This is a very good articulation of my points, thanks for laying it out so crisply. Worth noting that this is already a reality at a select few places. While there is continual agitating in America for our Gov. to provide free college, it turns out that some elite private institutions are already in a position to do so, or will be in the next decade. Food for thought, including the follow-on social implications of the headline: "Tuition Now Free At Harvard! Still $50,000/year At Your Local State University Though"
Regarding agency effects / moral hazard:
Someone asked me on another forum what predictions, if any, I would be willing to make in defense of this article.
I tried to rattle off a few off the top of my head with low conviction. One that I comes back to me still is:
"Professor Salaries will have an increasing Gini coefficient vs. today (i.e. profs at Harvard make a higher multiple of Profs at State Colleges 25 years from now)"
Given that the Top institutions will be competing for talent with Compound Returns while everyone else must compete with Tuition increases, I think this would be interesting to study & observe. I have zero data on this unfortunately, so it's just an unsupported hypothesis for now...
> Professor Salaries will have an increasing Gini coefficient
I think your own model says this is too noticeable. Better strategy would be harder-to-notice changes, like smaller teaching loads, more sabbaticals, earlier retirement, travel abroad to conferences, etc.