WASHINGTON, July 21 (DC Times Online) — The U.S. Department of Education said in Washington that it has issued a final rule that could cut off federal student aid to college programs if their graduates do not earn enough over time.
The new framework, called the Student Tuition and Transparency System and Earnings Accountability rule, or STATS, applies a federal earnings test to nearly all postsecondary programs. In plain terms, undergraduate programs must show that their graduates earn more than the typical person with only a high school diploma, and graduate programs must show that their graduates earn more than the typical person with a bachelor’s degree.
The department said the rule is meant to give students and taxpayers a clearer picture of whether a program pays off. It also said the new standard is meant to line up with existing Financial Value Transparency and Gainful Employment rules, along with a new earnings standard in the Working Families Tax Cuts Act.
How the earnings test works
Under the rule, a program that fails the earnings-premium measure in two out of three consecutive award years can lose eligibility for the federal Direct Loan program. Direct Loans are the federal student loans that many students use to help pay for college.
The department said the consequences can get tougher if the problems continue. After three years of repeatedly failing the earnings test, the department could end Title IV eligibility for an institution’s low-earning outcome programs. Title IV is the part of federal higher-education law that covers most federal student aid, including Pell Grants.
That means the rule is not just about reporting. It can affect whether a program can keep access to federal money.
What schools must report
The regulations say schools will have to report program-level data and some student-level data to the department. That includes tuition, fees, and financial aid awards such as grants and scholarships.
The department’s regulations also say earnings data will come from at least one federal agency. The earnings measure will include students who are working and not enrolled during the earnings-measurement year.
In effect, the department is trying to connect what a program costs with what its graduates actually earn after they leave.
Who is covered, and who is not
The department said the final rule will apply broadly across higher education, regardless of tax status or credential level. It also said it will delay penalties for some programs that prepare students for jobs where most workers receive tipped income, so it can use earnings data from tax years when the “No Tax on Tips” policy is in force, beginning with the 2026 tax year.
There are two main exemptions from automatic loss of Title IV eligibility. One applies to institutions that have not participated in the Direct Loan program for the five most recently completed award years. The other applies to institutions that exclusively serve people with documented disabilities.
What happens next
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. In a separate statement quoted by NPR, Under Secretary Nicholas Kent said, “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.”
The department also said it expects to 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.
For students, the rule could matter before they enroll and after they graduate. Schools will have to report more data, and programs that do not clear the earnings test may eventually lose access to the federal aid that helps many students pay tuition and fees.
