I think most of the profs that actively encourage this are in industrial design, which is on the periphery of engineering. And it also is not very common. A decent sized engineering school has about 100 design groups per year, and we don't see nearly that many. For one thing, there was no time for silliness like this in our syllabus, and the students had to do a project that was viable enough that someone paid $5000 to have it done. So the sponsor had decided it was a viable project and doesn't need a market survey. You simply can't go looking for ideas and also take an idea and make a working prototype in just one semester. Just extracting the actual requirements for the project from the sponsor is tough, which is probably the most realistic part of our class. Customers never know their requirements.

I don't know what kind of engineering school lets students come up with their own ideas for senior design. For one thing, it would mean a lot more failed projects. I just can't imagine it for a solid U.S. engineering school. One thing that is done at our school is they have to do a patent search, which should give them a good idea that every single bicycle related invention that they will ever come up with has already been invented.