U.S. Education Department Finalizes Earnings-Based Rule That Could Cut Federal Aid for Low-Paying Programs

The U.S. Department of Education on Monday finalized a sweeping new accountability system for college programs that ties access to federal student loans to graduates’ earnings, a major expansion of federal oversight that reaches far beyond the narrower gainful-employment rules of the past.

Under the new framework, called the Student Tuition and Transparency System, or STATS, and Earnings Accountability, undergraduate programs must show that their graduates typically earn more than a typical high school diploma holder. Graduate programs must show that their graduates typically earn more than a typical bachelor’s degree holder. The rule implements 2025 statutory changes to federal student aid law requiring a new earnings-based test for programs.

The consequences are significant. The Education Department said a program that fails the earnings test in two out of three consecutive award years will lose eligibility for the federal Direct Loan program, a core source of student aid. After three years of consistently failing the earnings-premium measure, the department said it could also terminate Title IV eligibility — the federal student aid category that includes Pell Grants and loans — for all of an institution’s low-earning outcome programs.

That marks a broad shift in federal policy. Earlier gainful-employment accountability rules were more limited and historically focused on certain nondegree and for-profit programs. The new STATS framework, the department said, applies to nearly all programs and sectors regardless of tax status or credential level by aligning the new earnings standard with the department’s existing Financial Value Transparency and Gainful Employment rules.

The department cast the rule as a taxpayer-protection measure tied to concern about the federal student loan portfolio, which it said totals $1.7 trillion. “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,” Under Secretary of Education Nicholas Kent said in a press release announcing the rule.

Because Direct Loans and Pell Grants are central to how many students finance college, losing eligibility could sharply affect enrollment and program finances. That gives the rule consequences well beyond disclosure: It creates a direct federal sanction for programs whose graduates repeatedly fail to clear the earnings benchmarks.

The final rule also includes a delay for some programs tied to tipped-income occupations. The department said eligibility consequences for those programs will be delayed by at least one year so it can use earnings data from tax years after the “No Tax on Tips” policy takes effect, which the agency said begins with the 2026 tax year.

The rule also creates some exemptions. Institutions that do not currently participate in the Direct Loan program and have not participated for the five most recently completed award years are exempt from automatic loss of Title IV eligibility. Institutions that exclusively serve individuals with documented disabilities are exempt from program-eligibility consequences.

The department said the rule emerged from a negotiated-rulemaking process in which the AHEAD committee reached consensus in January 2026. It published a proposed rule on April 20 and said it received nearly 10,000 comments.

The agency said the final rule would go on public inspection the day after Monday’s announcement and be published in the Federal Register on July 1. As with any federal regulation, the Federal Register version will be the definitive legal text, and the precise technical details of implementation are best confirmed there.