That's the problem with free markets: in reality, they are rarely (never?) rational.
Let me offer a different modeling of academy as a market:
The product isn't education, but the improvement of society, both in the near term, by fruits of research, and in the long term, by having more and better educated people around. So the students aren't the clients, but the product; which is paid for mostly in public funds (there is no such thing as privatize research. Almost all significant research has some public sponsored portion -- it's just too expensive to do without).
Therefore, some countries even go and make higher education free, or near free.
But, one can see you can increase your earnings, by also charging the students, as their graduation not only improve society as a a whole, but gives them personal gain too. So you do that, but it's more like marketing a bi-product, and not a product itself. Further evidence is that almost all PhDs are free to the student, even in the US (or at least, for promising students.)
For non-libertarians, the above is a compelling reason for fully subsidizing education.
Let me offer a different modeling of academy as a market: The product isn't education, but the improvement of society, both in the near term, by fruits of research, and in the long term, by having more and better educated people around. So the students aren't the clients, but the product; which is paid for mostly in public funds (there is no such thing as privatize research. Almost all significant research has some public sponsored portion -- it's just too expensive to do without).
Therefore, some countries even go and make higher education free, or near free.
But, one can see you can increase your earnings, by also charging the students, as their graduation not only improve society as a a whole, but gives them personal gain too. So you do that, but it's more like marketing a bi-product, and not a product itself. Further evidence is that almost all PhDs are free to the student, even in the US (or at least, for promising students.)
For non-libertarians, the above is a compelling reason for fully subsidizing education.