I think the point is that a Harvard degree will remain viewed as worth more than a Podunk College degree, regardless of the demand because the supply is naturally self-limiting. However, the cost of Podunk College will oscillate with the demand/supply.
That only applies for normal goods. For luxury goods, an increase in price acts as a signal indicating increased quality. These goods (and I count a college diploma as one) act as status symbols, indicating the superior wealth and social status of their possessors. In this case, an increase in price only serves to amplify the signaling function of these goods, and can engender increased quantity demanded.
In other words, the demand curve for a college education is non-linear. On at least some segment of the curve, quantity demanded increases as price increases. We are in one of those segments right now.
This will eventually translate to higher social status for a degree (as used to be the case) and cheaper prices (and so less debt necessary).
That seems to violate a fundamental law of economics to me: If the demand for a good increases relative to the supply, the price will increase, which will reduce demand. If the supply of the product increases then the price will fall, encouraging more people to buy the product. Prices adjust up and down until the demand matches supply. So cheaper prices for degrees, by allowing more students to enroll, would seem to me to decrease status, not increase it.