Coming into this late, but I made the same decision as the OP's daughter when I went to undergrad. I had the choice between a better than full ride scholarship at State U, or having my parents go severely into debt if I joined CalTech. I chose State U.
The education I received there was excellent. I was in the Honors program, and my peers there were every bit as strong as my MIT classmates in grad school. No surprise because most of my honors school classmates ended up at Columbia, MIT, Stanford, etc. for grad school.
The downsides are real though. I took some time between undergrad and grad, and the job opportunities before and after MIT were vastly different.
