At my company, this is the algorithm:

  take on interns before graduation
  if graduating within a year
    make hire/no-hire decision by the end of the internship
  else
    make re-intern decision by the end of the internship

Summer internship is a great recruiting channel for us. If we pay them well (not quite at entry level, admittedly), give them a good experience, and a good evaluation, everyone wins, and their full-time destiny is in their hands.

Hopefully fresh CS graduates are not taking contracting jobs with Bigco! From where I sit, they are in a seller's market and shouldn't take so little.