I realized I forgot to provide evidence from the paper that the range of ACT within colleges is smaller than the range of GDP.

From p.207 of the paper:

"Thus, ACT scores are related to college graduation, in part, because students with higher scores are more likely to attend the kinds of colleges where students are more likely to graduate..."

(I think they obviously have this backwards, for the most part.  Seems to me more likely that the higher graduation rates of those "kinds of colleges" are the ones that choose students with the higher ACT scores.)
 

From p. 206:

"Many schools do not have students with very high ACT scores, and a number of schools do not have students with very low ACT scores [which explains why some colleges do not have students from the full ACT range, even though they do have students from the full GPA range]."

In other words: students DO sort themselves into schools based on ACT score more than they do by GPA.