I've always thought higher education should be free and have no grading requirements but for some professions like engineering there would need to be a proficiency test. There could be one for all fields if we prefer but we need to assure society that there aren't people designing bridges who don't understand what they are doing. This would be less of an issue in a field like accounting where if you get hired by a firm and mess up some bookkeeping 100 people won't plummet to their deaths in an icy river below.
I also think that which school you attend should be chosen by lottery between the schools that offer the course of study the student wishes to pursue. This eliminates the possibility that something like Ivy League schools would come into being. Incidentially I think that in addition to university education being free the private universities should be closed or brought into a public university system as outlined above.
This only seems possible if there is a guaranteed minimum income however or many people would chose to attend university when they couldn't find a job thus filling the schools with the unemployed as well as those interested in an education. A modest monthly stipend would be preferable to no income at all if you can't find a job. This would be especially problematic with no grades since you couldn't fail classes and be removed from the university. If the unemployed did this it would diminish the resources available for those who wanted the education. Without a guaranteed minimum income I don't see a solution to this problem.
All this is certainly implausible in the short term I agree but why it would be a disaster escapes me. What would be disasterous about this or would the proficiency tests and minimum income I suggested resolve the problems you foresee in such a system?
John Thornton