I’m curious about your use of “competitive” here. It seems like it’s a synonym for “scores high on standardized tests”. But that’s not the entirety of what “competitive” means at any schools that use holistic evaluation for admissions and/or merit aid, which is most schools.
I do agree that it would be nice if students didn’t apply to so many schools, especially highly rejective ones. One thing that could fix that is better targeting of students/apps to schools that are likely admits and good fits for students. A big part of that process is having the viewpoint that those schools are great options and are not undesirable.
My spouse was a valedictorian in California, well before test-optional policies. They were also surprised about how much the UC schools cost, and that it was cheapest for them to attend a not-highly-ranked SLAC. I wouldn’t call it “undesirable”. They got a fantastic education at that middling SLAC and went on to get a PhD. Funny enough, I think it might have been their not-awesome SAT scores that prevented them from getting more merit aid at more “desirable” schools. They likely would have fared better with modern TO policies.