You did not read this right.  This is about a tax exemption on the payment of student loans, meaning people would be able to deduct the full amount they paid on their student loans in a tax year from their adjusted gross income.  They would, however still be paying back their student loans.  It would simply ease their tax burden or bring them a bigger state refund but it would by no means be like providing free tuition. 

All that being said I do not yet know if I support this bill and I agree with your concern of schools continuing to raise tuition at their every whim.