Yes, this happens, and it results in one of two (or both) logical reactions:
1) schools accepting any students and doing the filtering at the outflow instead, kicking out people that should not have passed the entry test after three years of studies.
2) schools lowering the bars and just pulling through them as many students as possible, because you need a lot of balls to do 1) and there are not that many balls in academic environment
The correction mechanism is twofold, and in-place throughout Europe: a) Universities must publish employment statistics with indicators for salaries at different horizons; b) Students have k years of extra runway to graduate or drop out. Dropouts cost school budget.
They correct both errors. One almost immediately, the other when/if the market recognizes low graduate quality.
> schools accepting any students and doing the filtering at the outflow instead
I'm not arguing that anybody be allowed to go to college on the public dime. There would need to be some sort of qualification involved. Otherwise we would see shoddy colleges pop up that admit everybody that applies.
What that qualification would be is another problem entirely of course...
> 2) schools lowering the bars and just pulling through them as many students as possible, because you need a lot of balls to do 1) and there are not that many balls in academic environment
In my opinion, this is already a significant problem in the US. Short of having standardized exams required to earn a degree (a bar exam for every discipline), it's not an easy problem to solve.
1) schools accepting any students and doing the filtering at the outflow instead, kicking out people that should not have passed the entry test after three years of studies.
2) schools lowering the bars and just pulling through them as many students as possible, because you need a lot of balls to do 1) and there are not that many balls in academic environment