It does seem like a failure mode of capitalism, but something I wonder about is if more capitalism could be used to fix this by basing the university's earnings

It does seem like a failure mode of capitalism, but something I wonder about is if more capitalism could be used to fix this by basing the university's earnings on the student's earnings after getting their degree instead of pre-paying for education. Basically the students would owe X% of their earnings above Y salary for the first Z years to the university.