A new federal accountability rule signed into law last summer and finalized Monday ties access to federal student loans to whether graduates earn more than adults with only a high school diploma (undergraduate) or more than adults with a bachelor’s degree (gra
By Monday evening, the federal government had finalized a new rule meant to force college and career programs to answer a blunt question: after students leave, are they better off financially than they would have been with nothing more than a diploma?
Under the measure signed into law last summer and finalized Monday evening. all undergraduate programs will have to prove their graduates earn more than an adult with only a high school diploma in order to access federal student loans. For graduate-level programs, the benchmark shifts to whether graduates earn more than adults with a bachelor’s degree.
Rep. Tim Walberg, the Michigan Republican who chairs the House Education and Workforce Committee, called the final rule a turn in how federal dollars are handed out.
“Today’s final rule delivers on one of the most significant higher education accountability reforms in a generation,” Walberg said. “For too long. taxpayer dollars flowed to programs that left too many students worse off financially than if they had never enrolled in the first place. That is unacceptable for students, families, and taxpayers.”.
The earnings test is designed to measure outcomes over time. Undergraduate earnings are measured four years after graduates complete a program. A program that fails the test in at least two of three consecutive years will lose access to federal student loans for the next two years.
The rule itself runs 641 pages, and the department said it was largely unchanged from the version it initially proposed. Still, the final rule includes a delay for certain programs tied to tipped-income work.
The Trump administration delayed any penalty for programs “that prepare students for employment in occupations where a majority of workers receive tipped income.” The department plans to use earnings from tax years in which a new policy that doesn’t tax tips is in place. That policy begins in the 2026 tax year, which would delay any penalty for those programs by one year.
Representatives of cosmetology schools—an industry expected to see high failure rates—argued that the accountability measure was flawed because it didn’t take workers’ tips into account.
Department data released in April. when the proposal was opened for public comment. estimated that just over 825. 000 students were enrolled in programs that would fail the test during the 2024–25 award year. The department’s analysis also included additional information about how specific programs would fare. But the department cautioned that its estimates are just estimates because they don’t reflect all the data or methods that will be incorporated into the earnings test.
For policy advocates, the debate is already moving to the question of what counts as accountability.
Many policy experts and groups that advocate for students argue the earnings test sets a low bar for holding colleges responsible and for ensuring a positive return on investment. Others say it marks a major shift because the previous accountability measure—known as gainful employment—only applied to programs at for-profit institutions and undergraduate certificates.
The rule also creates another potential downstream effect: in some cases. institutions with programs that fail the earnings test could become ineligible for the Pell Grant. But officials say that penalty is expected to be rare because Pell ineligibility would only apply to institutions where students enrolled in failing programs make up at least half of the total population receiving federal aid.
There is also a key difference between what the government is trying to do now and what happened under earlier versions of gainful employment. No college program lost access to federal student aid under previous iterations of gainful employment. largely because the rules weren’t in place long enough for the Education Department to impose penalties.
Trump officials are hoping this time ends a 16-year cycle of back-and-forth over whether, and how, student outcomes should be used to hold programs accountable.
Under Secretary Nicholas Kent said in a statement that the administration’s approach is meant to change incentives across the higher education landscape.
“The Trump Administration is hitting the hard reset button on higher education and implementing commonsense reforms that will drive down the cost of higher education and hold all institutions. regardless of sector. accountable for low earnings outcomes. ” Kent said. “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.”.
As colleges and training providers work through the newly final rule. the department’s estimates and technical details remain closely watched by both reformers and critics. The Education Department plans to apply the earnings benchmarks using earnings data tied to the new tip-tax policy timeline for affected tipped-income occupations.
The department has already released data used to estimate the test’s impact, including information released in January and April. Six charts breaking down those estimated effects are described as part of the department’s materials released as the rule takes its final form.
For now, the central change is clear: access to federal student loans will be tied directly to whether graduates earn more than set benchmarks—measured years after students complete their programs—and programs that miss the mark repeatedly could lose federal aid eligibility for two years.
federal student loans earnings test higher education accountability gainful employment Pell Grant Tim Walberg Nicholas Kent cosmetology schools tipped income