>This is true, but there's a lot of value in being surrounded by peers who are at your level or a little better who push you to become better than you would otherwise.

Totally this. I went to a mediocre undergrad and a top 5 school for grad. The only thing the undergrad was missing were those kinds of peers. Everything else was either better or the same in my undergrad university.

Value for who, the people paying or the people attending?

Everybody involved, I would think: the students themselves, their parents (who presumably care about their kids), and any taxpayers who benefit from having a minority be more productive members of society.

Why do you leave out the entire administration of the schools who receive the majority of the hard dollars? They have the sure bet, the money up front tied to people who will be dragged down by huge loan amounts I would imagine (not everyone receives a scholarship.). To everyone else it's more of a wager in my mind, maybe the kid will do something in the field of study, most of the time they won't.

I left them out because the purpose of schooling is not to serve the administrators.

In any event, MIT grads may graduate with debt, but I think (as a whole) they'll probably manage just fine.

I agree, that's the purpose, sadly many don't feel that's the reality

Value for students. Skewed norms influence behavior in crazy ways. This is an unfortunate truth.