It wasn't always this way, though. Tuition rates outpacing inflation has only been over the last few decades. You're right that each actor is making (more or l

It wasn't always this way, though. Tuition rates outpacing inflation has only been over the last few decades. You're right that each actor is making (more or less) rational decisions, but federal subsidies for student loans are what throws a wrench into the mix. Previously, the decisions were all the same, but consumers had much more limited capital and were far more price sensitive. Now they can get bigger loans much more easily, and sure enough, they're willing to pay higher prices. The less the consumer knows / cares about the price of something, the faster that price will increase. See also: health care in the US.