On the other hand, if the cost of a college is "flexible" as in a % of your income, doesn't it just end up in a situation in which higher-paid graduates subsidize the cost of college for lower-paid graduates?
I believe that's the entire idea of it. That and then the college could selectively decide how many majors of a certain type they need, financially speaking. A college will then be punished financially for pushing out tons of gender studies grads rather than engineers.
Or water down their engineering program in order to push out more graduates.
But since education is a market this would lower the reputation of the college thus attracting less candidates and if they lower the requirements too much they may even loose their accreditations.