The government could probably expand the Ivy League just by limiting the tax-exempt status of institutions with fewer than 10,000 undergraduates... 
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I think this is more a land use issue than anything else — Yale keeps expanding because New Haven is poor and sees the university as its economic engine and adopts a YIMBY posture toward building new residential colleges.
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That'll just incentivize more useless degrees in smaller colleges making them equally bloated as the bigger ones.
Federal funding for research is probably the big lever.
They should also do this to force Berkeley (the town) to let UCB expand.
The tax exemption is far bigger than the subsidies. Ivy league schools are hedge funds with a university attached which they maintain to keep their tax exempt status.
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The University of Tokyo is unparalleled in prestige in Japan and it has 28.000 students. 1 out of 400 college alumni in Japan are from Toudai.
Every year, the top rated school looses it's tax exemption for 1 year. We'd see a lot more movement at the top of the list if every school were aiming for 2nd place.
Wait the Ivy league schools are tax exempt? Are they nonprofits?
Variety of regulatory approaches as well, including mandating minimum ratios of undergrads to endowment size.
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