If the legislation passes, students who complete two years of college will receive $4,000 in financial aid.
"We want to put that carrot out there, and say to every child in Michigan, 'we are determined that you succeed'," Gov. Granholm said Wednesday.
The new merit scholarship would require students to earn an associates degree at a Michigan community college, achieve junior standing at a 4-year Michigan college or university (public or private) or complete an equivalent technical or career training program.
"If they earn the right, if they work hard, they'll have money waiting for them to get their degree, a degree that would sustain a good quality of life forever," said Lansing community College president Paula Cunningham.
There are also requirements at the high school level. Students must complete 40 hours of community service, take the high school assessment test, and of course earn a high school diploma or its equivalent.
But the legislation will meet some opposition. Many Republicans feel the money should be used to get into college rather than to stay in college.
"If the general principal is to reward past performance, then I think we can't set new criteria," said State Senator Wayne Kuipers (R-30th).
Sen. Kuipers and other Republicans said the money should continue to be available at the front end of college. But the governor says restructuring the merit scholarship so that the money comes after two years will offer incentive for students to complete college.
"I don't agree with that," said Kuipers. "We have to get the money in the kids hands when they're preparing to go to college."
If the legislation passes, the first students eligible would be the high school graduating class of 2007.