Why can't a poor kid from Oakland, or wherever, watch the classes online and self-study, and pay a nominal fee to exam?

In other words, is the concept of creating barriers to entry, limiting competition, not unreasonable? In any market, economists say that is anticompetitive, and should even be illegal.

Are people paying for education? Or for epaulets?

So let's talk about this "materially improving things for other students" in an honest context of what this is.

They're paying for epaulets. I took graduate courses at a "local" state university before starting a full-time program at a big-name-top-low-number private school. The private school was not a better education, but it was undoubtedly better for my career because of the "epaulets."

>watch the classes online and self-study, and pay a nominal fee to exam?

We are already far past the point on using exam scores as a basis for admissions. Many of the Ivies, famously say every year that they could fill their incoming class with students with perfect scores and perfect GPAs many times over forcing these schools to consider other factors. The US DoE says there are 16.9m undergrads, assuming ~4m are freshmen, the top 1% is 40,000 students. The Harvard freshman class size is 2000 students. At this point its only natural, according to the "market", that people would be paying for slots.

The tax question here is what is the fair value of the benefit received, the waiving of admission requirements or the granting of admission. I would expect that to be pretty hard to put a dollar amount on.