Education Department Proposes 'Earnings Premium' Test to Cut Federal Loans for Low‑Earning Programs

The U.S. Department of Education has proposed a new rule that would cut off federal student loans for college programs whose graduates repeatedly have low earnings, a significant overhaul of how Washington polices the value of higher education programs.

The proposal, issued Friday as a Notice of Proposed Rulemaking, would replace the current debt-to-earnings approach with what the department calls an “earnings premium” test. It would apply across Title IV-eligible postsecondary programs — including certificate, undergraduate and graduate programs — and would open a 30-day public comment period ending May 20 through regulations.gov. The proposal is scheduled for publication in the Federal Register on April 20.

The department said the new accountability framework is intended to break what it described as “low return on investment” cycles for students and taxpayers. In the proposed rule, the department said it would “replace the former debt-to-earnings (‘D/E’) metric with a revised earnings premium measure.” In a press release, Under Secretary of Education Nicholas Kent said that “if postsecondary education programs do not leave graduates better off, taxpayers should not subsidize them.”

Under the proposal, the education secretary would judge a program using the median annual earnings of students who completed it during the cohort period, measured in the fourth tax year after completion. Those earnings figures would come from “a Federal agency with earnings data,” according to the proposal. The department would then compare the results with thresholds derived from Census Bureau data on the earnings of working adults ages 25 to 34.

A program that fails the earnings-premium measure in two out of any three consecutive award years would be labeled a “low-earning outcome program” and would lose eligibility for the William D. Ford Direct Loan program, the federal government’s main student loan program. Because Direct Loans are a major source of college financing, that sanction could sharply affect a program’s ability to enroll students. The proposal includes limited extensions intended to allow for orderly closure.

The rule would also impose consequences beyond the program level. Institutions would be required to warn students and disclose students’ remaining Pell Grant lifetime eligibility. Pell Grants are federal aid for low-income students, and lifetime eligibility is capped. The proposal would also add a new administrative capability standard for colleges. If at least half of an institution’s Title IV recipients and half of its Title IV funds come from low-earning programs, the institution could be placed on provisional status and face loss of Title IV eligibility for those programs. Title IV is the section of federal law that governs student aid programs, including Direct Loans and Pell Grants.

The proposal would pair the earnings test with a new reporting and disclosure system called the Student Tuition and Transparency System, or STATS. Under STATS, colleges would have to report program-level information including tuition, fees, and total grants and scholarships students receive during enrollment from federal, state, private or other sources. The department said it would use that reporting to expand net-price and student outcomes disclosures.

In its economic analysis, the department estimated that about 5.1% of programs would fail under the proposed framework, compared with 4.6% under current rules. By enrollment, however, it estimated that 4.4% of students would be in failing programs under the proposal, compared with 4.7% under the existing framework.

The proposal would revise the accountability system created by the department’s 2023 Gainful Employment and Financial Value Transparency rule, which used debt-to-earnings metrics. The department said the new proposal reflects consensus language from the AHEAD negotiated rulemaking committee, which it said reached consensus Jan. 9. The NPRM says it is implementing statutory changes from a 2025 reconciliation law it identifies as the “One Big Beautiful Bill Act,” signed July 4, 2025, while the department’s press release refers to the “Working Families Tax Cuts Act.”