Re your second and third paragraphs: Not all government programs are suspect because you have to pay for them. When the main selling point is that it's free, though... that may be time to look at it a bit more cynically, remembering that it's not free. Which doesn't make it a bad idea, necessarily. But it means that those selling it need a better reason for us to buy it than "it's free".

Back to fixing the education more-cost-less-results spiral. I agree that what this proposal will do will depend on the specifics. But this proposal, if it helps, probably will do so only accidentally, because it doesn't seem to be attempting to do any such thing. It's trying to address the cost to students, and that's all.

To address the overall cost problem, it has to do something to incentivize universities to be more efficient at delivering education to students. If it was something like "If you've got an e-learning way to get to a full diploma, we'll pay you (the university) enough that you should be making decent money at it, and we'll give the student a computer and broadband if they don't have it", that would incentivize the university to have such a program, because money. And it could scale easier than in-person, if implemented well. Even better, you could now have competition between universities based on quality of instruction vs. odds of passing.

I'm sure there are holes in that approach, but I think it's at least somewhat in the right direction...