Colleges tend to separate student labor away from "real" development arenas, sticking them to lab, resident, media and user support (helpdesk) arenas. However, if we give them some liberty and guidance, they can do great things. CMC started its in-house "student employee management package" around 10 years ago entirely developed by students and has been used by several departments over that decade. The students who programmed it have gone on to high level programming jobs at Braintree, Google, Outpost Games and others. While there have been hurdles to overcome, and I will examine them, in brutal detail, the rewards have outweighed the problems.
With proper supervision, management and support, students can build some of the best projects we have seen, and good proper projects can give real world experience unmatched by any CS class.