I think this is a great option, especially for business/technology majors. I am quite surprised that only few colleges have this program. I've met a lot of employers who love this. A co-op, being longer than just a summer internship allows students to really learn from the industry and employers get an good idea about the students as well. This leads in full-time offers in most cases as they're familiar with each other by now and know if they want to work together. It also saves a lot in hiring costs for companies.
Hey, I wish this were a reality today. Of course, the question is if students don't pay for their first year, who will? I don't think forgoing an entire year's tuition is feasible for the cash-strapped public universities today.