Fast Company

President Obama Introduces Performance Funding for Colleges

The administration plans to use data to drive down college costs.

In a speech at the University of Buffalo this morning, President Obama is outlining a new, data-driven plan to tackle rising college costs. It's simple, but somehow revolutionary: The plan directs taxpayer money to the colleges that are most effective at graduating students affordably.

When you look at the simple equation of money + students = degrees + debt, there are three broad groups of colleges:

1) Expensive, highly selective schools: Ivies, Berkeley, flagship state schools, small liberal arts schools admit around 10% of all college students, charge them a lot of money, and do a great job graduating them, sometimes with a lot of debt (NYU) and other times, if they have large endowments and good financial aid policies, with little debt (Princeton). These colleges, however, do a terrible job recruiting poorer, yet highly qualified students.

2) Less selective publics and community colleges These institutions admit most of the students, charge them a fast-increasing amount of money, (up 250% over three decades) and do a so-so job of graduating them, with large amounts of debt.

3) For-profit, online colleges These schools admit 10-13% of the students, charge them higher prices than publics, and have awful graduation rates. More than half of the students leave without a degree, and for-profits account for nearly half of all student loan defaults.

Today, President Obama proposes to develop a performance rating system for all colleges that takes each of these factors into account. Once the rating system is established, he wants to actually put some teeth into it, by driving federal student aid dollars to the colleges that do the best job graduating students at an affordable price, while disqualifying the dropout factories. What a concept!

[Image: Flickr user White House | Photo by Pete Souza]

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3 Comments

  • foxface

    Since when do online schools admit 10-13%? If you look on College Board, you will see that most schools admit way over 10-15%, even very selective schools. Boston University, Boston College, Tulane etc. Do these not count? And what of their aid. Show me the sources for these admission rates. 

  • Anthony Reardon

    Better, but...yawn...still too boring.

    Maybe if you work with the pro's at MIT, then you get a value worth paying for. Otherwise, pretty much everything in the education system can be packaged online, delivered free and ongoing to citizens, and we're probably talking single digit percentage of taxpayer money going out to these institutions today. I'm a huge fan of MIT Open Courseware so why not put our money there, and let the rest innovate to sink or swim on their own merits. As it is, they get paid either way. If they can't figure out how to make it out in the real world, what good are they for our kids?

    Best, Anthony