A new earnings test has emerged. Is your school in trouble?

From certificates to doctorates, academic programs could soon lose financial aid eligibility if graduates fail to earn more than adults with a lesser credential.

A new earnings test for postsecondary programs reached consensus among federal, state college and accreditation leaders heading the Department of Education’s latest rulemaking session on the One Big Beautiful Bill Act.

According to the proposed regulations, undergraduate programs must demonstrate that their graduates earn more, on average, than other adults with a high school diploma. Similarly, graduate programs must exhibit higher earnings than undergraduate programs in a similar field of study.

A program that fails the test in two out of three years would lose access to Federal Direct Loans. About 2% of all associate’s and bachelor’s degree programs would fail, according to The HEA Group, a research and consulting firm.

More on student earnings: Despite debt, completing college is worth its value

Programs that lose loan eligibility can be stripped of all Title IV funding, including Pell Grant eligibility, if they make up half of an institution’s enrolled Title IV students or half of the total Title IV funds in two out of three consecutive years.

“This is something that I’m certain is going to be a net positive for any student pursuing higher education,” says Ben Cecil, deputy director of higher education policy at Third Way, a left-leaning think tank. “It’s a low bar for programs to clear, but the impact that it’s going to have on students and taxpayer investment in higher education is huge.”

Here’s a timeline on how the new earnings test could affect an institution, according to Third Way.

1. The Department of Education implements and calculates the earnings metric.
2. A program fails in the first year, triggering warnings to students that such programs could lose Title IV eligibility.
3. If the program fails again next year, it would lose direct loan eligibility and be classified as a low-earning program.
4. The department determines if 50% of the institution’s students or 50% of the institution’s Title IV revenue are involved in the program that lost loan eligibility. If that’s the case, the school goes on notice (but does not yet lose Title IV funds).
5. The following year, the Department of Education would repeat the test. If the institution does not meet one of those criteria, all programs classified as offering low earnings would lose Title IV eligibility.
6. Even if the program meets those criteria in year three, it can lose Title IV funding in year four.

Biden-era earnings tests are no more

The new earnings test draws from the “Do No Harm” provisions created by the One Big Beautiful Bill.

As a result, committee members agreed to eliminate earnings tests created by the Biden administration, chiefly Gainful Employment and Financial Value Transparency.

When the new earnings premium test will take effect

Because members of the rulemaking session reached consensus, the Department of Education must rely on the “agreed-upon language” when submitting the official earnings regulation by July 1, according to NASFAA. However, the earnings test will not be applied until July 2027.

According to this timeline, the first programs to fail the earnings test and be liable to lose access to loans for students would come as early as July 2028.