You have some really long winded sentences. Try splitting them into 2 or more sentences. When I read a long sentence like these I find it hard to stay focused because there is no pause for to absorb the info.

Examples of long sentences:

Actually you're not the first person to tell me that, haha.
Thanks for pointing that out.

Try to find a specific person to send it to. "To whom it may concern" is lazy.

I would write it much more actively, and personlize it for each company. I sent out cover letters like this, but longer, when I was looking for employment after college and I got really great results. I would wait to discuss the reference requests and stuff until later. They might ask about payment and why you are free, and that would be a good time to bring it up. Otherwise, I would just move forward with the assumption that if my work is good when I request a reference they will give it to me.

Something like:

Dear Mr. Smith,

My name is Joe Black. I am a graphic design student at Blah Blah University. I am interested in offering my design skills to your organization free of charge. My skills include (whatever... business cards, brochure design, large signage, and web design). I feel that I would do a great job creating (whatever... promotional items) for your company because (I am skilled at what I do and here is my portfolio, AND/OR, I really care about pets/kids/old people/disease/whatever their organization is). Please let me know if you have any questions or concerns, and if there is anything I can get started on right away. I will give you a call next week to confirm the information and clarify any questions you may have.

I'm looking forward to speaking with you next week. Thanks so much for your time.

Best regards,

Joe Black
joe@joeblack.com
www.joeblack.com
405-377-3204

Wow, thanks Jessica. I like your layout a lot better than mine so I think I'll make mine more active like you said.

Also, one of my best friends is named Joe Black, hahaha.

I'd be kind of weirded out if someone offered me something for free with no explanation as to why it was free. If someone knocked on your door and offered to cut your grass for free, how many people would say "oh yes please" and how many would think "what the hell is wrong with this person and should I call the police?" Bit of an extreme example, but you should at least say that you are offering your skills without charge to gain more experience in the market prior to graduation or something.

Haha yes I agree. I was still going to reference that, but make it more active in a "do you have anything to get started on?" "I'll call you next week" type of way.

I know that you don't have a full portfolio (that's why you're seeking out unpaid work), but you may want to include a URL where the recipient can check out samples of your work or enclose a sheet with sample designs.