[Updated (8/22/2013, 10:32 p.m.) with more detail, analysis, and reaction.]
President Obama continues his three-campus "college cost" bus tour on Friday, promoting his plans to make college more affordable through a mix of carrots and sticks.
The heart of the proposals is a controversial plan to rate colleges based on measures of access, affordability, and student outcomes, and to allocate aid based on those ratings. Under the plan, students attending higher-rated institutions could obtain larger Pell Grants and more-affordable loans.
The Obama administration and its supporters say the ratings would empower consumers with fresh information and would pressure colleges to keep costs down. They describe a "datapalooza," in which prospective students would be able to compare institutions on measures such as debt levels, graduation and transfer rates, and graduates' earnings.
"We need much greater transparency for the public. … We have to get them better information," Secretary of Education Arne Duncan told reporters traveling with the president on Thursday to Buffalo, N.Y., on Air Force One. "You want to see the good actors be rewarded. You want to see them get more resources."
Mr. Obama outlined the proposal in a speech on Thursday at the University at Buffalo, part of the State University of New York, and he planned to follow up with appearances on Friday at another SUNY campus, Binghamton University, and at Lackawanna College, in Pennsylvania.
F. King Alexander, president and chancellor of Louisiana State University, said it was "about time" the federal government linked some student aid to outcomes.
"If we don't do anything, we won't have Pell Grants anymore because we give them to anybody and everybody, whether they're good or bad," he said in an interview.
The federal government provides $150-billion each year for federal student aid, while states collectively spend $70-billion more. Most of that money is allocated on the basis of the number and financial need of students who enroll, rather than how well they do and whether they graduate.
In his speech on Thursday, Mr. Obama said it was "time to stop subsidizing schools that are not producing good results, and reward schools that deliver for American students and our future."
A 'Shame List'
But skeptics worried about the unintended consequences of the president's plan, predicting that colleges would seek to improve their ratings by turning away at-risk students or by dumbing down their standards. They urged the administration to use caution in choosing the measures it will use to judge colleges.
"You have to think about the consequences of your shame list," said David H. Feldman, chair of the economics department at the College of William & Mary. "They have to be really careful that they don't provide perverse incentives for schools to discriminate against the kinds of students" they are trying to help.
Other critics warned that some of the data the administration is proposing to use in its ratings is missing or incomplete. Federal graduation rates include only first-time, full-time students (though a more-inclusive rate is being developed), and data on graduates' earnings aren't currently available.
The Education Department plans to publish earnings information this fall, as part of its "College Scorecard," but the data are likely to be limited to student-aid recipients because Congress has barred the agency from creating a "unit record" system to track students more broadly.
"If you want to condition the receipt of student aid on this information, you have an obligation to have perfect data," said Terry W. Hartle, senior vice president for government and public affairs at the American Council on Education.
Gloria Nemerowicz is president of the Yes We Must Coalition, which represents 33 small private colleges where at least 50 percent of the students are needy enough to be eligible for Pell Grants. She said she appreciates that the president's plan would compare like institutions. But she's uneasy about efforts to rate colleges based on the earnings of their graduates.
Many of Yes We Must's member colleges are small regional institutions whose graduates serve their communities as social workers, as teachers, and in other careers that don't pay well. It's not fair to penalize colleges for that pattern, she said.
"That's not their fault," she said, "that's the social order's fault."
'Washington Needs to Be Careful'
White House aides say Mr. Obama is mindful of the risks that come with rating systems and will take the time to develop the measures in consultation with colleges. The penalties and rewards wouldn't kick in until 2018. In a call with reporters on Thursday, the aides argued that the president's plan would discourage cherry-picking by providing bonuses to colleges that graduate large numbers of Pell Grant recipients.
The proposed rating system would build upon a pair of failed presidential proposals: the Perkins Loan expansion and the "gainful employment" rule. In the first case, Mr. Obama has argued (unsuccessfully) for awarding additional Perkins Loan money to colleges that keep tuition down, provide "good value," and serve low-income students effectively.
In the second case, he issued a rule that would have ended aid to career-oriented programs whose graduates carry high debt-to-income ratios and low loan-repayment rates, only to have it overturned in court. The Education Department is reopening negotiations over the rule this fall.
The new proposal is broader than either of those plans, covering all colleges and incorporating a larger range of ways to measure success. While the administration can rate colleges on its own, linking the ratings to federal aid would require Congressional approval. In news releases issued shortly after the speech, Democrats in Congress largely embraced the idea, while Republicans worried about imposing federal price controls.
Sen. Lamar Alexander of Tennessee, the top Republican on the Senate education committee and a former education secretary, said that while performance-based financing may work for states like his, "Washington needs to be careful about taking a good idea for one state and forcing all 6,000 institutions of higher education to do the exact same thing."
In conversations with reporters, White House officials said they were confident their ideas would receive bipartisan support, noting that some states that have adopted performance-based formulas are led by Republicans. They cited the recent compromise over student-loan interest rates as a sign that cooperation was still possible.
"This should be absolutely nonpolitical," Secretary Duncan told reporters. "We should be able to work together."
Jane V. Wellman, the former longtime head of the Delta Cost Project, said she disagreed with some of the proposals but hoped that colleges and members of Congress wouldn't "cynically" dismiss them all out of hand. She said she hoped the president's speech would serve, instead, as a catalyst for states, trustees, colleges, and Congress to work together to tackle the complicated cost problem.
'A Powerful Incentive'
Amy Laitinen, deputy director for higher education at the New America Foundation, said that even if Mr. Obama could not persuade Congress to tie student aid to the ratings, the lists would still have an impact.
"It will be a powerful incentive for institutions to pay attention to outcomes," she said. "Just having an alternative to the U.S. News & World Report rankings based on access, affordability, and outcomes is really important."
In addition to the ratings system, the president's plan includes penalties for colleges with high dropout rates. To encourage students to complete college on time, the plan would require them to finish a certain percentage of their classes before receiving continued student-aid funds.
Mr. Obama's plan also offers incentives to states and colleges to experiment with cost-containment strategies. Like the president's past three budgets, it calls for $1-billion for "Race to the Top"-style grants to states and $260-million more for a "First in the World" innovation competition for nonprofit organizations and colleges.
To receive the money, states would have to sustain their spending on higher education, or seek a waiver, as they were under the 2009 federal stimulus law.
Mr. Alexander of Louisiana State University credits that law's "maintenance of effort" provision with preventing deeper cuts in state higher-education budgets, noting that 20 states dropped their education spending to just above the threshold for penalties.
Whether such a provision in the proposed "Race to the Top" program would prove equally effective in forestalling cuts would depend in part on how much money, if any, Congress provided for it. The idea didn't get any traction the first two times Mr. Obama proposed it. This year Senate appropriators included $250-million for the program—welcome money, but probably not enough to influence state behavior, President Alexander said.
Getting House Republicans to agree to a "Race to the Top" for higher education may be difficult as well. While Republicans supported a similar program for elementary and secondary education in 2009, some are unhappy with how that money has been spent.
The final piece of the agenda focuses on making debt manageable for borrowers. It repeats Mr. Obama's proposal to expand the "Pay as You Earn" income-based repayment plan, allowing all borrowers to cap their federal student-loan payments at 10 percent of monthly income. That plan might prove popular with Congress, but budget constraints, including the continued sequestration of federal funds, make its passage unlikely.
The White House said it would also do more to promote the program, by requiring the Education Department to contact struggling borrowers to make sure they are aware of their options. Some 1.6 million borrowers are enrolled in income-driven repayment plans, but experts estimate that many more are eligible for them.