Why is a lossy testing filter better than just failing out those who can't make it? Maybe allow for larger freshmen classes and smaller latter classes or adopt community colleges and have all students start there and advance into the UC system sophomore year on. Instead they bring back what is basically an IQ test for admission.
If you completely ignore costs, and the negative affects of having 50+% of a class be unprepared and taking time from the other students, sure, that would work great. Seems like a bad alternative to standardized tests considering students will then have to pass tests once in college...
Apply the same question to jobs and it's easy to see: why is a lossy [interview] filter better than just [firing] those who can't make it?
This has enormous costs to the institution, the teachers/mentors, and of course to the person failing out.
And that's not even factoring in the social and psychological costs.
High graduation rates are an important metric to administrators. If a professor gave a failing grade to 1/3 of the class they would be in hot water.
From the students' perspective, it is better to not be allowed in than fail out midway through. One test is cheaper than years in college.