At some point we do need to look at the hedge funds that have a school attached as well. The endowments at some of these universities is astounding.
Columbia offers admittance to fewer than 3% of the people who apply. More people than those admitted have the requisite grades etc to think they'd perform well at an elite school; why not offer more of the admittance and use the endowment to make it happen? Or, use the endowment to further lower the list price of the education (approaching $500k for 4 years)?
Even without UPMIFA, endowments are a mix of unrestricted and restricted funds, and donor restrictions can and do prevent universities from using money when they might otherwise want to. Even if a university desired to draw down the full 7% allowed without triggering red tape, it's unlikely that they would be able to draw it all without running afoul of donor intent.[2]
If anything, the system is to blame here, not the universities themselves necessarily (not to excuse bad apples in academic administration).
[1] https://en.wikipedia.org/wiki/Uniform_Prudent_Management_of_...