Education Department cuts loans for low-paying degrees

The U.S. Department of Education on June 29 finalized a rule that will cut off federal student loans for college programs whose graduates repeatedly earn less than benchmark workers with lower or comparable credentials, according to the agency and a Federal Register notice. The rule, called the Student Tuition and Transparency System, or STATS, and Earnings Accountability framework, applies to undergraduate and graduate programs across nearly all sectors. Programs that fail the earnings test in two of three consecutive award years lose access to the federal Direct Loan program, the department said. After three years of consistent failure, the department could also strip Title IV eligibility, including Pell Grants, from an institution’s low-earning programs. ### Which programs have to clear the new earnings bar? Under the final rule, undergraduate programs must show their graduates earn more than a typical high school diploma holder, while graduate programs must show graduates earn more than a typical bachelor’s degree holder, the department said. The agency said the framework aligns the new earnings standard in the Working Families Tax Cuts Act with existing financial value transparency and gainful-employment rules. (ed.gov) WPR reported that the department will compare graduates’ earnings four years after completion with median earnings for working adults ages 25 to 34 in the state where the college is located. A department presentation said the benchmark can vary by credential, geography and, in some cases, field of study, with program earnings drawn from federal income data and benchmark earnings from Census data. (ed.gov) ### How does a program actually lose federal loans? The department said a program that fails to show a “modest financial return on investment” in two out of three consecutive award years loses Direct Loan eligibility. The same June 29 announcement said three years of consistently failing the measure could trigger loss of broader Title IV eligibility for low-earning programs at the institution. (wpr.org) A January department presentation laid out the same enforcement structure for associate, bachelor’s and graduate programs. That document said the earnings test was created by the One Big Beautiful Bill Act, also referred to in federal materials as the Working Families Tax Cuts Act, which President Donald Trump signed on July 4, 2025. (ed.gov) ### Who is likely to be affected first? Wisconsin Public Radio reported that social work, early-childhood education, cosmetology and arts programs could be among the programs most exposed because their graduates often earn less early in their careers. WPR also cited 2022 median annual earnings of $41,800 for high school graduates ages 25 to 34 and $66,600 for bachelor’s degree holders in the same age group, using the most recent data available. (fsapartners.ed.gov) Milwaukee Institute of Art and Design President Jeffrey Morin told WPR that limiting loans based on future earnings potential raises broader questions about national priorities and quality of life. Under Secretary of Education Nicholas Kent, announcing the rule, said programs that do not leave graduates “financially better off” should not be financed by taxpayers. ### Why are critics tying this to the department’s wider restructuring? (wpr.org) Government Executive reported on August 5 that Senate Democrats and former Education Department officials from both parties warned that the administration’s transfer of special education and civil-rights functions to other agencies could erode expertise inside the department. Sen. Mazie Hirono said the moves were part of President Trump’s effort to dismantle the department, while Sen. Chris Van Hollen said other agencies lacked the expertise to handle the work being shifted. (wpr.org) That debate is separate from the loan rule, but it lands as the department is taking on a broader accountability role in higher education. The department has said the STATS rule will bring “uniform accountability” across the higher-education system and respond to rising default and delinquency in the federal student loan portfolio, which it put at $1.7 trillion. (govexec.com) ### When does the new policy start to bite? WPR reported that the changes are expected to take effect in 2027. The operative details are in the Education Department’s June 29 press release and the July 1 Federal Register posting for the STATS and Earnings Accountability rule, which set out the benchmarks, enforcement timeline and Title IV consequences. (wpr.org) (ed.gov)