Such a plan, using government funding up-front and tax agency collection at the back end, raises another possibility that I think has some merit: targeted reductions on loan repayment based on where a person ultimately pays taxes.

For example, I was raised in small midwestern state that spent large amounts trying to fund a really good university. Unfortunately, very large portions of its graduates would quickly leave to find employment in their fields. The state would subsidize "in state" tuition on the theory that it would help development in the state -- but many of those students would turn around and leave the state first thing. Suppose that instead the state offered *everyone* in the nation one flat rate, but then agreed to reduce the payback by a certain percentage out of the state tax returns. If you left the state and earned your living elsewhere you would pay back in full. But if you stayed in state and worked there, helping thereby to develop the state, you would get reductions on your state taxes.

This would encourage people to stay/live/work in the state that was nice enough to provide them with their education. It would serve as a very transparent 'labor subsidy' for employers who wished to provide jobs in-state, and would encourage people to stay and develop roots rather than just jump for the highest paycheck. Naturally there are a lot of details that will come up, but basically I think the idea of funding "in-state" students would be better based on where they actually end up living/working, rather than where they happen to have residence for the year or so before they graduate high school.