The Wall Street ethos of the '80s was the other cause of drastic tuition increases. Scholars refer to it as the "Chivas Regal effect."

The '80s came to equate price with quality. For universities, this meant that they could raise tuition, and the market--namely parents--would bear it. Parents believed that the high priced education they were purchasing would translate into greater financial success for their children.

"A lot of institutions raised their prices because price was becoming a conduit for quality," says David M. Merkowitz, director of public affairs for the American Council on Education. "That may well have been true for some institutions, particularly private institutions in the top tier."

In short, the theory says that markets set prices even in higher education.

University officials prefer to emphasize the role inflation--not market forces--plays in tuition increases.

Such hikes are related to "the nature of labor intensive production processes," according to Assistant Dean for Undergraduate Education Jeffrey Wolcowitz.

Harvard & Friends

But in 1989 the Justice Department argued that collusion was another cause of the astronomical cost to attend a number of America's most prestigious universities--including Harvard.

For years a consortium of elite American universities including Harvard, MIT, Princeton and Yale exchanged data about their tuition rates, agreed never to grant aid solely on the basis of academic merit and met to negotiate how much need-based financial aid individual students would receive.

Keith Leffler, a University of Washington anti-trust economist who testified for the government, says that the "Overlap Arrangement" stifled competition and allowed the universities to raise their tuition without losing low-income talent that prestigious schools desire.

"The average price of tuition was higher than what would have been expected in the absence of Overlap," Leffler says.

The Overlap Group agreed to equalize what a family would have to contribute for their child's education regardless of which member institution a student would ultimately chose to attend, which in turn determined the universities' financial commitment to that student.

The government also contended that Overlap drove down the aid available to low-income students, who are a valued resource of these universities, which Overlap made easier to attract, Leffler said.

Harvard argued that meeting with the other schools allowed them all to better distribute a scarce resource, a process in keeping with the public good.

But Harvard ultimately capitulated to the challenge, agreeing to disband the Overlap Group. Within a year, Harvard helped push a bill through Congress which superseded its agreement with the Justice Department and allowed it to again exchange tuition data and to agree not to offer merit based aid.