Playing with better players will improve his game. What’s the point of trying to organise a defence that doesn’t have a clue or doesn’t listen to you? Also, playing for a poorer team with poor results may result in a lack of confidence.
The loan system should aim to develop players at the highest level possible.
They are still professional footballers, "doesnt have a clue" is rarely the issue.
For goalkeepers I think its more important that the GK coach is good rather than maximizing the level of the competition they are playing in whereas I would prioritise the other way around for outfield players. Though obviously a combination would be the optimal thing.