There are so many reasons that colleges and universities should step way back from network monitoring but the best one I can think of to sell it to your school, is one of limiting liability. If the school is monitoring all network traffic and tying it to students, then they are totally responsible for any safety incidents that occur from a preventative standpoint. Legally speaking a victim of any crime could then sue the school if they failed to prevent anything. As it stands now a school is responsible for anything that happens on their grounds but they can't really be sued directly for something like Columbine, that I am aware of. If the network monitoring goes live and there are manifestos posted through the school internet that go unnoticed, then the school is going to be hit with massive lawsuits down the road... plus the expense of having to monitor that information.
Because from my perspective, paying an ISP to run traffic back and forth is CHEAP. Monitoring a network is VERY EXPENSIVE.
What's the payoff for schools? You might think it's some sinister reason, but I can assure you this is some very angry person in the IT dept or somewhere in the school who merely enjoys feeling powerful so they are pushing this kind of authoritarian agenda just to flex their muscles. There is not one shred of financial reasoning to take on all that insurance risk... and God forbid the insurance people find a loophole if shit goes down on the campus or even off campus.
Then you have your would-be novelists. Imagine what Tom Clancy's internet history looks like.
tl:dr; schools that follow any student's browsing habits become responsible for whatever that student does or APPEARS to do