Many law students would leap at the opportunity to work in-house for some number of hours a week at very modest pay. Certainly a second-year law student who comes in 10 hours a week can help a law department catch up on filing documents, organizing the library, indexing precedent documents, collecting discovery documents, cleaning up databases. Agreed, too, that internships can help recruit talent. The labor is cheap, willing, but of questionable ability.
To compensate for that inability, supervisors of interns must train them to some extent and oversee their work to a greater extent. My sense is that most law departments do not choose interns, because there isn’t enough work suitable for them to do and they come at a cost of supervision and training.