The rating system, which the president wants implemented before the 2015 school year, would evaluate colleges on several criteria, including average tuition and student loan debt, graduation rates, and the average earning of graduates. Obama says he will ask Congress to link the new rating system to the way federal financial aid is disbursed, with students attending highly-rated schools receiving larger grants and more affordable student loans.
"It's time to stop subsidizing schools that are not producing good results and reward schools that deliver American students of our future," Obama told a crowd of more than 7,000 at the University of Buffalo.
Obama detailed his proposal on the first stop of a two-day bus tour through New York and Pennsylvania. The tour underscores the White House's desire to stay focused on domestic issues, even as foreign policy crises in Egypt and Syria vie for his attention.
Throughout the summer, the White House has been seeking to keep the president's public agenda centered on middle-class economic issues as a way to rally public support for his positions ahead of looming battles in the fall with congressional Republicans over the budget and raising the nation's debt limit. On Thursday, he tried to draw a clear distinction with some of his Republican opponents.
"Rather than seeking, keeping focus on a growing economy that creates good middle-class jobs, you know, we've seen a faction of Republicans in Congress suggest that maybe America shouldn't pay its bills that have already been run up, that we should shut down government if they can't shut down Obamacare," Obama said.
Obama said a big part of middle-class security includes fundamentally rethinking how to pay for higher education.
"Higher education cannot be a luxury, it's an economic imperative," he said. "Every American family should be able to get it."
The White House chose the University of Buffalo because it is part of the State University of New York system, which the Obama administration credits as a leader in affordability and innovation. The attention to school costs comes after Obama and Congress recently cooperated on a new law governing student loans. But Obama said loan amounts aren't keeping up with skyrocketing college costs.
Speaking to reporters aboard Air Force One Thursday, Education Secretary Arne Duncan said the middle class needs the security of knowing they can afford to send their kids to college.
"There's a growing sense that college is for the wealthy, for rich folks and not for hard working people who are doing the right thing every day," he said.
The president's plan aims to better inform consumers and provide incentives for colleges and universities.
"We need much greater transparency for the public," Duncan said.
According to Obama administration estimates, average tuition costs at four-year public colleges have more than tripled over the last three decades. The average student loan borrower also graduates with over $26,000 in debt.
To keep schools from gaming the ratings by enrolling only high-performing students, the president is also proposing legislation to give colleges a "bonus" based on the number of students they graduate who received Pell Grants. The goal is to encourage colleges to enroll and graduate low- and moderate-income students.
"We want to make sure it's baked into the analysis so we don't create the wrong kinds of incentives out of this rating system," Cecilia Munoz, director of the White House's Domestic Policy Council, told reporters Thursday.
The Republican chairman of the House committee that oversees education did not embrace the proposal but said he would examine it.
"I remain concerned that imposing an arbitrary college ranking system could curtail the very innovation we hope to encourage - and even lead to federal price controls," Committee on Education and the Workforce Chairman John Kline of Minnesota said in a statement.
The administration will also seek to require colleges with high dropout rates to disburse student aid over the course of the semester as students face expenses, rather than in a lump sum. The aim is to prevent wasting grant money by ensuring that students who drop out do not receive funds for time they are not in school.
Obama is also renewing his call for a $1 billion college "Race to the Top" competition that would reward states that make significant changes in higher education policies while also containing tuition costs.
The bus trip unfolds as Obama also confronts a turbulent international scene, with tensions in Egypt and continuing bloodshed in Syria. The Syrian regime was continuing a military offensive in eastern Damascus Thursday where the opposition said the regime had killed over 100 people the day before in a chemical weapons attack.
White House spokesman Josh Earnest, aboard Air Force One, defended the president's decision to leave Washington despite the foreign challenges.
"As we're weighing these domestic policy positions and foreign policy decisions, the president puts the interests of the United States of America first," Earnest said. "The fact that we are doing this bus tour is an indication that the president has his priorities straight."
The backdrop for the president's rollout will be colleges and high schools throughout New York state and Pennsylvania. He'll hold his first event Thursday morning at the University of Buffalo before traveling by armored bus to Henninger High School in Syracuse, N.Y. The president will hold a town hall Friday at Binghamton University, then travel to Scranton, Pa., for an event at Lackawanna College.
Vice President Joe Biden, a Scranton native, is scheduled to join Obama in his hometown. Biden spent much of the week in Houston, where his son Beau underwent a medical procedure at a cancer center.
For Obama, who has made no secret of his desire to get out of Washington when he can, the bus tours have become a favorite method for reconnecting with the public. Beyond his official events, the president often makes unscheduled stops at local restaurants and businesses, and sometimes pulls off on the side of the road to greet cheering crowds.
In 2011, the Secret Service purchased a $1.1 million bus for Obama's first bus tour as president. The impenetrable-looking black bus has dark tinted windows and flashing red and blue lights.
Associated Press writer Jim Kuhnhenn contributed to this report.
Follow Julie Pace on Twitter at http://twitter.com/jpaceDC