Just because we're in a fantasy universe doesn't mean that the realities of medieval Europe would not also be realistic in the game. A high rate of literacy would only exist in a society where reading and writing had much practical value (like the use we're enjoying right now for example). I don't see Tamriel being nearly advanced enough to have wide spread literacy among the commoners. Nobility? Yes. Mages? Yes. Most merchants, guild/guard leadership? Yes. But those people would only make up 2 or 3% of society. The hundreds of farmers, hunters, street urchins, soldiers, bandits, etc... don't have a need and their society surely doesn't produce the excess utility to waste years of young commoner's most productive work years sitting in desks learning to write essays and do trigonometry to then go work in a field for the next 20 years.
Anyway, my vote would be no schools except perhaps an elite school in one of the capitals where a dozen nobel children are being educated be a private tutor.
Except those realities are
not realistic in this game, as it has already been demonstrated in previous titles that the people of Tamriel are, on average, at least passable literate. The prevalence of books and printing presses, the tendency of characters to keep written journals or pass instructions along in written form, the way in which people generally take literacy for granted when communicating to each other are
clear indicators that no, this is not medieval Europe; no, we don't need to factor in every aspect of that era and society; yes, the people of Tamriel are literate on a widespread scale.