This^^^. I didn't grow up in Bloomington but where I grew up wasn't too far from there. I knew IU students, local residents, and people who worked in Bloomington all my life and until the movie came out I had never heard the term "cutters" ( or "stonies") to describe the locals. It was used as a term for Bedford High Schools athletic teams by local media since their mascot was the Stonecutters. That was the only place I had ever seen or heard the term.
During my years at IU ( I was a freshman when Breaking Away was filmed, a soph. when it was released), even after the movie, it wasn't used. To me and everyone else I knew they were "townies" and even then, if there was conflict between IU students and local kids I didn't witness it. I loved the movie, but always understood the underlying plot of conflict between students and local kids was for dramatic effect.
by then the term "stonie" had taken on a different meaning than when first coined, and i have no doubt that was the main reason for going with "cutters".