As someone who has volunteered regularly with a couple of different co-ops over the last decade, I'll give a possible co-op perspective.
1) 500 bikes take up a lot of space. I don't know many co-ops that have that kind of space. Perhaps if you were to offer to provide a location to "host" the bikes where the co-op could come sort when labor is available, you'd get a more positive response. Or sort them down to the best 50 and only donate those.
Another option would be to ask the University to store them for a bit. Some universities will store collected bikes over the summer and then have a sale in the fall to incoming students. The co-op or a student organization would organize the sale, but wouldn't have to store the bikes.
2) I'm sure there are locations where the demand for used bikes is really high, but my experience is that there are far more people who want to get rid of bikes than there are who want to buy them, unless they are in ready-to-ride condition. Co-ops don't have the labor to fix up a large number of bikes into ready-to-ride condition, so the limiting factor is the fixing up, not the number of available bikes. The typical model is to sell or give away bikes that still need a little bit of work and provide the tools and instruction to help do that fixing. At least in that case, the work of fixing is focused on the specific bikes that people want, but it's still a bottleneck for getting bikes out the door.
A few co-ops are able to deal with the mismatch between supply and demand by shipping bikes overseas or partnering with organizations that do that. If you have the capacity to transport the 500 bikes, Working Bikes in Chicago is not too far from you, and they have such a program. They know what bikes are good for the local market and which are useful to folks overseas, and they have partners in recipient countries that take them. You might have better luck facilitating a donation to them rather than your local co-op.
In general, the best things you can do to help local co-ops is volunteer your time or buy bikes from them rather than donating bikes, unless your donations are in ready-to-ride condition or can be resold for at least a couple hundred dollars if fixed. Those few high dollar bikes that come in enable them to sell the less valuable ones at below market rates to people who need them for transportation. Given your experience with scrapping, perhaps you could volunteer to sort and transport scrap for the co-op once a month to help keep space available for ridable bikes?