If the “better” schools are affordable without loans (even if it means stretching), I would let your daughter decide. She might have to take on the subsidized loan to help the family but if there’s an appreciable difference in peer quality, resources, or outcomes at one of the schools, I’d definitely weigh that in. Cheapest is not always the best value. There’s also a matter of not applying to the state flagship - what’s the difference between your daughter’s stats and the less-selective state school’s stats? How many students are comparable in level/drive?
Students who attend “too easy” schools sometimes get bored, frustrated because they’re the only one with the professor who’s done the work, or develop poor worth ethics because they get A’s very easily. Others end up thriving because they develop one-on-one relationships with professors and have priority access to many things. The difference between “typical” students and your student is a factor (the larger the difference, the more likely the problems), as are the campus culture and “perks” offered.