First, I’ve never been impressed with government ability to pick winners and losers (NIH and NSF are such successful agencies precisely because they emphasize peer review). Second, as Tyler Cowen pointed out, there will be colleges that game the system–just as they do with the US News ratings today. Third, in my opinion, the underlying problem is the macro-withdrawal of state support for the public institutions that used to be the core of affordable higher ed. This withdrawal is what has generated the large increases in tuition–this contrary to much of the conventional wisdom on this issue. The Obama higher ed plan without any substantive change in state support creates a zero-sum game for the colleges, but it’s not going to be able to magically solve the problem.
Finally, I can’t conceive that this plan will be able to make its way through the paralyzed Congress–at least now.
So I’m skeptical.