U.S. Department of Education sets earnings accountability rule for college programs

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Education earnings accountability rule

Highlights

U.S. Department of Education finalizes STATS and Earnings Accountability rule, tying federal aid to programs whose graduates earn above typical diploma holders, with loss of federal Direct Loan access after repeated failures.
Implementation delays for programs with tipped-income occupations push compliance requirements to begin with 2026 tax year, creating at least a one-year postponement for those sectors.
Exemptions include institutions not participating in Direct Loan programs for five years, programs amended to halt Direct Loan borrowing, and schools serving only individuals with federally defined documented disabilities.

Rule ties federal aid to graduate earnings

As announced by the U.S. Department of Education, the final Student Tuition and Transparency System, or STATS, and Earnings Accountability rule requires undergraduate programs to show that graduates earn more than the typical high school diploma holder, while graduate programs must show earnings above the typical bachelor's degree holder.

If a program fails that earnings test in two of three consecutive award years, it loses eligibility for the federal Direct Loan program. After three years of consistent failure, the Department can also end Title IV eligibility, including Pell Grant access, for all of an institution's low-earning outcome programs.

The rule also aligns the new earnings standard in President Trump's Working Families Tax Cuts Act with the Department's existing Financial Value Transparency and Gainful Employment regulations. Under Secretary of Education Nicholas Kent says the administration is seeking to lower higher education costs and hold all institutions accountable for weak earnings outcomes as default and delinquency pressures persist in the $1.7 trillion federal student loan portfolio.

Implementation delays and sector-wide implications

The Department says some provisions are delayed for programs that prepare students for occupations where most workers receive tipped income. That adjustment is intended to use reported earnings from tax years when the "No Tax on Tips" policy is in effect, beginning with the 2026 tax year, resulting in at least a one-year delay for affected programs.

The final rule also creates several exemptions. Institutions that do not currently participate in the Direct Loan program and have not done so for the five most recently completed award years are exempt from automatic loss of Title IV eligibility, and programs can avoid automatic Title IV loss if schools and the Department amend participation agreements to stop Direct Loan borrowing for at least five years while the program has not yet been determined to be low earning.

Institutions that exclusively serve individuals with documented disabilities, as defined under federal regulation 34 CFR 300.8, are also exempt from the program eligibility consequences. The rule is the third and final package authorized by the Working Families Tax Cuts Act, which President Trump signed on July 4, 2025, and it follows public hearings, negotiated rulemaking in January 2026, and nearly 10,000 public comments after the proposed rule was published in April 2026.

The final rule is on public inspection in the Federal Register on June 30 and is published on July 1, 2026.

Our earlier article covered the U.S. Justice Department’s expanding legal challenge to state laws that grant in-state tuition rates and, in some cases, financial aid to undocumented residents. The complaints against Massachusetts and Rhode Island are part of a wider nationwide campaign arguing that these benefits conflict with federal law and disadvantage U.S. citizens.

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