figure out how to move that point around, e.g. by abovementioned brakes on the misuse of extra investment.

There are, of course, hard questions about how such a brake could be implemented. It could be done via direct government regulation, but I expect this to get a significant amount of pushback _and_ increase the number of adminstrative positions needed to deal with it, somewhat contributing to the problem. It could be done via changes to the incentives universities have, but it's not entirely clear how to effect those. We should strongly consider experimenting with "X percent of future income over Y years" funding models instead of the "pay us now and it's your problem how to raise the money". I say this especially in light of data like http://www.nber.org/papers/w23888 that indicates that this approach _increases_ access for disadvantaged students. Of course there are still incentive problems here, especially if you feel that the point of college is not just to increase salaries.

Which is all to say that there are some hard questions here, and research and experimentation is desperately needed. Anyone claiming that "we just need to increase government spending on higher education without changing anything else" or "we should just decrease government spending on higher education without changing anything else" is likely wrong. So is anyone claiming "we should just keep things as they are", because I believe the system is fundamentally broken and getting more so.