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 their programs do not show strong enough earnings for graduates.
The new framework, called the Student Tuition and Transparency System, or STATS, is meant to cover nearly all postsecondary programs that receive federal student aid. In practical terms, it tells colleges that the value of a degree or certificate will now be judged, in part, by what graduates earn after they leave school.
How the new earnings test works
The rule sets different benchmarks for different kinds of programs.
Undergraduate programs must show that their graduates earn more than a typical high school diploma holder. Graduate programs must show that their graduates earn more than a typical bachelor’s degree holder.
The Education Department says this is an earnings-premium test. The idea is to measure whether a program helps students move up economically, not just whether students finish the program.
What happens if a program fails
If a program fails the earnings test in two out of three straight award years, the department says it will lose eligibility for the federal Direct Loan program.
If weak results continue 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 part of federal law that governs most federal student aid, including Pell Grants.
The department says these consequences are meant to pressure schools to improve programs that leave students with poor job outcomes.
Who is covered
The department says the rule applies to nearly all programs and sectors, regardless of tax status or credential level.
That means the framework is not limited to for-profit colleges. It is designed to reach a broad range of colleges, universities and short-term programs that participate in federal aid and Direct Loans.
What colleges must report
To make the system work, the regulations say schools will have to report program-level and some student-level data to the department.
That includes tuition, fees and financial aid awards such as grants and scholarships.
The department says earnings data will come from at least one federal agency. The measurement will include students who are working and not enrolled during the earnings-measurement year.
Which programs get exceptions
The department says it will delay penalties for programs that prepare students for jobs where most workers receive tipped income. That delay is meant to allow the department to use earnings data from tax years when the “No Tax on Tips” policy is in effect, starting with the 2026 tax year.
The rule also exempts some institutions from automatic loss of Title IV eligibility. That includes schools that have not participated in the Direct Loan program during the five most recently completed award years.
Institutions that exclusively serve people with documented disabilities are also exempt.
Why the department says it did this
The department says the final rule is meant to bring together new and existing accountability systems. It links the new earnings standard in the Working Families Tax Cuts Act with the department’s Financial Value Transparency and Gainful Employment rules.
In other words, the federal government is trying to use one main earnings test across most of higher education, instead of having separate rules for different kinds of programs.
What happens next
The department says the final rule will be on public inspection in the Federal Register on June 30 and published on July 1.
NPR reported that the department said it would begin calculating the first year of graduate earnings in early 2027, and that some programs could be labeled low-earning outcome programs beginning in the 2028-29 financial aid award year.
