This is a very good point that deserves discussion. That said, this isn't an either-or situation. Universities could easily arrange temporary off-campus housing for students displaced by the crisis.
The reason to close the dorms isn't because the dorms themselves are bad in this scenario, it's that packing people closely together is bad in this scenario. The virtue of closing the dorms is that it sends most of the students back home, spreading them out among the general population. Density is the enemy.
We could:
1. Find alternative housing for some fraction of the students to lower the population density within the dorms--sending 1/3 of students elsewhere reduces population density to ~65% of what it would have been before
2. Retrofit current housing to help minimize spread of disease
3. Allow students to opt-in to remaining at the dorms with agreement to adhere to much stricter health and sanitation standards
4. Allow students to remain with the understanding that they will be quarantined until such a time that they can call be tested
None of these are great ideas, I'm sure, but I can't imagine any of them being worse than the current situation we see these students in.