Obama Proposes College Aid Changes during Speech in Mich.

ANN ARBOR, Mich. - Seeking to control spiraling college costs, President Barack Obama is proposing tying federal student aid to universities' tuition rates and the value they provide graduates.

The plan would affect three programs that provide institutions with student aid -- Supplemental Education Opportunity Grants, Perkins Loans and Work Study. Under the current formula, schools with the highest tuitions get the most money, because the programs help fill the gap between what students can afford and what they are charged.

Obama would change that by rewriting the formula so that schools that keep tuition down and that provide "good value" would be rewarded with more money. The White House didn't say exactly what would constitute good value but said the new formula would include measures such as graduation rates; that's in contrast to the current formula, which rewards longevity in the program.

The changes, which Obama announced at the University of Michigan on Friday, would need congressional approval.

"Students will receive the greatest government grant and loan support at colleges where they are likely to be best served, and little or no campus aid will flow to colleges that fail to meet affordability and value standards," the White House explained in a fact sheet.

College officials have been nervously awaiting details of the program since Obama announced in his State of the Union address on Tuesday that he would propose tying federal aid to tuition.

"Let me put colleges and universities on notice: If you can't stop tuition from going up, the funding you get from taxpayers will go down," he said.

It is unclear what sort of reception these ideas will get in Congress. Some have complained in the past that increasing federal aid gives colleges an incentive to increase tuition. This proposal would address that concern.

In addition, Obama is proposing to double the work-study program's $900 million budget and to increase the capacity to make more Perkins Loans, which doesn't cost the government money but provides more financial aid. He would increase the loan program to $8 billion a year from about $1 billion.

The White House is also proposing to keep Stafford-loan interest rates at 3.4 percent. Under current law, they are expected to double to 6.8 percent this summer. An administration official said he didn't know what the cost of that change would be.

Separately, Obama is proposing a $1 billion annual Race to the Top challenge program for public colleges, providing funding to states that maintain "adequate levels" of funding for higher education and align their college requirements with their K-12 standards. This, too, would require congressional approval.

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