"Many states need better indicators for public institutions for accountability, workforce initiatives and other policy concerns," the report states.
Information for individual students could be broken down in any number of ways, allowing policy-makers at the state and national levels to analyze statistics for specific states, schools or even areas of study.
All public and private universities would have to submit their student records to NCES, just as they now are required to provide summary data for IPEDS in order to maintain eligibility for federal financial aid.
The ambitious project would initially put a greater burden on schools and could require comprehensive restructuring of computer systems at some institutions.
"The first year of any system change is difficult," the report states. "NCES would field test the (new) collection system, but some bugs may be missed."
Critics, particularly lobbyists for private colleges, contend that the new method of collecting data on individual students could pose a risk to privacy.
Sarah Flanagan, vice president for governmental relations and policy development of the National Association of Independent Colleges and Universities, expressed concern about such a large database in the hands of a government agency.
Having information on individual students - as opposed to individual schools - will make the new system a more tempting target for security violations and political pressures, she said.
"We don't question the security of the current system, but there's not a lot of data in there that people want," Flanagan said.
"If you create individual student records, there is going to be a lot of interest in that."
Officials at the Department of Education say all data will be kept secure, even from other federal agencies.
"NCES has a long history of protecting students' data," the review panel stated. "It is a Class E felony, with a $250,000 fine and a five-year jail term, for NCES to allow a disclosure of individual data."
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Officials noted that universities already turn over student data to the Internal Revenue Service for tax purposes, and individual records are kept on every student receiving federal financial aid.
Any change would depend on an amendment to the Higher Education Act, which is up for reauthorization in January.
If Congress approves the measure, officials hope to conduct a field test during the 2006-07 academic year and fully implement the new system by 2007-08.
But Flanagan said she questions whether more detailed information actually will lead to better public policy.
"We believe we know enough about it already that you can make good policy decisions," she said, adding that states with individual record systems haven't necessarily shown an improvement in higher education.
"This will certainly tell us more; there's no question," she said. "I'm quite certain it's not worth giving up students' privacy to accomplish it."
Contact the State & National Editor at stntdesk@unc.edu.