HIGHER EDUCATION IS both crucial to America’s economic competitiveness and hard for many students and their families to afford. Annual tuition and fees rose $1,800 over the past five years at public four-year institutions and $3,730 at private schools, according to the College Board. Net tuition, after factoring in financial aid, held steady over that period, but that shows only that rising costs ate up most of the additional federal, state and private scholarships.

As President Obama quite rightly insisted in his State of the Union address, institutions of higher learning must do more to hold down their costs if college education is to remain affordable for the next generation of young people. What’s more, he’s talking about using the federal government’s financial clout to encourage cost containment.

Mr. Obama is hardly the first politician to make this point. In 2003, Rep. Howard P. “Buck” McKeon (R-Calif.) proposed linking tuition increases to the rate of inflation, with violators risking the loss of federal student aid. The idea went nowhere amid cries of “price controls” from the higher ed lobby.

Indeed, Mr. McKeon’s bill was a blunt instrument — too blunt, in a world where colleges must cope with rising costs for health care, energy and personnel, just like other large organizations. Many tuition increases in the past couple of years were forced on public universities by state budget cuts.

Still, federal aid has had the perverse effect of enabling tuition hikes, and there is plenty of room for savings that would not affect educational quality. The State of Connecticut’s Board of Regents for Higher Education, for example, has just identified and cut 24 redundant administrative positionsthat paid an average salary of $141,000. Nor have institutions remotely exhausted the possibilities for savings from the creative use of technology, flexible scheduling or more intensive use of existing facilities.

Mr. Obama is proposing long-overdue reforms to existing formulas for distributing hundreds of millions of dollars in campus-based aid, such as Perkins loans and work-study funds. Current policy skews in favor of better-off students at relatively pricier colleges. The president wants to shift dollars in favor of schools that restrain tuition and graduate more low-income students. Meanwhile, he would establish a $1 billion fund to encourage cost-saving innovations, complemented by $55 million for research, evaluation and dissemination of the best practices. (Disclosure: The Washington Post Co. owns Kaplan University, which provides higher education on campuses and online.)

Needless to say, a lot depends on how the president and Congress would end up defining what constitutes a good value in higher education. The task is no less challenging than establishing valid “metrics” for K-12 schools. But it is also no less necessary. What’s important is that the president has put the prestige and power of his office behind this effort.