That place, in the US at least, is community college with a setup to transfer once they've established themselves and acquired basic study habits and so forth, also there is much less non-academic distraction coming from greeks, athletics and campus lifestyle organizations.
This is actually better for everybody at all levels because it's hard to justify paying full tuition rates, even at a state school, for lower div classes offered at a community college for one fifth the cost or less.
Interestingly, at this level community colleges are in some ways even -more- rigorous than "real" universities because classes are very cheap so the financial penalty of retaking is much lower, and at the institutional level there is no ranking pressure to get students to graduate in 4 years.
On the other hand the peers that students will be mingling with are a much wider spread from highest to lowest in terms of ability, than at a school that has at least a minimal selection funnel. There will be a small group capable of work at the very top (ivy/MIT/cal etc) echelon who attend community college to save money or for other practical (commute, unpredictable family situations, etc) reasons, and of course a much larger cohort of people at a barely functional level of ability, but these tend to discover that they may not be a fit for college after the first year or so.
I have also seen local community colleges near me actually have Profs from the R1 Flagship school "moonlighting" teaching courses in the evening. They often are freer in how work with students and also try out new material for textbooks they are authoring.
The better answer would be not to admit them in the first place. But there are people who, after not doing well in high school, find motivation or grow up or whatever, and are able to do college-level work, and do it well. They need a place to go.
So there's not really a great answer. But I think that grade inflation might be the worst answer, because it destroys the institution, not just the individuals.