That half is wrong. Colleges have no preference.
The Latin teacher is overselling. Taking Latin will not be “key” to anything - certainly not admissions. Continuing Latin may help you with SAT vocabulary, where a higher score may aid admissions.
No. Many heritage speakers of a language understand it. Many speak it rather well, although some do so with less-than-satisfactory (IMO) diction, even accounting for regional variations. Even then, they may not read/write at the appropriate level for their age, which seems to be your situation.
It’s really your choice. Whichever one will best serve you inn the future is the best option, IMO.