As an on-campus student I didn't know any off-campus students except one who went to my high school, and he didn't have many new friends from university that he kept in touch with. It is difficult to overestimate the social aspect of universities, which has led in part to other changes such as a common core curriculum for all undergraduates, for instance.

I'm not claiming that students should live on campus, but there are clear advantages if they do so to both those students and other on-campus students.