The schools could do that, of course, but it was a lot easier to just send the money to all that already had proven their eligibility by the FAFSA. A school cannot accept a copy of the passport as proof but must see the original passport (or birth certificate) and this happens all the time with students who can’t get the FSA ID verification with FAFSA. If the students had already returned home, like in the spring of 2020, that would have been more difficult or at least delayed the refund.
Maybe easier at a school with 2000 students to get the notice out to students to show up with a passport than at Ohio State or Central Florida.