WASHINGTON, July 21 (DC Times Online) — The U.S. Department of Education has finalized a rule that could cut off federal aid for college programs if their graduates do not earn enough after leaving school.
In Washington, the department said the new Student Tuition and Transparency System and Earnings Accountability rule is meant to hold colleges and universities accountable for low-earning programs and to give students clearer information about whether a program is likely to pay off.
What does the new rule do?
The rule creates a new postsecondary accountability system for most programs that take part in federal student aid. The department says nearly all programs and sectors will be covered, regardless of tax status or credential level.
Under the new standard, undergraduate programs must show that their graduates earn more than the typical high school diploma holder. Graduate programs must show that their graduates earn more than the typical person with a bachelor’s degree.
The department says this new test is meant to line up with existing federal accountability rules, including Financial Value Transparency and Gainful Employment requirements, and with the earnings standard in the Working Families Tax Cuts Act.
How will the department measure earnings?
The regulations say schools will have to report program-level and some student-level information to the department, including tuition, fees, and financial aid awards such as grants and scholarships.
The department will then use earnings data from at least one federal agency. The rules say the data will include students who are working and not enrolled during the year used to measure earnings.
That is the basic idea behind the new test: if a program brings in federal aid, the government will compare what students pay, what aid they get, and what they earn after they finish.
What happens if a program fails?
A program that fails the earnings test in two out of three consecutive award years — the federal aid years used for the measure — will lose eligibility for the Direct Loan program.
If a program keeps failing for three years, the Education Department says it could also end Title IV eligibility for all of an institution’s low-earning outcome programs. Title IV includes Pell Grants and federal student loans.
Under Secretary Nicholas Kent said in NPR’s reporting that, “If a program cannot show that it leaves its graduates financially better off than if they had never enrolled, it should not be underwritten by federal taxpayers.”
Are any programs exempt?
The department says it will delay consequences for some programs that train students for jobs where most workers receive tipped income. The department said that delay is so it can use earnings data from tax years when the “No Tax on Tips” policy is in effect, starting with the 2026 tax year.
The rule also exempts schools that have not participated in the Direct Loan program for the five most recently completed award years.
Another exemption applies to institutions that exclusively serve people with documented disabilities.
When does this take effect?
The department said the final rule will be on public inspection in the Federal Register on June 30, 2026, and published on July 1.
NPR reported that the department said it will begin calculating the first year of graduate earnings in early 2027, and that some programs could first be labeled low-earning outcome programs in the 2028-29 financial aid award year.
For students, the practical effect is that federal aid will be tied more closely to whether a program helps graduates earn more than people with less education. For colleges and universities, the rule adds a new layer of reporting and a clear financial risk if too many programs fall short.
