Aug. 21 (Bloomberg) -- Private colleges may price themselves out of the market if they don’t hold down tuition increases, U.S. Education Secretary Arne Duncan said.

Parents and students will choose among universities offering “no-frill campuses” and three-year degree programs over those whose prices “get out of whack with reality,” Duncan said in an interview on Bloomberg Television’s “Political Capital With Al Hunt,” airing today.

The average tuition at private four-year colleges increased 5.9 percent to $25,143 in the 2008-2009 school year, according to the New York-based College Board. “At a time when going to college has never been more important, it’s never been more expensive,” Duncan said.

Private colleges raised tuition an average of 4.2 percent for the coming school year, the smallest increase in 37 years, said Tony Pals, a spokesman for the National Association of Independent Colleges and Universities, a Washington-based lobbying group that represents 955 schools.

Duncan, 44, the former head of Chicago’s public schools, is using $100 billion in stimulus funds as leverage to reshape U.S. education. More than $30 billion is for higher education, with most of the rest going to public education in kindergarten through high school.

‘Dramatic’ Reforms

States should use the stimulus money to spur “dramatic” public-school reforms that will improve teacher quality, raise academic standards, transform failing schools and improve data systems to track student progress, Duncan said.

“This money will be gone over the next two, three, four years,” Duncan said. “We’re trying to push, with this money, the kind of reform that will last for the next several decades.”

More than $55 billion of the $100 billion had been allocated as of Aug. 14, and $13.6 billion had been paid out, Education Department spokesman Justin Hamilton said yesterday in an e-mail.

Some of the money is being used to prod school districts to set a “very high bar” for charter schools and hold them accountable for student performance, Duncan said. Charter schools operate under contracts with districts and are exempt from many rules that govern traditional public schools.

“When you pick the best of the best, when you give them clear autonomy and clear accountability, we’re seeing great things happen,” Duncan said of charter schools.

Teacher Pay

Duncan and President Barack Obama also are pushing schools to link student achievement to teacher pay. States barring the use of student-performance data in teacher evaluations would be ineligible for $4.35 billion in competitive stimulus grants, known as Race to the Top funds, under guidelines Duncan and Obama proposed last month.

“Somehow in education, we’ve been scared to talk about excellence,” Duncan said. “I think that has to change.”

Most of the education money will go to states under a noncompetitive formula set in the stimulus legislation. Duncan said he’ll award the competitive grants, including Race to the Top, to “a relatively small number of states and districts that are going to lead the country where we need to go.”

Former House Speaker Newt Gingrich, a Republican, and Reverend Al Sharpton, a Democrat, plan to join Duncan, starting next month, on a tour of four cities to field suggestions for improving U.S. schools.

“Quite a team, isn’t it?” Duncan said. “If there is anything, as a country, we can come together behind in a non- ideological manner, it’s behind education.”

College Graduation

Obama has called for the U.S. to have the world’s highest percentage of college graduates by 2020. The administration will fund initiatives to help more students finish college in addition to programs that help them afford it, Duncan said.

Most private four-year colleges will meet their enrollment goals for the coming school year, in part because the Obama administration has increased federal financial aid, Pals said.

“Students continue to vote with their feet and our institutions have maintained their market share over past 20 years,” Pals said. Information technology and insurance, including student health care, are the fastest-growing costs driving up tuition, he said.

Duncan, a former Harvard University basketball player, partially ducked a question about college football’s championship system. Duncan noted that Obama has said the National Collegiate Athletic Association should replace the Bowl Championship Series with a playoff system to determine the national champion.

“I’m not the expert on this,” Duncan said. “I know the president thinks they should, so I think I’ll follow the president.”

To contact the reporter on this story: Molly Peterson in Washington at mpeterson9@bloomberg.net

Last Updated: August 21, 2009 00:00 EDT