WASHINGTON, July 21 (DC Times Online) — The U.S. Department of Education in Washington has finalized a rule that could strip federal student aid from college programs whose graduates do not earn enough to clear a new earnings test.
The new framework, called the Student Tuition and Transparency System and Earnings Accountability rule, is meant to give the department a way to judge whether a program is paying off for students who borrow federal money.
How does the new test work?
Under the rule, 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 bachelor’s degree holder.
That means the department is using a relative earnings standard, not a single national salary cutoff. In other words, the question is whether a program leaves graduates better off than people with less schooling.
The department says the same general framework will apply to nearly all programs and sectors, regardless of whether a school is public, private, nonprofit or for-profit, and regardless of credential level.
What happens if a program fails?
If a program fails the earnings test in two out of three consecutive award years, it can lose access to the federal Direct Loan program.
Direct Loans are the federal student loans many students use to pay for college. Losing access to them can make a program harder to attend for students who need federal aid.
The department says the stakes get higher if poor results continue. After three years of consistent failure, the department could also end Title IV eligibility for all of an institution’s low-earning outcome programs. Title IV is the part of federal law that covers major aid programs, including Pell Grants.
What data will the department use?
The unofficial regulatory text says schools will have to report program-level and some student-level information, including tuition, fees, grants and scholarships. The department says earnings data will come from at least one federal agency and will include students who are working and not enrolled during the earnings-measurement year.
That matters because the rule is built around what graduates actually earn after leaving school, not just what they paid in tuition.
Are any schools or programs treated differently?
The department says the rule delays some consequences for programs that prepare students for jobs where most workers receive tipped income. That delay is intended to let the department use earnings data from tax years when the federal “No Tax on Tips” policy is in effect, beginning with the 2026 tax year.
The rule also exempts institutions that have not participated in the Direct Loan program for the five most recently completed award years. Schools that exclusively serve people with documented disabilities are also exempt from automatic loss of Title IV eligibility under the rule.
Why does this matter for students and families?
For students, the rule could affect whether a program remains eligible for the federal aid that makes college affordable. For families, it creates a new federal check on programs that may leave students with debt but weak earnings after graduation.
Under Secretary Nicholas Kent, an appointed department official, told NPR: “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.”
The Education Department said the final rule will be on public inspection in the Federal Register on June 30 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.
