WASHINGTON, July 21 (DC Times Online) — The U.S. Department of Education has finalized a rule that can cut off federal student aid to college programs whose graduates do not earn enough after leaving school.
The department says the new Student Tuition and Transparency System, or STATS, and Earnings Accountability rule is meant to help students and taxpayers see which programs pay off and which do not. It applies to nearly all postsecondary programs and sectors that take part in federal student aid.
What the new rule does
At the center of the rule is an earnings test. 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 it will use earnings data from at least one federal agency. Schools will also have to report program-level and some student-level information, including tuition, fees, and aid such as grants and scholarships.
In plain terms, the rule is meant to measure whether a program leaves students better off financially than if they had not enrolled.
What happens if a program fails
A program that fails the earnings-premium test in two of three consecutive award years can lose access to the federal Direct Loan program. An award year is the 12-month period the federal aid system uses for many student-aid calculations.
If a program keeps failing for three years, the department says it could also end Title IV eligibility for an institution’s low-earning outcome programs. Title IV is the section of federal higher-education law that covers most federal student aid. That can include Pell Grant eligibility.
Direct Loans are federal student loans. Pell Grants are need-based aid that students generally do not have to repay.
Who is exempt
The rule includes some exceptions. An institution is exempt from automatic loss of Title IV eligibility if it has not participated in the Direct Loan program during the five most recently completed award years. Schools that exclusively serve people with documented disabilities are also exempt.
The department also says it will delay consequences for some programs that prepare students for jobs where most workers receive tipped income. The delay is meant to let the department use earnings data from tax years when the “No Tax on Tips” policy is in effect, starting with the 2026 tax year.
Why the department says it matters
The Education Department says the final rule is meant to bring new and existing earnings-accountability rules into line, including the earnings standard in the Working Families Tax Cuts Act and existing Financial Value Transparency and Gainful Employment rules.
The department said the final rule will be on public inspection in the Federal Register on June 30 and published on July 1.
For students and families, the practical effect is that program choice may carry more risk. A school or program that does not show strong earnings outcomes could lose access to federal loans, grants, or both, depending on how long it keeps missing the standard.