Key Points
- The US Department of Education's new rule restricts federal student loans to degree programs with graduates who meet certain earnings thresholds.
- Degree programs in arts, social work, and cosmetology are expected to be most affected, with for-profit institutions likely to be hit the hardest.
- The rule aims to hold colleges accountable for leaving students worse off than if they never enrolled, but critics argue it falls short without stronger warnings for students in at-risk programs.
How the New Rule Affects Student Loans
The US Department of Education has introduced a new rule that restricts federal student loans to degree programs with graduates who meet certain earnings thresholds. This means that students in degree programs with low-earning outcomes, such as arts, social work, and cosmetology, may lose access to federal student loans.
The new rule aims to hold colleges accountable for leaving students worse off than if they never enrolled. However, critics argue that the rule falls short without stronger warnings for students in at-risk programs and without incorporating cumulative student loan debt into institutions' reporting.
At a Glance
| Department of Education | US Department of Education Issuing the new rule |
| Earnings Standard | One Big Beautiful Bill Act (OBBBA) Establishing the earnings accountability framework |
| Programs Affected | Arts, Social Work, Cosmetology Degree programs with low-earning outcomes |
| For-Profit Institutions | 35% Percentage of programs predicted to fail the earnings test |
Where the Sides Stand
Department of Education
Position: The new rule holds colleges accountable for leaving students worse off than if they never enrolled.
Role in the story: Issuing the new rule
Motivation: To protect students from taking on massive amounts of debt for degrees and certificates that lead to low-paying jobs.
Institute for Higher Education Policy
Position: The policy marks real progress toward a system that holds college programs accountable for their students' outcomes.
Role in the story: Commenting on the new rule
Motivation: To promote a system that gives students the information they need to choose wisely.
Behind the Earnings Accountability Framework
Behind the Earnings Accountability Framework
The earnings accountability framework restricts federal student loans to degree programs with graduates who meet certain earnings thresholds. The framework uses the median earnings of degree holders four years after they complete a program to determine whether a program is eligible for federal student loans.
The rule also includes exceptions for Pell Grant funding and delays for testing programs for tipped workers. However, critics argue that these exceptions are not sufficient to protect students from taking on massive amounts of debt for degrees and certificates that lead to low-paying jobs.
What Students and Schools Need to Know
What Students and Schools Need to Know
Students in degree programs with low-earning outcomes may lose access to federal student loans under the new rule. Schools with low-earning outcome programs will also lose all of their Title IV aid eligibility, including Pell Grants, if more than half of their aid recipients are enrolled in these programs.
Schools will receive a warning from the Department of Education after the first year that a program fails the earnings test. After receiving that warning, the school will have the option to remove the program from Direct Loan participation for at least five years, which will protect the program from losing Pell Grant funding.
Risk & Opportunity Assessment
| Commercial Risk | Medium | Schools with low-earning outcome programs may lose all of their Title IV aid eligibility, including Pell Grants |
| Competitive Risk | High | For-profit institutions are likely to be hit the hardest by the new rule |
| Regulatory Risk | Medium | The new rule may lead to changes in the way colleges and universities operate |
| Reputation Risk | Medium | The new rule may have a negative impact on the reputation of colleges and universities with low-earning outcome programs |
| Technology Disruption | Low | The new rule does not involve significant technological disruption |
| Commercial Opportunity | Low | The new rule does not create significant commercial opportunities |
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