(1) The first two points are OK; the third one:
All the elements within the XML instance which do not have a prefix automatically belong to http://www.cmu.edu/ns/blank namespace as elementFormDefault is qualified
is incorrect.
Declaring a prefix in the schema doesn't mean that the XML instance must use the same prefixes. Any namespace declaration in the XSD file, applies only to the XML file that is XSD (XSD is an XML, therefore...)
In general, there is no way to assume anything about any prefixed or un-prefixed element name; i.e. below examples are all correct.
<some xmlns="" .../>
<some xmlns="urn:tempuri-org:XSD:1" .../>
<x:some xmlns:x="urn:tempuri-org:XSD:1" .../>
The only sure thing is that the only way to represent an unqualified name is through a name without a prefix (i.e. one cannot prefix the "empty" namespace).
elementFormDefault
controls the form of the element's name, when an element is declared within a content model (i.e. is not global).
(2) Partially correct. The part because of elementFormDefault.
is incorrect. Again, XSD is just one schema spec; XML exists and has its own rules, irrespective of XSD, or any other schema language. The rule that applies here is that of XML namespaces, specifically scoping.
(3) You would have to create an XSD for each namespace; within each namespace, you declare the student and it's content. Then the XSD which defines people would import the other XSDs and reference students appropriately.
So this is a basic setup:
Berkeley.xsd
<?xml version="1.0" encoding="utf-8" ?>
<!-- XML Schema generated by QTAssistant/XSD Module (http://www.paschidev.com) -->
<xsd:schema targetNamespace="urn:berkeley-org" xmlns="urn:berkeley-org" elementFormDefault="qualified" xmlns:xsd="http://www.w3.org/2001/XMLSchema">
<xsd:element name="student"/>
</xsd:schema>
Harvard.xsd
<?xml version="1.0" encoding="utf-8" ?>
<!-- XML Schema generated by QTAssistant/XSD Module (http://www.paschidev.com) -->
<xsd:schema targetNamespace="urn:harvard-org" xmlns="urn:harvard-org" elementFormDefault="qualified" xmlns:xsd="http://www.w3.org/2001/XMLSchema">
<xsd:element name="student"/>
</xsd:schema>
people.xsd
<?xml version="1.0" encoding="utf-8" ?>
<!-- XML Schema generated by QTAssistant/XSD Module (http://www.paschidev.com) -->
<xsd:schema targetNamespace="urn:people-org" xmlns="urn:people-org" xmlns:harv="urn:harvard-org" xmlns:berk="urn:berkeley-org" elementFormDefault="qualified" xmlns:xsd="http://www.w3.org/2001/XMLSchema">
<xsd:import namespace="urn:harvard-org" schemaLocation="harvard.xsd"/>
<xsd:import namespace="urn:berkeley-org" schemaLocation="berkeley.xsd"/>
<xsd:element name="people">
<xsd:complexType>
<xsd:choice maxOccurs="unbounded">
<xsd:element ref="harv:student"/>
<xsd:element ref="berk:student"/>
</xsd:choice>
</xsd:complexType>
</xsd:element>
</xsd:schema>
The files graph:

A sample XML (shows the use of namespaces):
<?xml version="1.0" encoding="utf-8" standalone="yes"?>
<!-- Sample XML generated by QTAssistant (http://www.paschidev.com) -->
<people xmlns:xsi="http://www.w3.org/2001/XMLSchema-instance" xmlns:harv="urn:harvard-org" xmlns:berk="urn:berkeley-org" xmlns="urn:people-org">
<harv:student/>
<berk:student/>
</people>
