Balance of Power

Under the current system for distributing federal campus-based aid, institutions that increase tuition automatically receive more money from Washington. Duncan says this sends the wrong message and plans to ask Congress for changes to the formula for distributing federal Perkins loans that would reward those colleges that provide more need-based aid and keep tuition charges in line.

Duncan conceded that some colleges have been forced to raise tuition to cope with budget shortfalls, but remains concerned that education is getting overpriced on many campuses because of relaxed standards for distributing federal aid.

He suggested that some schools could price themselves out of existence in the current economic climate, by prompting parents to seek more cost-effective alternatives. But he added the government has a legitimate role incentivizing innovation and providing financial perks to those colleges that keep tuition at affordable levels.

"We want to put more money on the table to reward people who are doing the right thing," Duncan said.

Duncan is fighting other battles surrounding federal student loans, including lobbying for a plan that would halt the practice of providing subsidies for new, guaranteed loans made through the Federal Family Education Loan program. Instead, the federal government would make all new student loans directly, although private lenders could compete to service the loans.