I believe giving tax breaks for higher education provides an opportunity for more individuals to attend college. The better educated a person is, the more likely they are to have a higher income and purchase property (and thus pay taxes back into the system), volunteer their time, donate to charitable causes, and contribute to society.
ANSWER: More individuals is the key. No matter how the federal government, states or colleges themselves measure the ability of someone to pay, they can't know everything about someone's personal situation.
Tax breaks are fair, because they are the same for everyone. And, as you say, the government gets a nice return for their money on things that are not easily measured. And, for that matter, so do colleges. How much money do they make on just the incidentals that every student buys while on campus? It all adds up.
There is also the money that governments saves by educating their citizens. Less spent on social programs, and fighting crime could end up as more spent on education.
