In addition to there being too many people in college, they also slow down the rate at which everyone else learns the material. If the professor had to spend 15 minutes explaining to the 7 people who didn't study/understand the material, those who belong are ready to move on become bored and inattentive in class.
I've seen grade inflation used mainly because most professors/instructors can lose classes each semester depending on the performance of the students. The fewer classes that are taught, the less the paycheck. Monetary incentive aside, those who do try to grade realistically and have high expectations of their students are often labeled a bad teacher (due to the fact that half the class never applied themselves or tried to understand so they never did well on exams).

This is all just in my personal experience, of course.