Putting aside the fact that this is a pretty unlikely policy change, here's some outcomes I see from that insofar as your 529 is concerned:

1) Commensurate change in 529 policy, either allowing withdrawals without penalties, rollover to retirement vehicles, or some kind of tax credit carry-forward. By the way, currently, if your kid gets a scholarship, you can withdraw the amount of the scholarship without penalty.
2) Program is means-tested, and you having $250k set aside disqualifies you/your kids (or greatly reduces the benefit) such that you have to use it anyway
3) Universities reorganize cost structure such that this program just pays for the education part. Things typically associated with the "full college experience," sports, clubs, other amenities like that, aren't covered by the program, you have to pay out of pocket for these enhancements (something similar to how health care is done in countries where it's completely paid for by the government, where you get a cottage industry of amenity services whose fees are covered by the users, not the government).

As an aside to (3), you can already see how this might come to pass in the way that the current 529 is structured. You can use that money towards off-campus housing, so long as the cost of that housing is in-line with what the university would charge for its campus housing program. If you had the money to float it, you could do something like buy a condo/townhouse in town, and charge your kids rent (hell, their roommates too). The rent payment exits your 529 account by way of your kids and returns to you.