I will add a fourth reasons to my list (and this is actually something of inside information) --
(4.) The high administration at Iowa State has been aware for decades, dating back to at least Martin Jischke, that loose admissions standards hurt our standing on those "vaunted" school rankings lists.
Taking that hit was unavoidable for two reasons...
(a.) ISU only has limited control over admissions standards, particularly for in-state students. Like I said, public schools cannot be too snooty with in-state kids. Trying to tighten them would annoy the legislators from small, rural Iowa counties, which there are a lot of and they are powerful, so you have to learn to live with it.
(b.) Iowa State is not a rich school by the standards of major research universities. In fact, we are one of the poorest. We have to fight for resources with Iowa and UNI, we do not have the "alpha omega" status in a fleet of state universities like Minnesota and Wisconsin have, and we do not have a mega-endowment like Texas or Michigan.
One of the ways... and this is a deliberate strategy on the part of university administration... we make up for that is admitting loosely but then separating the chaff from the wheat with freshmen and sophomores.
That is, we are liberal with our admissions and happy to take underclassmen's money before failing out the undeserving ones. We still get to keep their check for those first few semesters, though, right?
Michigan would never do this because they do not have to. Loose admission standards and lower graduation rates hurt your U.S. News and World Report rankings, after all. But Iowa State does not have the money to concentrate on that. We have to take the money we can, so admitting freely and then culling sternly is one way to do it.
They also deliberately have chosen not to lower our academic standards once the kids show up. They would rather lower our graduation rate than devalue the reputation of our graduates -- that is sacred.