I teach GAM 300/350 at DigiPen. We still require them to create custom engines in their sophomore year, but in their junior year (and beyond, in some cases), they're all using commercial engines. One of the main things we want to focus on is giving them a chance to work on a truly cross-discipline team, where every member has a chance to thrive at their work, regardless of their degree program. If you're a student of game design or art, it can be very stressful to be on a team with a custom engine, because the bar is so high for them to provide the features you need to get your work done and accomplish your goals. If the engine and its editor and other support tools are all already completed when the project begins, these stresses and barriers are removed. Meanwhile, the programming students get a chance to work in an existing engine, which is applicable for the career trajectories of so vastly many of them, who will graduate and go on to work for companies that are using an existing engine (possibly even the one they used in GAM class). If they use Unreal, they're often working in C++, interfacing directly with the engine code. These are valuable experiences as well.
I have an imperfect perspective of the students' attitudes, but it seems to me that they tend to agree with my point of view: at the beginning of the year, I said, "Raise your hand if you wish you'd be working on a custom engine this year," expecting to see a few dozen hands go up. Surprisingly, only about one and a half hands were raised! Working on a custom game engine is an amazing and unique experience, but it's not the end-all-be-all of game programming.