When Danny Zuko brags to his buddies about saving Sandy's life -- "she nearly drowned" -- the theory posits that she didn't make it. "As she drowned, her brain deprived of oxygen, she had a vivid coma fantasy involving her summer fling Danny, where they shared a magical year of high school together. The visions get increasingly outlandish as time passes, until finally, as Danny desperately tries to resuscitate her on the beach, she sees herself flying into Heaven in her dying moments."
There's a decent amount of evidence for this theory. Like, how the heck does Danny's face appear in the water in "There Are Worse Things I Could Do"?