WASHINGTON, July 21 (DC Times Online) — The U.S. Department of Education has issued a final rule that could cut off federal student aid to college programs whose graduates do not earn enough, a major change in how Washington measures whether degrees and certificates are paying off.
The regulation creates a new accountability system called the Student Tuition and Transparency System, or STATS, and an earnings test that the department says will apply to nearly all programs and sectors. In practical terms, colleges and universities will have to show that students in covered programs leave school with earnings above a federal benchmark.
What does the rule require?
Under the new standard, undergraduate programs must show that their graduates earn more than the typical person with only a high school diploma. Graduate programs must show that their graduates earn more than the typical person with a bachelor’s degree.
The department says the rule is meant to line up new and existing earnings-accountability systems, including the Financial Value Transparency and Gainful Employment rules. The goal is to use one common earnings measure across public, private nonprofit, and for-profit schools, and across different types of credentials.
What happens if a program fails?
The final rule says a program that fails the earnings test in two out of three consecutive award years will lose eligibility for the federal Direct Loan program. That means students in that program could no longer use federal loans to help pay for it.
If a school continues to fail the earnings test for three years, the department says it could also end Title IV eligibility for all of the institution’s low-earning outcome programs. Title IV is the part of federal law that governs most federal student aid, including Pell Grants.
The department also says it will not automatically strip Title IV eligibility from an institution if the school has not participated in the Direct Loan program in the five most recently completed award years. Another exemption applies to institutions that exclusively serve people with documented disabilities.
Which programs are covered?
The department says the framework is broad and is not limited to one kind of school. It is intended to cover nearly all programs and sectors, regardless of tax status or credential level.
That means the rule can apply to short-term certificate programs, undergraduate degrees, and graduate programs alike. The department’s view is that federal aid should support programs that leave graduates financially better off than if they had not enrolled.
Undersecretary Nicholas Kent said in remarks reported by NPR 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.”
What information will colleges have to report?
The regulatory text says institutions will need to report program-level and some student-level information, including tuition, fees, and financial aid awards such as grants and scholarships.
The rules also say the Education Department will obtain earnings data from at least one federal agency. That data will include students who are working and not enrolled during the earnings-measurement year.
How does this affect tipped jobs?
The department says it will delay program-eligibility consequences for some programs that prepare students for jobs where most workers receive tipped income. The purpose is to make sure the department is using earnings data from tax years when the “No Tax on Tips” policy is in effect, beginning with the 2026 tax year.
When does it start?
The department said the final rule will be on public inspection in the Federal Register on June 30, 2026, and published on July 1, 2026.
NPR reported that the department said it would 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 and families, the practical effect is simple: programs that do not show strong earnings outcomes could become harder to finance with federal aid. For colleges, the rule creates a new federal test for program value, one that focuses on graduates’ pay rather than enrollment alone.
