College Programs Could Lose Federal Student Loan Eligibility If Graduates Earn Too Little

College programs whose graduates repeatedly earn less than workers with lower levels of education could lose access to federal student loans under a new nationwide earnings test taking effect in 2027.

The U.S. Department of Education announced the final Student Tuition and Transparency System, known as STATS, and Earnings Accountability rule on June 29, 2026, and published it on July 1. The rule will apply an earnings standard across nearly all college programs participating in federal student aid, extending accountability requirements beyond the career programs historically covered by federal gainful employment rules.

Undergraduate programs generally must show that their typical graduates earn more than working adults ages 25 to 34 whose highest credential is a high school diploma or equivalent. Graduate programs are measured against workers with bachelor’s degrees, with the benchmark also accounting for the graduate program’s field of study.

The Department can use a state or national earnings threshold depending on where a school draws its students. Most programs will face an in-state benchmark, while institutions with at least half of their students coming from outside the state generally face a national comparison.

Programs that fail the earnings test in two of three consecutive award years become low-earning outcome programs and must stop participating in the federal Direct Loan Program for at least two years.

Federal Direct Loans are made to students, but the new eligibility test operates at the program level. A student could therefore attend a college that remains eligible for federal aid while being unable to use federal Direct Loans to enroll in one of its programs.

The Education Department will generally measure graduates’ earnings during the fourth tax year after they complete a program. The new earnings accountability system takes effect July 1, 2027, when it replaces the current Financial Value Transparency and Gainful Employment framework.

A school receives an initial warning when a program first fails the earnings measure. Another failure within the three-year window can cost the program its Direct Loan eligibility. Schools may also seek approval to stop admitting new students after the first failure while allowing students already enrolled to continue receiving aid long enough to finish their studies.

The rule implements an earnings accountability requirement Congress enacted in 2025. The Education Department says federal lending should support programs that leave graduates with better earnings prospects than workers who stopped at a lower level of education.

Department modeling found that failure rates could vary sharply by credential and field. Undergraduate certificate programs are more likely to fall below the benchmark, with fields including culinary services, cosmetology and other personal services among those facing greater exposure under the earnings measure.

The Department changed the final rule to measure earnings a year later than under the previous framework and to count working graduates, changes it said would reduce the number of programs expected to fail.

Critics warned during rulemaking that the earnings standard could put pressure on degrees leading to lower-paid careers, including education, social services and the arts. They argue that graduates’ wages can reflect labor market conditions and public-sector pay structures as much as the value of the education itself.

The Department rejected calls to abandon the earnings framework, maintaining that programs supported through federal lending should demonstrate an earnings benefit for graduates.

Consequences can extend beyond Direct Loans at institutions heavily concentrated in low-earning programs. Schools that also fail the rule’s federal administrative capability standard can eventually put additional Title IV aid, including Pell Grants, at risk for affected programs.

Implementation is already underway. On September 25, the Education Department said more than 1,900 institutions had failed to report or had underreported data required under the existing Financial Value Transparency and Gainful Employment system for the 2024 and 2025 reporting cycles.

The Department plans to publish draft and final statistics drawn from the existing system and STATS data in 2027, giving schools and prospective students their first broad look at how programs measure up before the new earnings accountability framework takes over on July 1.