Obviously admission requirements will have to change.
My understanding of levels is like the Euler challenge.
http://projecteuler.net/index.php?section=problems&page=...
For example, leveling up in Calculus would be about solving problems, putting calculus into practice, writing a project using learnt concepts.
Determining if a student has leveled up is easy, they just do. They solve the problem they're given, they complete their projects.
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The idea of customized education, choosing levels and perks and having a clear organization of how things are connected e.g how many levels do I have to complete before I can do project X or understand concept Y
Levels can help understand associations between subjects. Student would build mental models of how things are connected instead of applying formulas on equations like calculators.
I never understood why some subjects were more important than others. You could live your entire life without understanding physics or economics.
When it comes to education, I would rather take choice and exploration over enforcement and standardization.
PS: Reply to your comment is the first part. The rest is just my plug