WASHINGTON, July 21 (DC Times Online) — The U.S. Department of Education has issued a final rule that would make colleges and universities lose federal aid eligibility if too many of their programs leave graduates earning too little.
The new framework, called the Student Tuition and Transparency System and Earnings Accountability rule, is meant to make postsecondary programs answer for low earnings after graduation. The department said it will apply to nearly all programs and sectors that take part in federal student aid, regardless of whether a school is public, private, nonprofit or for-profit.
What the rule does
The rule sets an earnings test for programs. 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.
If a program fails that earnings test in two out of three straight award years, it can lose access to the federal Direct Loan program. If the failures continue for three years, the Education Department says it could also end Title IV eligibility for the institution’s low-earning programs. Title IV aid includes Pell Grants and federal student loans.
The department said the goal is to line up new and existing accountability rules, including its Financial Value Transparency and Gainful Employment regulations, with a new earnings standard in federal law.
How the measurement works
The unofficial regulatory text says schools will have to report program-level and some student-level information, including tuition, fees, and financial aid such as grants and scholarships. The department said it will use earnings data from at least one federal agency.
That earnings data will include students who are working and not enrolled during the year being measured. In other words, the system is built to look at what former students earn after they leave school, not just whether they finish a program.
Who is affected
The department said the rule covers almost all programs and sectors that participate in federal student aid. That means the rule is aimed broadly at colleges, universities, and many certificate programs, not just schools that have long been under closer federal scrutiny.
There are two main exceptions named by the department. First, an institution is exempt from automatic loss of Title IV eligibility if it has not taken part in the Direct Loan program for the five most recently completed award years. Second, schools that exclusively serve people with documented disabilities are exempt from the automatic Title IV penalty.
Special treatment for tipped-income jobs
The Education Department said it will delay program-eligibility consequences for some programs that prepare students for jobs in which most workers receive tipped income. The department said that delay is meant to let it use earnings data from tax years when the federal “No Tax on Tips” policy is in effect, beginning with the 2026 tax year.
When the rule takes effect
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. Secondary summaries of the rule differ on the exact effective date, but the federal register version will control the final timing.
The department has said the first year of graduate earnings will be calculated in early 2027, and some programs could first be labeled low-earning outcome programs in the 2028-2029 financial aid award year.
Why it matters
For students and families, the rule could change how schools talk about program value. For colleges, it creates a federal consequence if graduates do not earn enough to clear the benchmark set for that program type.
The department’s position is simple: if a program cannot show that it leaves graduates better off financially, it should not keep receiving federal taxpayer support.
