Education Department finalizes earnings test that could block federal loans for low-earning programs

The Education Department has finalized a new federal earnings test for college programs. Under the Student Tuition and Transparency System, or STATS, undergraduate programs must show their graduates earn more than the typical high school diploma holder, while graduate programs must beat the typical bachelor’s degree benchmark.

Most of the rule is set to take effect on July 1, 2027, though the department says some reporting changes can be implemented early beginning July 1, 2026. The department’s implementation timeline says the first earnings test would be calculated in early 2027, July 1, 2027 is the first year a program could fail, and July 1, 2028 is the first date a program could lose access to federal student loans.

Programs that fail the earnings measure in two out of any three consecutive award years become low-earning outcome programs and can lose Direct Loan eligibility. The department also says longer-term repeat failures could lead to broader Title IV consequences, including Pell Grant eligibility, for low-earning programs.

The rule includes a narrow delay for programs that prepare students for tipped-income occupations, giving them at least one extra year before eligibility consequences begin so the department can use earnings data from tax year 2026 and later. For students and families, the main takeaway is that federal aid risk now tracks graduate earnings more directly, so colleges will have to review weak programs before the penalties start.

Sources

• U.S. Department of Education press release on final earnings rule
• Federal Student Aid / Federal Register publication record
• Reuters report syndicated by Investing.com on the final rule
• Washington Post education report on schools facing aid cuts
• Inside Higher Ed explainer on the federal earnings test