The solution to the problem of the high cost of college is really quite simple: stop the federal student loan program. I graduated from a top-flight liberal arts college in 1973. The charge for room, board, and tuition in my senior year was approximately $4000. In inflation adjusted dollars, that would be approximately $22,000. The actual cost of room, board and tuition at that college today is approximately $60,000. The $38,000 difference is entirely attributable to excess demand over time stimulated by federal subsidies in the form of loans and loan guarantees.
And allow the remaining private ones to be bankruptible. I agree with you, but that doesn't mean there isn't going to be a ton of pain when some of those colleges close or merge and when all of them - even the big guys around here like U Penn, Drexel, St. Joe's, and Villanova - start massive cutbacks when they find their funding reduced. I know people who've sold them insurance, assembled their furniture, sold them landscaping goods and services, and rehabbed their buildings and grounds. Now the big guys probably all have endowments large enough to survive the loss of student loan income, but it's unlikely they'd be rehabbing buildings or spending large amounts on landscaping. Those jobs will vanish. Much as I hate to admit it, when the education bubble bursts, only a very few will be immune to the pain.
Your post nails it. Whatever government touches, it inflates in value. When people paid for healthcare with real money we saw similar numbers, before the meteoric rise to today.