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Duncan: Here's how to get more bang for your college bucks

The White House plan for a new college rating system would eventually determine where federal student aid dollars would be allocated, Education Secretary Arne Duncan told CNBC on Thursday.

With federal student loan debt over $1 trillion, President Barack Obama is explaining the plan over the next two days during a campus bus tour through New York and Pennsylvania.

(Read more: Obama to 'shake up' colleges on costs)

"Ultimately, we want to help to move financial aid towards institutions that are doing a fantastic job of helping young people pursue their dreams and be successful," Duncan said in a "Squawk Box" interview.

"Tuition at a public four-year college increased 257 percent over the past 30 years." -The College Board

The not-for-profit College Board estimated that tuition at a public four-year college increased 257 percent over the past 30 years to $8,655, while average incomes for families making between $48,503 and $75,000 only grew 14 percent.

The idea behind the rating system to be created before the 2015 school year would be to quantify where "young people [can] get good value for their education," Duncan said.

"Where are colleges keeping costs down? Where do they have good graduation rates? Where are they doing a good job in terms of job placement? Are schools doing a good job serving the middle class and serving low-income students?"

In a fact sheet released by the White House, the particulars of the plan were described:

"In the upcoming reauthorization of the Higher Education Act, the President will seek legislation allocating financial aid based upon these college ratings by 2018, once the ratings system is well established. Students can continue to choose whichever college they want, but taxpayer dollars will be steered toward high-performing colleges that provide the best value."

"We at the federal level need to invest in [making] higher education more affordable. It's the best investment we can make," Duncan told CNBC. "But to be very clear, we can't do it by ourselves. States have to invest."

He also put the onus colleges and universities: "[They] have to do a better job of containing their costs and focusing not just on access but on completion as well—getting that diploma on the back end."

By CNBC's Matthew J. Belvedere. Follow him on Twitter @Matt_SquawkCNBC.

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