Saeviomagy
Adventurer
To me making illiteracy widespread among PCs (ie - incurring any sort of cost to be literate, or just making illiteracy the default) risks too much. There are so many adventure scenarios that require at least one literate party member.
Additionally there are so many abilities that PCs can have that would require them to also have literacy, which would make such a system a tax on particular skills and abilities.
That said - if departing significantly from basic D&D, it's entirely workable.
But in general - it's a giant pain for minimal benefit (really - you're playing D&D. literacy statistics should be far from your mind most of the time).
Additionally there are so many abilities that PCs can have that would require them to also have literacy, which would make such a system a tax on particular skills and abilities.
That said - if departing significantly from basic D&D, it's entirely workable.
But in general - it's a giant pain for minimal benefit (really - you're playing D&D. literacy statistics should be far from your mind most of the time).