Yes, going fare-free can make transit better
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There are also indirect links. Transit riders are also citizens, who can lobby for better transit. At the same time transit has a lot of indirect advantages. When moving from cars to transit, there are less cars on the road, which means less lanes are needed, which then reduces cost.
As for allowing certain groups to ride free, just add it on top of existing systems or make guidelines easy. Say if you get some social security benefit, you get a transit pass as well, everybody under 18 can ride for free given they show some ID or maybe students can use their university ID to use transit.
Edit: Also free transit makes transfers easier.