Obama Wants to Tie College Financial Aid to Performance

Obama's plan to lower college cost also encourages online education and expanded loan repayment options.

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President Barack Obama on Thursday announced a plan to improve college affordability by revamping the current college rating system to tie federal financial aid to performance, promoting accelerated degrees and online education, and tweaking repayment options for federal student loan borrowers.

[READ: Half of Outstanding Student Loan Debt Isn’t Being Repaid ]

Obama has pushed for greater college access and affordability for months: he put colleges "on notice" to keep tuition from outpacing inflation in his 2012 State of the Union speech and hinted at a push for performance-based funding models in his 2013 address. But he would be making true on his vow to "shake up the system" of higher education if his new college funding model is implemented, marking a significant shift in how the financial aid system operates.

 

"There aren't many things that are more important to that idea of economic mobility, the idea that you can make it if you try, than a good education," Obama said. "In the face of greater and greater global competition, in a knowledge-based economy, a great education is more important than ever."

Currently, most institutions receive federal aid based on enrollment, but the president's plan would tie that to college performance, based on a number of factors including how many students from disadvantaged backgrounds are served, average tuition, scholarships and loan debt, and graduation and employment outcomes.

The administration plans to begin gathering data to implement the college rating system immediately, but linking federal aid to college performance would require congressional approval and is likely to upset some colleges.

"It won't be popular with everyone, especially those who benefit from the status quo," said Cecilia Munoz, director of the White House Domestic Policy Council. "But it is also true that there are leaders in the sector who are eagerly addressing the issue of college costs and are not afraid of transparency. We want to see and encourage more of that kind of behavior in the sector."

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The ratings would be published before the 2015 academic year, and pending congressional approval, would determine the amount of an institution's federal financial aid by 2018.

Munoz said that simply making such data available, regardless of if financial aid becomes tied to the ratings, would have an impact on what happens in higher education because students and families would have more information about which colleges provide the most value.

Steve Gunderson, president and CEO of the Association of Private Sector Colleges and Universities, said in a statement he hopes the administration will work with Congress to promote accountability and transparency in all higher education institutions.

"Our institutions are the ones most able to address our nation's growing skills gap, and educate the new traditional student, so we stand ready to continue in our role as the leading innovators in skills-based, career-focused training in high-demand industries," Gunderson said.

But Rep. John Kline, R-Minn., chairman of the House Committee on Education and the Workforce, said he is concerned about the ratings system and that it could lead to the federal government controlling financial aid for colleges. "I remain concerned that imposing an arbitrary college ranking system could curtail the very innovation we hope to encourage," Kline said in a statement. "As always, the devil is in the details, and I look forward to examining the president's proposal further as part of the committee's ongoing efforts to reauthorize the Higher Education Act."

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But Obama said that a new rating system is necessary, and that many colleges put their own interests ahead of students' to get a boost in their ranking.

"Right now, private rankings like U.S. News & World Report puts out each year encourage colleges to game the numbers and rewards them in some cases for costs," Obama said. "Are they helping students from all kinds of backgrounds succeed?"