Subsidies inflate pricing. I agree.
Because companies change what they can, rather than a fair cost. The answer to that is simple - let the government run the universities too. That's a much better fix than denying most of the young people a higher education as Ron Paul's proposal does.
Let's do an actual comparison: UC versus Stanford.... Undergrad tuition UC $13,200 for residents, $36,078 out of state, vs $13,350 quarterly for Stanford = $42,270 yearly.
So the out-of-state tuition for UC is fairly comparable to Stanford. I don't see how Stanford is profiting heavily... although they are charging 9% more, we'd have to compare whether they provide a better education for the money, etc. However this does not demonstrate that government subsidies for student loans/pell grants inflate Stanford's pricing, nor that government is more efficient at providing a university education. You might then argue that state subsidy of the resident tuition causes out-of-state tuition to inflate, but you'd be hard pressed to actually prove that.
The unfortunate actual issue is that UC tuition has risen quickly over recent years as the state has been unwilling to fully fund it.