The relationship between individualized instruction (II) and letter grades is an issue of considerable debate. Ultimately, II and the letter grade system are incompatible. Grading has been a traditional form for ranking or comparing students with respect to performance criteria. The scale typically has been A to F, whereas with individualized instruction grades are usually either A or B. Because II does not rank its students, grades are not "grades" in the traditional sense, but rather are rewards for successfully completing a learning experience. Alternatives for grading II have limitations and disadvantages similar to traditional grading practices. Therefore, it may be best to deemphasize grades in individualized instruction. To do without grades entirely, however, could lead to some student learning and motivation problems. Because the credentialling function is important in higher education, substitute procedures for that function must be developed if traditional grading practices are eliminated. Such procedures must include frequent and rapid feedback mechanisms for the student. A good case can be made for reducing the frequent and rapid feedback mechanisms for the student. A good case can be made for reducing the frequency of grading in the classroom, and in its place establishing a testing service that would occasionally examine, rank, and report on the academic ability of undergraduates. The concept is particularly suited to II, as both the testing service and II would focus upon specific instructional objectives. (DC)