This is a common option for a lot of merchants - exchanging for a different product. At the moment, as you already know, there are only Variant Exchanges, meaning you can only exchange for a different variant of the same product.
So, in this case, we've come up with a solution for you in order to still have this option available for your customers and suit your returns process.
In order to accomplish this:
do not turn off the Variant Exchange option - leave it as is, so customers can be able to exchange for a different variant
in Return Settings -> General, right next to the Exchange Product option, enable one of the Custom options, giving it a name like "Exchange for a different product" (example).
As a result, the customer will be able to either select the dynamic variant-exchange option or select the custom option and type in the text box the different product they would like to exchange for.
Stay tuned for future updates on Exchanges for different products!