The $200,000 college diploma

But that generosity is offset by more self-interested price-cutting as well. George Washington University, like its peer institutions, including Washington University in St. Louis, New York University, Emory or USC, also have invested heavily in "merit scholarships" that cut tuition for students whose families could otherwise afford to pay full price. (Roughly 20% of students at George Washington didn't qualify for need-based aid but received merit scholarships averaging about $19,290 a student.)

By using discounts to attract students with high grades and test scores, these colleges and many others have enhanced their status in all-important rankings, such as the U.S. News & World Report list.

That's not necessarily such a good policy. Yet such status-climbing is contagious. Merit scholarships were far less common a generation ago. But schools content in the 1980s with being respected now want to be desired -- and this drives up costs for all students and reduces the pot of money available for needy students.

Indeed, enrollment of low-income students at selective private colleges and universities has been steadily dropping.

According to its self-reported data, George Washington spends about $20 million a year on merit scholarships. Presumably, it and other schools with hefty merit scholarship offerings could simply drop the costly awards and use the money to charge everyone less in tuition and fees.

For a college without Ivy League cachet, however, a hefty tuition break can be a powerful recruiting tool. Rather than charging a lower tuition rate, a school that sets an artificially high price and then awards a merit scholarship can tell a student he or she has earned a prize worth thousands of dollars. Hopefully, the student will return the flattery by enrolling.

Along with such cash incentives, schools -- which are also ranked for "quality of life" by college guides -- are piling on costly amenities for students. Espresso bars and fully equipped exercise gyms are more the rule than the exception at the fashionable schools.

Margaret Soltan, an English professor at George Washington, enjoys her comfortable office and floor-to-ceiling windows on an increasingly luxurious campus. But she also points out that the university relies increasingly on part-time instructors rather than investing in costly full-time faculty positions.