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This is true. I had to clear an 'entrance examination' to prove my aptitude in engineering. But the problem is the people who would benefit the most from free education (at the lower social/income strata) will most likely have poor aptitude for high-income potential professions as well, because of poor primary and secondary schools they would have had access to. I know that some institutes take such students and provide one year of remedial education before providing an engineering education. They will take one more year to graduate, but overall a win-win situation.

Do they have the problem of vastly differential funding between local schools in 21st century Germany?

In the US some public schools are vastly better than others even when they receive similar funding. Quality of the local schools is a significant factor in home prices.

As an example, I saved about 20% on my house by buying in the zone for a lower-quality school.

Not when I grew up ~10 years ago

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