A new federal proposal would tie student loan eligibility to
A new federal proposal would tie student loan eligibility to how much graduates earn after completing their programs. Courtesy Google Maps

The U.S. Department of Education published a sweeping Notice of Proposed Rulemaking on April 17 that would — for the first time in the history of federal higher education policy — hold every postsecondary program at every type of institution to a single earnings-based accountability standard, with the loss of federal student loan eligibility as the consequence for programs that fail.

The proposed rule, the third and final of three rules the Department has issued to implement the One Big Beautiful Bill Act signed July 4, 2025, is now open for public comment through May 20, 2026 at regulations.gov. The Department may modify the rule in response to comments before publishing a final rule, which is expected to take effect July 1, 2026.

This is one of the most consequential higher education policy proposals in decades. Students, faculty, and anyone considering enrolling in a college or university program should understand what it proposes — and what it does not.

The Core Mechanism: The Earnings Premium Test

Under the proposed rule, every postsecondary program — from an eight-week culinary certificate to a doctoral program — must pass what the Department calls an "earnings premium test." The test compares the median earnings of a program's graduates against a benchmark based on the education level of typical workers in the broader labor market.

For undergraduate degree programs, the median earnings of graduates must exceed the median earnings of working adults aged 25 to 34 with only a high school diploma. For graduate programs, graduates' median earnings must exceed those of working adults aged 25 to 34 with only a bachelor's degree.

If a program fails this test in two of three consecutive years, it loses eligibility for federal Direct Loans — meaning students enrolling in that program can no longer borrow federal money to pay for it. Programs that fail cannot simply restart under a new name; the rule includes provisions preventing institutions from enrolling new students in "substantially similar" programs for at least two award years following closure.

A second, more severe threshold applies to Pell Grants. If failing programs account for at least half of an institution's students receiving Title IV aid, or at least half of the institution's total Title IV funding, those programs also lose Pell Grant eligibility. This Pell Grant consequence requires the same two-of-three-year failure pattern before taking effect.

The earliest any program could lose Direct Loan eligibility is July 1, 2028 — because the first earnings calculations won't be published until July 1, 2027, and programs must fail in two of three years before losing access.

Why This Matters — and What Makes It Historic

Previous earnings-based accountability rules in federal higher education policy — most notably the Gainful Employment rule in various iterations under Obama and Biden — applied only to certificate programs and for-profit institutions. Nonprofit colleges and public universities offering bachelor's, master's, and doctoral degrees were largely exempt.

The proposed rule eliminates that distinction entirely. It applies the same earnings test to a cosmetology certificate at a for-profit school, a bachelor's degree in fine arts at a private nonprofit, a master's degree in religious studies at a public university, and a law degree at an elite institution. The rule's stated rationale is that taxpayer-funded federal student loans should not flow to programs that leave graduates financially worse off than if they had never attended.

As Under Secretary of Education Nicholas Kent stated in the press release: "If postsecondary education programs do not leave graduates better off, taxpayers should not subsidize them."

The Department notes that the existing debt-to-earnings metric from the Gainful Employment/Financial Value Transparency regulations has been eliminated as part of this rule, on the grounds that the new earnings premium test captures the same information without the duplicative burden.

Which Programs Are at Risk — and the Data Behind the Rule

The Department shared data analysis during the AHEAD Committee negotiations that gives a clearer picture of what the proposed rule would actually do in practice.

According to data presented by the negotiating committee: approximately 6% of all higher education programs are estimated to fail the earnings premium test. The failure rate is highly uneven across program types. Undergraduate certificate programs have the highest estimated failure rate — approximately 29% of certificate programs are projected to fail. Fields of study with the highest projected failure rates include Culinary Services, Cosmetology, Drama and Fine Arts, Religious Studies, and Alternative and Complementary Medicine.

By institution type, for-profit institutions have the highest estimated proportion of students enrolled in programs projected to fail — approximately 55% of for-profit students are in programs that would not pass the test. Public universities and private nonprofits have significantly lower failure rates, but they are not zero.

An earlier analysis by NASFAA noted that "only 2% of college degree programs" — as opposed to certificate programs — are at risk of failing the earnings test. The distinction between degree programs and certificate programs is significant: degree programs largely pass the threshold; shorter, vocational certificate programs are the primary area of concern.

How the Rule Was Developed — and Why It Has Rare Consensus

The rule emerged from the AHEAD (Accountability in Higher Education and Access through Demand-driven Workforce Pell) negotiated rulemaking committee, which concluded its second session on January 9, 2026. The committee included stakeholders representing students, legal aid and consumer protection organizations, institutions of higher education from all sectors, the business community, state agencies, and taxpayer advocates.

Crucially, the committee reached full consensus — meaning no committee member formally dissented from the final regulatory text. Only one member abstained: the representative of legal aid, consumer protection, and civil rights groups, who expressed concern about specific provisions but declined to block consensus after it became clear that doing so could weaken protections for students in undergraduate certificate programs.

The Institute for College Access & Success (TICAS), which represented student-focused interests in the negotiations, described the outcome in nuanced terms — noting that the framework retains much of the existing Financial Value Transparency data infrastructure under a new name (the Student Tuition and Transparency System, or STATS), and that the disclosure requirements that require programs to warn students when they are at risk of losing loan eligibility were strengthened during negotiations.

The Institute for Higher Education Policy (IHEP) described the new STATS framework as one that "will empower students to make more informed decisions about which program to pursue."

The New Reporting and Disclosure System (STATS)

Alongside the earnings accountability test, the proposed rule establishes the Student Tuition and Transparency System (STATS) — a renamed and modified version of the existing Financial Value Transparency reporting framework. Under STATS, institutions must report detailed program-level data to the Department by October 1, 2026, covering the two most recently completed award years. Reporting then continues annually each October 1.

The STATS data will form the basis of the Department's earnings premium calculations, which are expected to be published for the first time by July 1, 2027. Programs that appear at risk of losing eligibility will be required to notify current and prospective students with a warning indicating that the program has not passed the earnings premium metric and may lose access to Direct Loans.

What Students Should Do With This Information

For current students: the rule does not affect programs in which you are already enrolled. A "teach-out" provision ensures that students currently enrolled in a program that later loses eligibility can complete their degree or certificate — limited to the lesser of three years or the normal full-time program duration.

For prospective students: this is the moment to look carefully at College Scorecard earnings data for specific programs you are considering. The Department's data infrastructure already provides program-level earnings outcomes for graduates. Programs with earnings below the high school median for your field of study are the ones most likely to be affected by this rule if finalized.

For students considering certificates in culinary arts, cosmetology, fine arts, religious studies, or alternative health fields: these categories show the highest projected failure rates under the proposed rule and deserve particular scrutiny of their earnings outcomes data before enrollment.

Public comments on the proposed rule are open through May 20, 2026, and can be submitted at regulations.gov.