Well, that's a great question, but I'd like to clarify, or perhaps qualify, my answer slightly.
I think government is doing more than encouraging education. Obviously I would be against a socialized "fully funded" post-secondary system, and I am opposed to emulating it with a sizeable subidized loan/grant system. I am not against government funding post-secondary education in programs where they benefit, i.e. ROTC scholarship programs, GI Bill, and the like. I am also not opposed to a limited, very competitive (and substantially means tested) scholarship grant program to send our brightest low/mid income kids.
So, what if you're bright, motivated, but unfunded? Cato proffers human capital contracts, where a student receives funding in exchange for a percentage of his or her income during a fixed period of time. I like this idea. I would also like to see high school students lobbying/interviewing businesses in their junior/senior year for either funded, or financial assistance, with a post-graduation contract for employment (including co-operative work/education programs).
My personal opinion is the post-secondary system is inflated in both cost and numbers. Getting smart secondary school graduates involved in both work/study earlier would be smart IMHO, and I also think it would to put more of the financial burden/liability on the student's employment. Currently it is either on the parent or future earnings.
Just a small answer to your excellent, albeit larger than I've addressed, question.