There is quite a bit of stuff that one can learn in a class that might not show up on a test. A few examples:
1. Certain small subject matter specifics that may not be measured on a relatively short timed test.
2. Discovering peer groups to study with.
3. The test structure at the university/department — some smart people get bombed early in their academic careers just because they aren’t familiar with the test type.
A well-structured series of courses can be built out assuming that each student in later courses has at least been exposed to certain ideas in earlier courses. If you test out, there is no guarantee that these learners have been exposed to those ideas. Yes, a better test could reveal all of this stuff, but making good tests or test banks is difficult and time consuming, and that assumes that there is some expertise in evaluation/testing in the department faculty (which is rare).
You're describing the quality of an education, while the previous commenters are describing how to game a title system to get the best brand. These are two different goals/outcomes.
In my case, the teacher "forgot" to give me the final for one of them, and only gave me the mid-term. Months later, they "discovered" that and made me take it then to keep my credit.
I said, "Give me the test right now." I took it, passed with flying colors.
They still didn't look happy. I'm still half-convinced they were trying to trip me up. Their classes were the easiest I have ever taken and I got a 4.0 GPA there. I knew I was just going for the paper, though, so it didn't bother me.
Joke's on me. That paper has never actually helped me get a job. sigh
Knowing that, in an interview, I won't be asked why I don't have a degree, has been at least 90% of the value of mine.
I don't even have "Education" paragraph in my resume, just skills and experience.