As high-school seniors around the country open their mailboxes looking for thick envelopes from colleges and universities, their parents are undoubtedly thinking, "Why does college cost so damn much?"—particularly if those children are headed to elite private institutions. Based on my experience as the vice president for finance and administration at a prominent college in the early 2000s, I suggest that the answer is simple: Top private institutions charge what they do because a substantial number of people will pay it.

With...