I don't think that is a good idea, because it encourages colleges to dumb-down their curriculum so that more students can "graduate".
Students don't have to graduate to learn something from the college courses they do take.
Often, failure to graduate has more to do with financial resources and life situations than any intellectual deficit or failure on the part of the college. Many students can't afford to pay for four years of college and drop out when they run out of funds. Lower tuition prices would help the money go a little further, but if the state is cutting college financing for whatever excuse, then tuition prices go up for all students. Female students may suddenly be forced to care for a child, so are not able to continue their education, but some years later may be able to complete what they started. The education they do get is not wasted. "There is no such thing as useless knowledge...."
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Don't make students take classes they don't need in order to charge them more $. Degrees are expensive enough
So bad performing schools can do worse, what a genius idea. How about focus on teachers records, and replace those who constantly fail to deliver.