U.S. Department of Education Issues Final Rule to Hold All Colleges and Universities Accountable for Low-Earning Programs

The U.S. Department of Education (“ED”) issued a final rule today on Student Tuition and Transparency System (STATS) and Earnings Accountability, creating a new accountability framework that replaces and expands the prior gainful employment rules and could have a significant impact on colleges and universities nationwide.

Gainful employment (“GE”) regulations have historically been used by ED to determine whether certain career-oriented programs provide sufficient economic value to students and should remain eligible for federal student aid. In general, those rules focused on programs that are required to prepare students for gainful employment in a recognized occupation, such as many proprietary school programs and certificate programs at public and nonprofit institutions. Prior eligibility consequences were tied largely to debt-to-earnings metrics for those gainful employment programs. For many nonprofit institutions, that meant the principal risk was limited to a relatively small number of certificate or other GE programs.

The new rule takes a broader approach. It eliminates the debt-to-earnings metric and replaces it with a revised earnings premium measure that can apply to nearly all Title IV eligible programs, including degree programs offered by nonprofit institutions. Instead of focusing on whether student debt falls within a particular ratio to earnings, ED will evaluate whether program completers earn enough compared to a benchmark population.

For undergraduate programs, that benchmark is generally the median earnings of working adults ages 25 to 34 with only a high school diploma in the state where the institution is located, unless the institution enrolls mostly out-of-state students. For graduate programs, ED will compare graduates’ earnings to bachelor’s-degree holders, using state-level and field-of-study comparisons where applicable. Programs that fail the earnings measure in two out of three consecutive award years may lose eligibility to participate in the federal Direct Loan program.

The rule also creates broader institutional risk. If low-earning programs account for too much of an institution’s Title IV activity, ED may treat that as an administrative capability failure. In that circumstance, the institution could be placed on provisional status, and its low-earning programs could lose access to broader Title IV funds, including Pell Grants.

The most significant change for many institutions is that this framework is not limited to traditional gainful employment programs. Under prior rules, many nonprofit institutions viewed the gainful employment regulations as a relatively narrow issue because most of their degree programs were treated as non-GE programs. The new rule changes that analysis. Programs that were previously treated as non-GE programs can now face direct loan-eligibility consequences based on graduate earnings.

The rule is generally scheduled to take effect on July 1, 2027, with certain Direct Loan provisions taking effect earlier. Prior efforts to regulate program outcomes in this area have been met with judicial challenges, and this rule may be no different. But institutions should not wait for that process to unfold before assessing their risk.

Colleges and universities should begin reviewing their program inventories now, with particular attention to lower-earning undergraduate programs and graduate programs that rely heavily on federal loans. For many institutions, the relevant question is no longer whether they have a limited gainful employment footprint. The question is whether each program can satisfy ED’s earnings accountability standard to maintain eligibility.

For more information, contact Jay Horton at jhorton@panzamaurer.com.