1. It costs more to provide grants to poorer students.
2. More competition (demand) and fixed supply increases the price of the good.
I'm unqualified to talk on the first point, and it seems kind of a stretch.
On the second point, I don't see how having more poor students lets you earn more. I suppose one possibility is that the government subsidy plays a huge role and the university is trying to tap into those funds. If not, I don't see how the increased demand would drive the price up. If you're admitting richer kids, they'd have the money to fork over anyway.
But I could just be missing something.
I'm not particularly interested in their justifications, more their real reasons. The biggest one for raising tuition per se is that it's entirely unrestricted money, they can spend it any way they want. The Federal government is pretty strict about where research overhead goes, and pesky alumni don't trust schools to do the right thing and restrict a lot of their donations (see this for why their concerns are entirely reasonable: http://en.wikipedia.org/wiki/Woodrow_Wilson_School_of_Public...)
Antitrust and Higher Education: Was There a Conspiracy to Restrict Financial Aid?
Dennis W. Carlton, Gustavo E. Bamberger, Roy J. Epstein
In 1991, the Antitrust Division sued MIT and the eight schools in the Ivy League under Section 1 of the Sherman Act for engaging in a conspiracy to fix the prices that students pay. [...]
"But what about the antitrust laws?" I was asked at the TIAA-CREF conference when I suggested this level of cooperation. Administrators cringe at the memory of the Justice Department's lawsuit challenging the agreement among the Ivy League colleges and MIT not to compete in calculating financial aid—or at least they use that litigation as a convenient excuse not to do anything. What they forget is that, alone among these schools, MIT stood up to the government, and in 1991 it won the case. The aftermath is telling: The Ivies didn't restore what was known as the "overlap" agreement, and the financial aid wars were revived.
Be careful in trusting the above, since the suit started in 1991, alhtough the Feds had been negotiating with the schools in question for some time before then (and I have a vague memory that some other schools may have been involved but punted before the lawsuit was brought).
Overlap is also be a very good search term, e.g. it found this press release: http://tech.mit.edu/Bulletins/ovrlp-pr.html
ANTITRUST CASE SETTLED
MIT, Justice Dept. Set Up New Way for Non-Profit
Colleges To Cooperate on Need-Based Financial Aid
The U.S. Justice Department today agreed to dismiss the financial aid antitrust case against the Massachusetts Institute of Technology and establish a new way for non-profit colleges to cooperate on need-based financial aid to undergraduates, MIT announced.
MIT President Charles M. Vest told a news conference at MIT, "I am very pleased to annmounce that the U.S. Department of Justice has informed MIT it will drop the antitrust case it brought against the Institute nearly thre years ago."
He said the resolution of the case is in two parts:
- "First, the Justice Department will dismiss all of its claims against MIT.
- "Second, the settlement establishes guidelines under which colleges and universities can coordinate their financial aid practices in order to insure that their limited financial aid funds are awarded to qualified students solely on the basis of need."
It goes into a lot of details on the history of the case, e.g. the 8 other schools folded and signed a consent degree in 1991 while MIT fought and after a big win WRT to interpretation of antitrust law in the appeals court they and the Justice department quickly settled.