It is legally allowed to exist. The NCAA chooses not to pay athletes money. Even though it sounds paradoxical, it would actually be anti-free market for the government to step in and tell the NCAA that they must pay players a salary. Just like it's anti-free market to require a minimum wage (agree or disagree with the MW, it is still anti-free market).
And again, it's not a fraction of what they'd be worth in a free market. The sum of the value of the scholarships, room and board, stipend, clothes, gear, food, publicity, training, coaching, etc. is worth far more than what the vast majority of student athletes are worth.