"The letters, to be routed through the university administration, notify students that they can pay a settlement amount of at least $3,000 before RIAA sues them, UW officials said," according to the article.
Some universities actually tackle this issue head on, such as the University of Idaho, where I happen to be a student. Through the Student Union, every student has access to a download service called Ruckus. The subscription costs are paid for with a very small percentage of student fees. It may not completely deter students from illegally downloading music, but at least the school is offering an option.