WASHINGTON - President Barack Obama is set to announce on Friday a competition for $4 billion in federal grants to improve academic achievement in U.S. schools, the Washington Post reported on Thursday.

Obama wants states to use funds from the competition, dubbed the Race to the Top, to ease limits on so-called charter schools, link teacher pay to student achievement and move toward common U.S. academic standards, the Post said.

Charter schools receive public funding but generally are exempt from some state or local rules and regulations. They are operated as an alternative to traditional public schools.

What we're saying here is, if you can't decide to change these practices, we're not going to use precious dollars that we want to see creating better results; we're not going to send those dollars there, Obama told the Post in an interview.

And we're counting on the fact that, ultimately, this is an incentive, this is a challenge for people who do want to change, Obama said.

Obama is scheduled to speak at the Department of Education on Friday.

The Post reported that the $4 billion education grant program was created under the $787 billion economic stimulus plan passed by Congress and signed into law by Obama in February.

The United States has one of the worst high school dropout rates in the industrialized world, and its students often rank below those in other Western nations in reading and math.

Obama has portrayed the drive to improve education as part of a broader push to promote economic growth in the face of a deep recession and the worst U.S. financial crisis in decades.

(Writing by JoAnne Allen; Editing by Will Dunham)