Depends what you mean by "prestigious universities". If you mean "one of the N best schools in the country" then per definition you cannot create more prestigious universities. If you mean universities capable of offering really high quality education to undergrads, then there are already very many 'unprestigious' universities that are every bit as good as the prestigious ones and in many cases probably a lot better.

I guess what is needed is some sort signal that, while this university doesn't have as many Nobel laureates as Stanford, it is every bit as good at teaching undergraduate physics. I wish there was a university ranking that only focused on the quality of the undergraduate teaching and education, but I have no idea how that would be done.

Legacy families need prestigious universities to be rare and exclusive so that them having gone there increases in value. They already know that their kids will get in so making top universities more exclusive only has benefits for them.