1. Impart knowledge. And when it comes to teaching grammar or differential equations, online education is probably a more effective delivery agent than classrooms ... sorry guys.
2. Train people in face-to-face social skills. Much important work is done in an educational environment by teaching people how to behave in their later professional careers. This goes FAR beyond technical skill, into things like how to make appropriate jokes, how to drop names, how to socialize off work, how to dress at what occasion, how not to expose the fact that you came from a poor background, etc, etc. I think high level centralized education is probably pretty good at this; some of this can be done online, but online interaction doesn't give you practice at face work.
3. Grow social networks with a high level of emotional charge. One goes to Yale largely so that one can become a Yale Alumn and mobilize those networks. This network building doesn't work without an emotional attachment to the university, though, and this is probably more easily cultivated when people are there in person, lose their virginity on campus, go to rituals together, etc.
4. Control the flow of people into various levels of the elite. I think there are a lot more capable people in the world than there are open positions, so education partly serves to withhold training and entitlement by imposing fairly arbitrary cutoffs for admission and by making people feel personally responsible for their prior lack of training (a lack which is generally due to their bad luck in being born into a less fortunate segment of society). Better to have unemployed pissed off illiterate peasants than unemployed pissed off educated folks -- the latter organize and execute revolutions while the former just break windows and make a lot of noise. This categorizing based on supposed talent begins at a very young age -- google "Pygmalion effect". Choking off the flow of talented people who might make trouble will be harder if education escapes its current stranglehold by the academy.
5. Provide physical equipment. If you need to provide access to lab equipment and libraries, it is more efficient to put them in one place and share them. This is obviously changing rapidly, with central libraries becoming obsolescent in many ways (not all though -- browsing the shelves is a good thing and impossible to do in the same way online).
So, if we are discuss the pros and cons of online versus offline education, I think we should do it broken down more, either my way or some other.
Two more comments -- it is pretty funny to hear professors going on about cheapening the value of a degree from Fort Whatever in Kansas. And as far as I am concerned, the sooner the internet bomb goes off in academia, the better.