Subsidies are definitely part of the problem, since they make students less price sensitive.

Another part of the problem is that there is no incentive for cost control in the university.

I can give a great example of this, from my current university. I'm currently teaching a "Quantitative Reasoning" class right now. Basically, take Weeks 1-2 of Prob&Stat and expand it to fill a whole semester (half a semester, due to poor planning and miscommunication). Some of this is my fault, some of it not (2 syllabuses floating around, both of which I was told to ignore). Plus, my students are all art/history/literature majors, and just don't need it. Everyone in the room would be better off keeping their $4,000 and not sitting through my class.

So why is this abomination required? Because the department needs money (1) and requiring everyone to take our courses is a way to get money.

In principle, someone in the university should put their foot down and say "this is nonsense, lets just require 1 less class and charge $4,000 less". But there is no such person in the modern university system.

(1) I'm told some of our "beat the Soviets through mathematics" grants were finally cancelled. But I'm not sure about this one.