It's "shocking" (really?) if you don't realize that those same students without basic arithmetic skills might not graduate, which is not inconsistent at all with the notion that current graduates of that university actually do very well.
Thrun is right if his point is that it would be nice to bring them up to speed in a more thorough way, rather than just weeding them out.
I did realize the survivorship bias. It's shocking to me because if a good university like SJSU would have so many incompetent students, something is wrong with the K12 education system, or something is wrong with American families.
You state that you are surprised that a school with good graduates has incompetent students, which implies that you wouldn't be surprised if a "bad school" had incompetent students.
It accepts over 60% of applicants. And frankly, a mark of a most useful school is one that isn't too selective in admissions and can churn out good graduates.
Thrun is right if his point is that it would be nice to bring them up to speed in a more thorough way, rather than just weeding them out.