You don't have "an industry" that hikes prices, and there is a central authority without ulterior motive that has an influence over what is funded. Not to mention that you don't put young people into debt from get go.
My understanding of a free education is one that is 100% paid for by the government, since someone still has to pay the professor's salary. In that case, you still have an issue of an industry that can demand increased prices (from the government, of course) if university enrollment suddenly increases (and I think it would if students didnt have to pay tuition). So I think you still have to figure out how to handle the market forces, but you're right that shifting the burden from the students to the government lets people start off their lives with less debt, which is a benefit of its own.
