The answer is, of course, a matter of opinion. There is no objective way to say what the right policy is. My own view is that colleges should not monitor computer usage, but they should keep the records of the computer/internet usage in case accusations are raised against a student.
Colleges should not be monitoring what a student is doing on computers on a regular basis. This is largely because students should be allowed privacy. There are many things that students might be searching for on the internet that they would expect to have kept private. If employees are looking at what students do on the internet on a regular basis, they will see too many things that should be kept private.
However, colleges should keep records of what the students do on the internet. This is because accusations about internet use can easily arise. A student might, for instance, be charged with illegally downloading music or films. A student might be accused of harassing another over the internet. In these sorts of cases, it will be important to have records so that the truth can be ascertained.