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PHOENIX -- Students now in eighth grade would get free tuition at state colleges and universities if they maintain a B average under a proposal Monday by Gov. Janet Napolitano.

The governor, giving her sixth State of the State address, acknowledged the state's current budget deficit. And she said the shortfall in tax revenues prevents her from proposing extensive new programs at this time.

"But we can look to the future,'' she told the Legislature. Napolitano said lawmakers should "make a contract'' with the Class of 2012 -- and those beyond -- that if the maintain good grades and "stay out of trouble'' they will not have to pay tuition.

In the interim, Napolitano wants next year's freshman class at the state's three universities to have a guaranteed tuition for their entire four years.

At this point, only Northern Arizona University will be offering that. Arizona State University is proposing a cap on year-over-year increases; University of Arizona President Robert Shelton rejected the idea last year when the Board of Regents set tuition for next year.

Napolitano also renewed her request from last year that lawmakers require that students stay in high school until they graduate or turn 18; now students can leave at 16.

The governor also apparently has given up on her plans to expand state-subsidized health care for the children of the working poor and middle class -- at least for the time being.

Current law provides free care for all families below the federal poverty level, currently $26,650 for a family of four. A separate program, known as Kids Care, provides nearly free care for the children of those earning twice as much.

A proposal by the governor last year to raise that to three times the poverty level went nowhere.

This new plan enables parents whose families are not eligible for Kids Care to buy coverage at the state's cost. Gubernatorial press aide Jeanine L'Ecuyer put the figure at between $150 and $180 a month.

On the private sector side, Napolitano wants to mandate that all insurers continue their coverage for a family's unmarried children until they turn 25. Now, some companies drop coverage when children reach 18 or 21, or link continued coverage to a child being a full-time student.

Napolitano also acknowledged the home mortgage crisis that is at least one cause of the state's current deficit. She asked lawmakers to approve new laws that protect homeowners who have fallen behind in their mortgages and decide the best course of action is to sell the equity they have in their homes. Napolitano said some of these "equity purchasers'' who "prey on vulnerable homeowners and use deceptive practices to cheat their out of their homes.''

Along the same line, Napolitano wants the state to license loan officers.

At least some of the blame for the subprime mortgage meltdown has been that loan officers put home buyers into financial obligations which are not suitable and which the borrowers are unlikely to be able to make future payments.

Napolitano said licensing would require that loan officers be experienced and educated. And licensing would enable the state to revoke their permission to stay in business if they act unethically.

The governor also wants some changes to the law approved last year which allows a judge to suspend or revoke any state licenses of a firm which knowingly hires an undocumented worker.

She specifically wants to require that people who file complaints against a company be identified "so that law enforcement does not have to waste resources chasing down anonymous calls from malicious competitors or disgruntled employees.'' While some counties already do that, both Maricopa and Cochise county officials have said they will accept anonymous complaints.

The governor also put in a push for lawmakers to approve her agreement with the U.S. Department of Homeland Security to create a "3-in-1'' license that could be used not only to drive but also as proof of citizenship to get across the border and proof of the legal right to work in this country.

Several lawmakers have objected to the measure, particularly plans to include a microchip which would contain a unique identification number that could be scanned to link officials with any person's data. But Napolitano stressed that obtaining the license would be voluntary.