Students have a number of opportunities available to them in both academic and private settings, so I doubt a significant amount of them would opt into a program like this. Another comment suggested AmeriCorps, which seems to be aimed at students.

As for the second point, I would argue such a situation already exists in the private space. If Walmart is the only employer in your area, and you can't live on SS/Disability/Pension alone, you've got a similar situation -- work for a low wage or go hungry ad infinitum.

A public works program with a mandate to improve both the worker and the public good presents a more attractive alternative to a private corporation with little care for the individual worker.

Prisons, at least the one's I've visited, have no such mandate to improve prisoners, thus the forced labor.