" Otherwise, if the institution does not have confidence in the test, it shouldn't be granting credit for it! "
Having taught at the expensive and prestigious institution in question, I can say that there may be a gap between what the institution has faith in and what the instructors experience.
I mean, yeah, if it's a class outside of your major then sure. My son (and I, when I went) skipped freshman comp. I encourage my son to get through via whatever means is easiest, and in his case, I believe it's getting some extra time in the seat in a calc class.
If there is a gap between "the institution" and "the instructors", that is a problem large enough to overwhelm any problems that may exist in standardized testing.
The motive of an instructor is presumably to ensure that, by the end of a course, every student will be adequately prepared to meet a minimum standard of knowledge, regardless of their preparedness prior to the beginning of the course (subject to prerequisites). At a wider scope, the instructor, as a member of an instructional department, is also motivated to progress students towards possession of a total body of knowledge deemed adequate by their peers to either practice in the field, or continue on to a more intense program of academic study.
The institution is motivated to collect tuition, receive grants, accumulate prestige, and pester alumni to support goals that are not necessarily academic in nature. The only instructional goal is to produce graduates that will not embarrass the institution.
The student is motivated primarily to get a degree that is their admission ticket to a broad swath of jobs otherwise unavailable to anyone without a degree. They are motivated secondarily to actually learn about subjects that interest them personally. The student's sole reason to take SAT, ACT, AP, IB, CLEP, &cetera is because the academic institutions reward those passing test scores.
The principle in play is that it should not be necessary to instruct any person that already has the knowledge. If the standardized tests are insufficient to establish that, the instructors should then be applying the same methods they use on students that have taken their courses, on prospective students that have not, and only recommend taking a course that would otherwise not be required by the institution, when it can be shown that the standardized test signaled a false positive.
That is, a passing score on the test should not automatically grant credit, but should allow a brief interview with a professor that teaches the relevant course, who can then determine by any means they care to use whether or not the student already possesses the knowledge to pass. If too many false positives are found, the institution can then revise its treatment of the test scores.
Having taught at the expensive and prestigious institution in question, I can say that there may be a gap between what the institution has faith in and what the instructors experience.
I mean, yeah, if it's a class outside of your major then sure. My son (and I, when I went) skipped freshman comp. I encourage my son to get through via whatever means is easiest, and in his case, I believe it's getting some extra time in the seat in a calc class.