Students will work in a world where they have to use AI to do their jobs. This is not going to be optional. Learning to use AIs effectively is an important skill and should be part of their education.
And it's an opportunity for educators to raise the ambition level quite a bit. It indeed obsoletes some of the tests they've been using to evaluate students. But they too now have the AI tools to do a better job and come up with more effective tests.
Think of all that time freed up having to actually read all those submitted papers. I can tell you from experience (I taught a few classes as a post doc way back): not fun. Minimum you can just instantly fail the ones that are obviously poorly written, are full of grammatical errors, and feature lots of flawed reasoning. Most decent LLMs do a decent job of doing that. Is using an LLM for that cheating if a teacher does it? I think that should just be expected at this point. And if it is OK for the teacher, it should be OK for the student.
If you expect LLMs to be used, it raises the bar for the acceptable quality level of submitted papers. They should be readable, well structured, well researched, etc. There really is no excuse for those papers not being like that. The student needs to be able to tell the difference. That actually takes skill to ask for the right things. And you can grill them on knowledge of their own work. A little 10 minute conversation maybe. Which should be about the amount of time a teacher would have otherwise spent on evaluating the paper manually and is definitely more fun (I used to do that; give people an opportunity to defend their work).
And if you really want to test writing skills, put students in a room with pen and paper. That's how we did things in the eighties and nineties. Most people did not have PCs and printers then. Poor teachers had to actually sit down and try to decipher my handwriting. Which even when that skill had not atrophied for a few decades, wasn't great.
LLMs will force change in education one way or another. Most of that change will be good. People trying to cheat is a constant. We just need to force them to be smarter about it. Which at a meta level isn't that bad of a skill to learn when you are educating people.