It reads to me more like Schmidt is proposing the government set up its own "US Digital Academy" so that they don't have to compete with MIT and Stanford. (I assume the model would be something like free or low tuition in exchange for a requirement to work for the government for x years upon graduation.)
I think you're probably closer to the truth there. Even if it isn't an ISA university, my first guess is that it's a way of laundering government funding to create an institution under private control. (This is how most great universities get their start anyway, it's nothing new).
I'm sure ES also has a vision for a modern university that has merit, but I'd be skeptical if it was about more free inquiry and public service - probably more alignment with industry.
Google execs often couch their plans with claims about how it's going to be good for the world, especially partnerships with the government. For instance, the takeover of Moffett field to provide a place for the founders to park their jets, as well as space for the new Google HQ.
>I'm sure ES also has a vision for a modern university that has merit,
I don't disagree with any of your points. Cornell Tech in NYC is arguably an example of reimagining things with at least a somewhat clean sheet of paper but I haven't studied it in any detail. One thing that is probably be clear is that there's too much stovepiping in universities in general. MIT's new interdisciplinary Stephen A. Schwarzman College of Computing is another example of trying to bring more disciplines under one roof.
If so they can build on established offerings like officer training programs that many countries have: get a free education at a military or civillian university in exchange for x years of service. The future of military engagements is likely to be heavily related to cyberspace, so you can enlist someone without the threat of field duty, which is likely far more attractive to many young people.
