Private and foundation universities pick up every categories students who can easily admitted in those universities. As a result, many medium categories students preferred to admit those universities. Besides that, many special events are organized by those universities which can provide the students many opportunities like higher studies in foreign countries, Job fair. It helps to secure the future career of a student. However, many families admit their children on those universities because of high reputation in the society.
It's a virtuous circle in the eyes of many. Offering a better student experience (student experience here being defined as a student being happy in the moment) gives the university a competitive advantage so more students apply. That means the university can be more selective (measured by a higher rejection rate).
Then, because they are more selective, parents want to send their kids there, which provides the money to offer a better student experience.
It is important the lens you use to see this issue. You could see the other side, if you try.
The increased tuition paid by the most elite (socioeconomically speaking) allow the university to offer very large scholarships (in some cases 80%-100%) to those further down the socioeconomic ladder. This also allows a mixing of social classes which creates its own benefit.
When you look at universities outside of the US, you often see a very different situation. In Europe there are many universities which charge extremely low tuition (meaning fees) because the focus is on tuition (educating through teaching). Look at ETHZ or EPFL in Switzerland. Tuition is $500 (I forget if that is per year or per semester but it is certainly not per credit hour). Because these universities focus on education, they provide an excellent education.
Now, imagine you are a college president. Which is more important to you: The reputation of the university you run or how good of an education your school is providing? I guess the real question is, why would those two answers ever be different? Ah yes, because of branding.
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