Update: I have added comments from Education Secretary Arne Duncan and University of Texas at Austin President William Powers.

President Obama on Friday proposed that the federal government take the lead in curbing the rising cost of college by rewarding colleges that keep tuition down and punishing those that do not.

President Obama delivers remarks on college affordability at the University of Michigan in Ann Arbor, Mich. Jan. 27, 2012. (JASON REED/REUTERS)

Speaking at the University of Michigan, Obama laid out a plan to divert federal aid away from colleges that enact excessive tuition increases, and toward those that set “responsible” tuition policies.

But judging colleges on their affordability may not be as easy as it sounds.

According to a White House fact sheet, the president’s proposal would reward colleges that set “responsible tuition policy,” either by “offering relatively lower net tuition prices” or “restraining tuition growth”. Colleges would be judged on two other factors: how well they prepare graduates to get jobs and repay student loans, and their performance in enrolling and graduating low-income students.

Colleges that do poorly on these measures might lose federal aid.

The aid that colleges stand to lose under the president’s plan is not the Pell grant, the largest source of federal funds to students, but rather a package of “campus-based” programs that the federal government delivers to colleges. They are Federal Work Study, an initiative that subsidizes the expenses of campus jobs for needy students at 3,400 colleges; Supplemental Educational Opportunity Grants, a supplement to the Pell grant that awards needy students $100 to $4,000 a year; and the Perkins loan program, which delivers low-interest loans to students.

Obama is proposing to expand all three programs to the tune of about $10 billion — enhancing the Perkins program from $1 billion to $8 billion and augmenting Work Study and Opportunity Grants by a combined $2 billion.

It may come to pass that colleges penalized under the president’s plan don’t actually lose any money but are denied their share of the $10 billion in new funds.

Much of the plan would require congressional approval, so its prospects are uncertain, with the Republicans in control of the House and able to block legislation in the Senate.

The plan is a form of performance-based funding. Many in the higher education community support the notion of somehow tying government aid to college performance, such as completion rates.

“Tying the method of funding to the outcomes we’re looking for is a positive development,” said William Powers, president of the University of Texas at Austin.

Reaction from the higher-education sector Friday focused on how the federal government might determine whether a college has a responsible tuition policy.

The administration might, for example, dictate an upper limit on annual increases - - say, 3 percent.

But such an approach “does smack of price controls,” a technique the public might view as intrusive, said Molly Corbett Broad, president of the American Council on Education in Washington.

Sector leaders question the underlying assumption that college tuition is spiraling out of control.

College tuition has risen by 5, 6, even 8 percent a year over the past two decades. But that’s sticker price. The president says he will focus instead on “net” tuition, which accounts for grant and scholarship aid. Net tuition rises at a much slower rate than sticker price, because colleges direct a large share of tuition revenue into student aid. Over the last five years, according to the College Board, sticker price rose an annual 5 percent, but net price rose an average 1.4 percent.

An across-the-board cap on tuition increases “favors expensive institutions,” said Terry Hartle, senior vice president of the American Council on Education.

For a college with $40,000 tuition, a 3 percent increase amounts to $1,200. But for a school with $10,000 tuition, 3 percent adds up to just $300.

Public institutions charge far less than private institutions, and that is one reason why the public sector has witnessed more dramatic tuition increases in recent years.

Let’s cite one locally famous example: in 2010, Virginia Commonwealth University raised tuition by a whopping 24 percent. The school, like all Virginia public institutions, was facing a gaping budget shortfall because of dwindling funds from its state. That increase brought VCU tuition to $8,817 for Virginians, hardly a king’s ransom.

The president’s proposal, as written, “appears to penalize institutions that have had very low tuitions in the past,” Hartle said.

The fine print suggests, though, that the Education Department might be planning to look at other factors than tuition increases. A public college whose net tuition is lower than what its peers charge in other states might be forgiven for raising tuition.

“A university that has a $9,000 tuition is really doing a better job than a peer institution that has a $12,000 tuition, whatever the tuition increase,” said Powers of UT, an institution whose tuition remains under $10,000.

The VCU example raises another concern: Should public universities be penalized for tuition increases in states that have retreated from subsidizing public higher education?

Legislatures in Virginia, Texas, California and several other states have steadily chipped away at state contributions to higher education since the 2008 downturn. Colleges in those states have responded by raising tuition in rough proportion to the cuts.

The University of California system, for example, raised tuition by 32 percent in a single year - - not as an act of irresponsible tuition policy, but in response to a massive cut in state aid. Public university systems don’t generally raise tuition for any other reason than to balance their budgets.

Tuition rose by 7 percent this fall at U-Mich., the campus where Obama spoke. The school faced a 15-percent hit in state funding this year.

“I think it simply is impractical to punish without taking into consideration state appropriations,” said Peter McPherson, president of the Association of Public and Land-grant Universities. “I mean, what would you do in California now? What would you do in Texas and Michigan?”

An Education Department source, speaking on condition of anonymity, said it was too early to divine the details. In any case, he said, sector leaders such as McPherson and Broad would be consulted before any policy went forward.

Education Secretary Arne Duncan, speaking on the record this afternoon in a conference call with reporters, assured the audience that the federal government has plenty experience in calibrating its accountability programs so that they are fair. He invoked No Child Left Behind, the law that has rated elementary, middle and high schools according to student proficiency.

“We’ve gone through similar challenges on the K-12 side,” Duncan said.

But there is a prevailing skepticism in higher-education circles that the president’s carrot-and-stick tuition plan will go forward as proposed, for the simple reason that it would create the appearance that the president was punishing low-income students along with their colleges.

“Ultimately, who you are punishing with this is the students,” said Haley Chitty, spokesman for the National Association of Student Financial Aid Administrators. “They’re the ones who get this aid.”