Theory gives students freedom. We would suggest that in life understanding how something works is one of the keys to being able to enjoy it and start applying it to real life in various ways. In other words, it enables the person focused on understanding to enjoy the subject more deeply and with more freedom. The same goes for music. Theory is the nuts and bolts of music, but one could also suggest that learning it reveals why certain melodies sound good and why certain harmonies are so satisfying and so on.
Becoming advanced in theory also enables students to try their hand at high quality composition. Instead of just putting a couple notes together, they will be able to weave a melody with good voice leading and support the lyrical line with satisfying harmonies. This is possibly the ultimate goal of the well rounded musician.