This, and they are also staying for a short period. Don't think it's fair to annualize the wage they get for this.

This is key. Law firm interns can out-earn new associates, but it's a short-term incentive that isn't going to be annualized.

I've never heard of a classmate not getting a return offer for the next co-op term or fulltime (if they were graduating).

That's not really relevant to the point about re-scaling the pay. If I'm willing for various reasons to pay you $X for 3 months doing a job does not mean I am willing to pay you 4 x $X for a year of the same job (or whatever numbers the term works out to)

I suspect many successful interns are offered in excess of the "annualized" intern pay, but not for the same job so it is still apples to oranges.

These companies have co-ops year-round, how is that not effectively the same thing as paying an annualized salary for that work?

Paying someone for a whole year gives you one chance of finding a full-time employee. Paying four different people for 3 months each gives you four chances.

Because the time on that particular job is not the only thing the company is paying for (with interns/co-ops). In fact, it's usually not the primary thing.

It's pretty rare that intern positions make sense in a strict dollar for time sense, you are better off thinking of them as an investment in the future. Accordingly, the pay rate is not directly and easily comparably to most jobs.

Being paid and paying someone aren't the same thing.

There isn't always a position open, you can't assume that every company had unlimited funds to hire unlimited engineers.

For example at my company we keeep several slots a year open for co-ops but not that many full-time positions open up. But we aren't in SV so I guess it may be different for huge SV companies who churn through employees.

I have. It happens.