Some of what you say seems illogical. Applications are at a high but you think they could be even higher with more support. Sure, the basic laws of economics say that lower costs will increase demand. But why is that a goal when applicants are already turned away by the thousands?
Are you saying PA residents are going to out-of-state schools because the non-resident tuition at those schools is less than resident tuition in PA? Seems like a stretch to me.
So Pitt's branch campus is down. So are many of the state schools. I'm from Clarion and that school shrinks every year to the point where rumors are constantly out there that it will close.
Are they high? Compared to which schools? Maybe, maybe not. Who are Pitt's peers or aspirational peers? I would say Pitt's peers, or aspirational peers, at least for its undergrad mission, are other mid-sized urban research universities ...places like BU or Tulane.
For fall 2022, just a smattering...
BU's applicant pool: 81K for 3.6K slots
Northeastern: 91K for 2.5K slots
Tulane's: 32K for 1.2K slots
UCLA: 150K for 6.4K slots
Pitt's: 53K for 4.4K slots
I also mentioned that the low subsidization has taken place over decades. It is a cumulative effect. Pitt's has admitted >50% of its applicants most of the last 25 years, sometimes going over 60%. That's not considered the highest selectivity. Only three years over that span has it dipped just below 50%, including this past year for the first time in a long while. The more applicants you have, obviously the more selective you can be, but you still have to be competitive with the financial packages that determine total cost of attendance. It breaks down in matriculation numbers when you are too expensive compared to peers that are recruiting the same student. Many would also argue that the average make up of your student population contributes to the overall environment of the school and can improve the experience for other students (and even faculty), and it clearly is something believed by most domestic university rankings because they include it in their metrics, and no one can deny the impact of US News & World Report on perception regardless of whether you agree with the criteria included in their metrics. Having taught at a few colleges over the years, my anecdotal exeprience lends me to believe that better average student quality does contribute positively.
And yes, I am saying that the price gap is absolutely a factor for students looking out of state when they are comparing Pitt's cost of tuition to other state's out-of-state costs of tuition. A smaller gap in price absolutely lowers the burden for deciding to stay in-state or go out-of-state. These students aren't generally paying sticker price for out-of-state tuition most of the time, and whatever OOS aid packages they receive get compared to the packages for in-state choices and are a big determining factor. The game these days is to apply to a dozen schools or more and see which ones offer the best deals so the size of the gap matters a lot. It is much more likely for a PA student to end up at a school, say, like Virginia Tech if also looking at Pitt, than it is for a Virginia student to look at Pitt compared to VT or UVA, given the gap in difference of cost and aid packages. Anecdotally, I know several PA residents that ended up at OOS publics because the gap in cost was reasonable but I know several Pitt legacies in VA that eliminated Pitt because of that gap was just too big.
If you are okay with Clarion or UPJ closing, then I would imagine where the state prioritizes higher ed funding is suitable in your opinion.