I think it's easy for them to fall into a trap where they artificially inflate the requirements just because there is interest in the position.

So in a sense, yes, they've lost touch.

They also forget that every year, the "best" interviewees use them as a practice round and leverage for a more prestigious company. Inevitably, they chase unicorns at the expense of everything else. Every year, 3 colleges, hundreds of hours of interview rounds for 10-15 positions and they'd end up with 3-5 that actually started the paid internship.