Agreed on giving them a break in the end. I do tell them straight on that fluffing skills isn't a good idea as it sends the wrong message. We do have a technical component and group discussion stage to try and coax out the talent.
It's amazing how some people completely fumble the interview and sometimes even technical component, yet convince people in the group chats.
Hopefully more students can learn what it's like from the company's side and have a better picture for what they're expecting. If they are going for a low-level position, I'd give them a break on the resume and experience, and really dig for potential. Everyone has to start somewhere.