I think you're right on Gauge. Some volunteer experience in a hospital or having to become a CNA would give potential students a chance to see if they were really cut out for nursing. This is especially true since nurses need to have skills like patience and empathy that can't be objectively assessed. Ultimately, I think it needs to be a combination of objective (grades, entrance exams, etc.) along with the subjective (personality, temperament, etc).
Regardless, a 25% retention rate is something that should be looked at by the administration. That is a pitifully low number that means something isn't right.