Even in a no-limits, fully-government-paid education system, Tidmarsh Community College is going to have to convince students to come there instead of Harvard or State U. They'll have different resources.
You'd have to reduce student choice, or socialize college assets, to have a world where colleges just don't care about running like a business. It's not about level of funding, it's allocation.
The current system misallocates by hiding the true cost and benefits from students. You go to the school with fancy-pants dorms because you think it has been successful! Aren't those dorms and gyms built with successful alumni donations and clever investments?
No! Those amenities are being paid with the loan payments you'll make in your 30s and 40s.