There is virtue to the American system where you can buy your way into colleges. Places with free university level education tend to give no second chances. If you test poorly in high school, you are done. In the US, there is always some place that will take you. You can go to a community college, improve your grades, and move up. I wouldn't want to give that up because I know more than one person who was an academic poor in high school, but was able to change their ways and work their way up into progressively better colleges.
Pouring money into education also isn't a bad thing. US undergrad and graduate programs some of the best in the world because of the amount of money flowing through it. There are a lot worse things to piss money away on, like massive defense spending.
All of that said, there is a serious problem. The over subsidizing of education is murdering the middle class. Letting someone who is going to major in social studies get 200K worth of loans is bat shit insane. That person is going siphoning off a huge portion of their meager income until the day they die. No college should be charging that much, and no one should be able to scrape together that much money for anything that isn't a technical degree that offers large post grad incomes. If you give people the capacity to borrow that much money, the universities will demand that much money because everyone "needs" a degree. Pump a system full of money for a thing people "need" in order to be competitive, and the people fulfilling that need will drink up every last drop of that cash.
If I had a magical wand, loans would be handed out based upon real expected ability to pay. You can probably gouge a future doctor for 200K, but a history major is going to be vastly less. Universities might have to charge different prices for different degrees. You can charge more for engineering than for humanities, and that is okay, the engineers are going to eat more money in terms of support equipment anyways AND they have the ability pay it off.
In general, all the prices need to fall. Universities are making money hand over fist and promptly dumping that money back into expensive building. A little growth is fine, but when they are in constant full construction mode something is horribly wrong. When the bubble bursts, and it has to burst at some point, it is going to be a catastrophe of epic proportions. Over built universities with too much infrastructure are going to implode in on their own weight. When this happens the ripples that first hit college towns and R&D are going to expand through the economy and wreak havoc on the US's most productive sectors. From there, it is going to expand to destroy everything.
The government is repeating the exact same mistakes it made with the housing bubble. Instead of letting the price correct down, they keep shoving money at it so that it reaches higher and higher prices. It is going to implode horribly. The banks will get another bailout, and the students with massive debt are going to get fucked.