Distance Learning

What are the functions of a university? What makes students (and/or their parents) think that college is worth so many years and dollars?

Unidirectional information transfer. The images that first spring to mind when you hear, "school" are probably instances of the first. Listening to a lecturer at the poduim or reading a book, you are an input device only. That's unidirectional information transfer.
Interactive learning experiences. These are supposed to happen in the classroom, but all too often do not. Many classes end up being a professor talking to sleeping students. Most of my interactive experiences have been in study groups with other students.
In other countries, the interactive learning experience is structured. Cambridge and Oxford, for example, have tutoring as an integral part of their curriculum. Once a week, students meet with their tutors -- faculty members who assign readings, problems, and discuss any problems that the student is having.
Someone to care. I have taken a lot of classes outside of the traditional setting -- by myself watching a TV, at extension classes with other students, and watching TV with other students. By far the biggest determinant of whether or not I continued with the class was whether anybody cared if I showed up.
One entity that can care is your future employer. But there is also a need for someone to care on a more frequent basis. "Hey, you weren't in class yesterday, you sick?" or "Hey, did how did you do problem 37?"
Certification. For many people, there is a desire to gain certification -- proof that there is some reasonable basis to believe that you actually learned the things you studied.
In U.S. Universities, certification (i.e. testing) is done by the same people who provide the unidirectional information flow. This is a built-in conflict of interest. There exist places (e.g. Oxford and Cambridge) where the testing is done by a completely separate entity than the teaching staff.

In my vision of the future of education, these four functions will be split up.

With the Web, there is now an easy way to obtain learning material, both from places like MIT's Open Courseware Initiative and ArsDigita University and from the mass of on-line research papers, tutorials, news articles, etc.
For both "someone to care" and the "interactive learning experiences", I believe that online forums, mailing lists, and chat rooms can provide an excellent place to generate the needed community. I can also imagine companies that act as brokers for individual tutors or for on-call tutoring.
I believe that there are legions of under-employed people (e.g. stay-at-home parents, educated people in countries with little infrastructure to take advantage of their education, the unemployed) who would be great tutors.
In a perfect world, the brokers would publish how the students evaluated the tutors at the time, how the students evaluated them five years later, and the pass record of their students for various exams. (Perhaps the tutors' pay would be tied to their pass rate.)
I can easily imagine third-party companies springing up to offer accredidation. These could be places like Kaplan, the Educational Testing Service or traditional universities.
Yes, the rigor in different exams would vary wildly. That's okay. The different examination entities would develop different reputations. Perhaps Eidgenossische Technische Hochschule's exams would be considered tops for Physics, while the University of Southern North Dakota at Hoople would be have a reputation for really easy European History exams.
Over time, I presume that some institutions would get into the business of meta-certification -- much like today's degrees. Purdue University might have a menu of approved exams in each area, plus a list of which areas you would need to pass in order to get a Purdue degree.