WASHINGTON, July 21 (DC Times Online) — The U.S. Department of Education has finalized a rule in Washington that ties federal student aid to whether college programs leave graduates with enough earnings to clear a new benchmark.
The new framework is called the Student Tuition and Transparency System, or STATS, and the Earnings Accountability rule. The department says it will apply to nearly all programs and sectors that participate in federal aid, regardless of tax status or credential level.
How the earnings test works
For undergraduate programs, the department says graduates must earn more than the typical person with only a high school diploma.
For graduate programs, the benchmark is higher: graduates must earn more than the typical person with a bachelor’s degree.
The rule focuses on earnings outcomes, not just enrollment or completion. In the department’s view, federal aid should support programs that help students come out ahead financially.
What happens if a program falls short
A program that fails the earnings test in two of three straight award years can lose access to the federal Direct Loan program, according to the final rule. An award year is the federal student aid cycle.
If the weak results continue for three years, the department says it could go further and end Title IV eligibility for all of an institution’s low-earning outcome programs. Title IV is the part of federal higher education law that covers major aid programs, including Pell Grants and Direct Loans.
Who is exempt
The department says two groups are exempt from automatic loss of Title IV eligibility:
- institutions that have not participated in the Direct Loan program for the five most recently completed award years
- institutions that exclusively serve people with documented disabilities
The department also said it will delay consequences for some programs that prepare students for jobs where most workers receive tipped income. That delay is meant to let the department use earnings data from years when the “No Tax on Tips” policy is in effect, starting with the 2026 tax year.
What schools must report
The regulations say schools will have to provide program-level and certain student-level data, including tuition, fees, and financial aid awards such as grants and scholarships.
The department says it will use earnings data from at least one federal agency. It will also count students who are working but not enrolled during the earnings-measurement year.
Why the department says it made the change
The department says the new rule is meant to line up newer earnings standards with existing Financial Value Transparency and Gainful Employment rules.
For students, the practical effect is that a program’s access to federal aid will increasingly depend on whether its graduates’ earnings clear the new test. For colleges and universities, the rule adds a new reporting burden and the risk of losing aid eligibility if too many programs keep producing low earnings over time.
