New earnings test moves one step closer to reality

The Department of Education is eying a new regulation that the agency says will trigger a “hard reset” on the value of a degree.

On Friday, the department proposed a new rule that strips federal loan eligibility from undergraduate programs that fail to provide graduates with higher earnings than the typical high school graduate. Similarly, graduate programs must exhibit higher earnings than undergraduate programs in a similar field of study.

“This consensus-backed framework will drive meaningful change in postsecondary education, ending years of regulatory whiplash and addressing student debt that has left too many students worse off,” said Under Secretary of Education Nicholas Kent.

The proposal follows a five-day rulemaking session held in January that reached consensus among various federal, state, college and accreditation leaders. The framework was authorized by the One Big Beautiful Bill, signed last year.

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The earnings test will become effective as early as July, according to NASFAA. However, the department’s announcement did not outline a date. The proposal is open for a 30-day public comment period, which may influence the final regulation.

Here’s how the department would use the earnings test at a postsecondary institution with a failing program.

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 the 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.