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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]