This is really bad advice, because much about learning programming is about an individual effort. It has little if anything to do with the school.
> If you find a person with an MS who can't pass a simple programming test
You actually need more than a simple programming test that solves a single problem. You need to see enough code to have some architecture, designed by the candidate. Interviews are too short for this so experience whether at some other company or open source, or just if skilled people can vouch for you goes a long way.
I agree that learning to program is individual, but you don't learn to program in grad school. If a school gave you an MS and you can't do Fizzbuzz, that school isn't serving its signalling purpose (that I mentioned in my first comment). So while that school may be fine, if lax, if the employer is using education as a signal, a school that doesn't fail students doesn't provide a strong signal.
Relating to your comment about needing to see more code, education is actually perfect for that. Most companies don't let you take your source code with you, schools do. So provided you took some courses that required significant engineering projects, a student has a big pile of (hopefully) reasonably-designed code to show off to an interviewer. A person who worked for a less-than-progressive company (since some maintain open source libraries and such) does not. They both have their open source contributions.
If you find a person with an MS who can't pass a simple programming test, then (and this is very general, I'm sure there are exceptions) take a look at the school her or she attended and stop interviewing people from that school, problem solved.