Why do they continue to do this when lowering their
standards for pedigree could cut their costs massively?
If there was really an opening in the market you could
drive a truck through, what has stopped anyone from taking
advantage of it thus far?
Then your less-skilled JDs can review the documents mass produced by software, in a sort of legal assembly line. They may not be able to follow chains of complex reasoning, but that's ok: engineers + Stanford JDs already made sure the legal templates and algorithms worked on representative data.
In other words, we are making use here of the old joke - "What do you call the guy who got the lowest GPA in medical school? Doctor."
Similarly, the less-skilled JDs who can't get jobs today do have one very important asset: they passed the boolean threshold and are licensed to practice law. Hollow out everything else, replace it by software, and use this army as scalable last-mile reviewers with the thinking done by code. Their value-add is that they absorb the last mile liability, as they are doing final review before release to client.
This is no different than the way that Intuit replaces the CPA in many situations. Kind of a TaskRabbit for law. By giving jobs to (a) young tech-savvy jobless students and (b) a few top attorneys from the very best law firms to write the contracts, you can do a pincer attack and massively reduce legal costs.