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Obama's college rating system challenges U.S. News

(MoneyWatch) President Barack Obama took a bold step Thursday to shake up the insular world of American higher education by proposing a college ratings system that could do what U.S. News' controversial ranking never has -- make schools more affordable and accountable to their students.

Obama decries the "soaring cost of higher education"
Obama decries the "soaring cost of higher edu... 01:37

Under the president's proposal, the federal government would institute a federal college performance rating system by 2015 that would steer families to schools offering the best value. The government would evaluate schools on numerous criteria, such as average tuition, student debt burden, graduation rates, percentage of students getting loans for low- and middle-income students, and graduates' earnings.

Equally important, the U.S. would eventually tie student financial aid to a school's value as measured by the federal ratings. Congress would need to authorize the financial aid shift.

Mr. Obama's ratings proposal could force colleges to get serious about holding down costs and graduating more students because federal aid would be tied to the value a school provides.

In contrast, U.S. News' college rankings effectively rewards schools for profligate spending, critics say. The magazine gives points to schools for sinking ever more money into their facilities. But colleges and universities are not downgraded if such spending is passed on to students and if students graduate with large debt loads. 

Mr. Obama's move comes amid mounting criticism that schools, especially top institutions, have been unable or unwilling to rein in prices, which have risen faster than inflation for decades. Compounding the problem for many families is that income has stagnant since the 1980s.

Meanwhile, over the past 30 years tuition and fees for four-year public universities has increased 257 percent, according to the College Board. In comparison, according to government figures, wage have only risen by 16 percent.

The federal government may be in the best position to help make college more affordable because it is the biggest provider of financial aid. Every year the U.S. pumps more than $150 billion into the higher-ed pipeline while states kick in roughly $70 billion.

The government has historically dispensed financial aid, which many schools depend on for their existence, without expecting much in return beyond a good education for America's youth. For instance, billions of dollars in  Pell Grants and other federal loans flows through schools with a poor record of graduating students. There is little financial incentive for schools to change.

While the president's plan would reward schools that do a better job of educating low- and middle-income students, U.S. News favors schools that dote on wealthy students. Before the publication's rankings became so prominent, rich students typically had to pay full price for college. The majority of grants were reserved for students from more modest backgrounds who required financial help.

With the rankings premium linked to top students, however, public and private institutions began offering merit scholarship to entice high-performing, wealthier students to their campuses rather than to their competitors. That has meant less financial support for students who need help to cover their college costs.

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