What you're describing is basically grad school. Graduate school is an amazing academic experience in the right circumstances. I really found my time as a grad student to be intellectually fulfilling.

Unfortunately, most universities also see grad students as a source of cheap labor, so they are generally ripe for exploitation. Basically, any discussion of grad school is going to result in me repeating my earlier points about capitalist ideology infiltrating academia.

When I was teaching freshman composition, the problem that I ran into was that some students really struggled with too much freedom if I allowed them to pick the topic. I usually had a few general topics explicitly listed, but also allowed students to explore other topics that mirrored their interest.

Another problem is that evaluating writing is much more time intensive than most other forms of evaluation. When you have to evaluate 40+ papers in only a few days, it becomes increasingly tricky to allow latitude. If an instructor is only getting paid for 3 hours to grade papers, it's hard to blame them for not allowing much divergence from a prompt. That's a problem that can be solved by lowering student-teacher ratios, but most universities are more focused on cost cutting.

Finally, the purpose of college is increasingly coming into question. Nowadays, it's being used as essentially a job training facility when that has not been the point of it historically. Capitalist ideology has really snuck into every corner of academia now, and that mindset values standardization and objective results. As long as the primary goal of academia is to create a supply for the workforce, then assignments and evaluations will tend to focus on standardization over creativity.