I don't know when you say it, but let's say you set a rule where any player on scholarship come June 1 will count toward your 85 that coming fall.
That would eliminate what Saban does. He cuts players typically around August when he knows exactly who from his recruiting class has qualified. It puts him in a position to offer the medical hardship with the player being cut knowing that they only have two options 1) take the medical and never play football again but remain on scholarship, or 2) sit out the fall not on scholarship and try to find a new home in the spring to play football.
For most of them, Option 2 is not going to be a choice because they lose a year of eligibility that way. If they don't have a redshirt year left, it's a wasted year, and you don't even know where you'll have for options come spring time.
Saban does it that way so that the players he's cutting don't really have a whole lot of choices for joining up with any of his future opponents. He doesn't want them, but you can't have them either type of thing. If you set a date like the first of summer as your cut off date for players having to count toward the 85, the coach making cuts is going to have to take some chances, and not only that, but if he does cut 3 or 4 players, those players will have all summer to find another school that has room under its 85, so they can transfer. I'd also like to see a rule that allows a player to transfer and play immediately if the reason his scholarship wasn't renewed was a coach's decision not related to discipline.
I also think it would be fair to tell coaches that a player has to be informed formally by letter by June 1 if he's going to possibly have to take a grayshirt. If a player receives a potential grayshirt letter, then that player should automatically be given the option to sign somewhere else if a spot is available and the player chooses to do so. Most wouldn't do it, but it would create some transparency about grayshirting. Along with that rule, you'd have to say that any coach that oversigns his available scholarships has to send out letters to at least as many players as he's oversigned. For instance, if you signed 30 and only had 25 spots, you have to pick at least 5 players to send grayshirt letters to.
Outside of those rules I'd like to see, I have no problem with grayshirts. I have no problem with oversigning, and I have no problem with cutting players that aren't getting it done. Put in some rules to protect the players' interests in those situations, but there is no reason why teams shouldn't be able to oversign, grayshirt, or cut players when necessary.